Posted By Mark Sanchirico, Senior Editor and Instructor
Updated: July 28, 2017
UPDATE 10/12/17: An effective date for the new Securities Industry Essentials (SIE) Exam has been announced. Read more here.
FINRA, in conjunction with its annual conference held in Washington, DC last week brought clarification and more detail to its qualification exam restructuring proposal first announced at the Association of Registration Management, Inc. (ARM) conference held in March of this year.
Released as Notice to Members (NTM) 20-15 on Thursday May 28th, FINRA formally requested comment on a concept proposal to restructure the current representative-level qualification examination program into a format whereby all potential representative-level registrants would take a general knowledge examination and an appropriate specialized knowledge examination to reflect their particular registered role. The general knowledge examination would be known as the Securities Industry Essentials exam (SIE) and the respective specialized examinations will be referred to as Top-Off exams.
FINRA explained to attendees at its annual conference that the proposal was borne of a review conducted by FINRA over the past year having the following objectives:
FINRA believes the proposed SIE and Top-Off exam structure accomplish all of the above.
Individuals need not be associated with a FINRA member firm to be eligible to take the SIE. However, passing the SIE alone would not qualify an individual for registration with FINRA.
An individual who has passed the SIE would also need to pass the appropriate specialized knowledge examination (Top-Off exam) associated with the registration category pertaining to his or her job function to be eligible for registration with FINRA.
Member firms would continue to use the CRD system to request registrations for associated persons. For individuals not yet associated with a member firm FINRA is proposing to create an enrollment system that would allow such individuals to enroll and pay the SIE examination fees to be decided upon and finalized by FINRA later. This system would also be available to associated persons of member firms who are not required to be registered as representatives, but are asked by their firms to take the SIE.
Representative-level registration changes or additions -
If an individual’s job function changes after registration with a firm, and a new registration is required for an alternate or additional representative-level position, he or she would not need to pass the SIE again. Rather, the registered individual would need to pass only the appropriate specialized knowledge examination required for the additional or alternative representative-level position.
Expiration of SIE results -
Given the knowledge covered in the SIE is less likely to change than the content covered in the Top-Off exams FINRA proposes that a passing grade in the SIE be valid for four years. For example; Individuals not yet associated with a member firm would have up to four years after passing the SIE to become associated with a member firm AND pass a specialized knowledge Top-Off exam to register with FINRA. For those already associated with a member firm passing the SIE gives them up to four years to pass one of the Top-Off exams. And for those leaving the industry up to four years would be granted to re-associate with a member firm without having to pass the SEI again. However, if more than two years passes between the time an individual was last registered with FINRA as a representative and the date he or she wants to reregister as a representative, the individual would be required to pass an appropriate Top-Off examination to reregister with FINRA.
The SIE exam -
The SIE would assess basic product knowledge. FINRA has identified the following target areas for the SIE content; the structure and function of the securities industry markets, regulatory agencies and their functions; and regulated and prohibited practices.
To cover the target content areas a draft SIE content outline has been proposed containing four major topic areas:
I. Knowledge of Capital Markets - Focuses on topics such as types of markets and offerings, broker dealers and depositories, and economic cycles.
II. Understanding Products and Their Risks - covers securities products at a high level as well as associated investment risks.
III. Understanding Trading, Customer Accounts and Prohibited Activities - Focuses on accounts, orders, settlement and prohibited activities.
IV. Overview of the Regulatory Framework - encompasses topics such as SROs, registration requirements and specified conduct rules.
Multiple attempts -
Unsuccessful test takers will have to wait thirty days to retest. A third unsuccessful attempt will mandate a 180 day waiting period before one can test again. The proposed wait periods align with the current securities licensing examinations wait periods.
In order to qualify to register with FINRA an associated person of a member firm would need to take and pass the SIE and a specialized knowledge examination appropriate to the desired registration. As noted above, individuals must have passed the SIE within four years prior to passing the specialized exam and be associated with a member firm to be eligible to take any of the specialized Top-Off examinations.
Expiration of specialized knowledge exam (Top-Off) results –
Registrations will expire in two years from the time an associated person’s form U-5 is filed as is currently the norm for license expiration.
The specialized knowledge (Top-Off) exams –
FINRA is proposing new license specific Top-Off exams for the following registrations; the Series 6, Series 7, Series 22, Series 57, Series 79, Series 82, Series 86/87, and Series 99 representative level exams. FINRA offers the following table:
Current Registration Category (and CRD Designation)
|Scope of Activities||Current Examination(s)||Proposed Examination(s)|
|Investment Company and Variable Contracts Products Representative (IR)||No change||Series 6||SIE +Specialized|
|General Securities Representative (GS)||No change||Series 7||SIE + Specialized|
|Direct Participation Programs Representative (DR)||No change||Series 22||SIE + Specialized|
|Equity Trader (ET)||No change||Series 7 or Series|
62 + Series 55
|SIE + Specialized|
|Investment Banking Representative (IB)||No change||Series 79||SIE + Specialized|
|Investment Banking Representative (IB)||No change||Series 82||SIE + Specialized|
|Research Analyst (RS)||No change||Series 7 + Series 86|
(Part I: Analysis) +
(Part II: Regulatory
and Best Practices)
|SIE + Specialized|
(Part I: Analysis) +
Specialized Series 87
(Part II: Regulatory
While numbers of questions per exam have yet to be finalized, the new proposed specialized exams would likely be shorter than the current examinations they replace. As an example FINRA notes that the current Series 7 with 250 questions might contain 150 in the new Top-Off exam format.
FINRA hopes to implement the revised structure in two phases pending all approvals:
Phase I – Fourth Quarter, 2016 - The SIE and the specialized knowledge examinations for the Investment Company and Variable Contracts Products Representative (Series 6), the General Securities Representative (Series 7) and the Investment Banking Representative registration (Series 79) categories.
Phase II – First half of 2017 - The remaining specialized knowledge examinations for Direct Participation Programs Representative (Series 22), Equity Trader (Series 7 or Series 62 + Series 55), Private Securities Offerings Representative (Series 82), Research Analyst [(Series 7 + Series 86 (Part I: Analysis) + Series 87 (Part II: Regulatory Administration and Best Practices)], and Operations Professional (Series 99)
With these proposed implementation dates subject to approval and not beginning until late 2016 it’s important to note that those currently studying for any license should continue to do so and test as planned.
Current Examination Retirements–
FINRA’s study revealed that in recent years the utility of certain registrations diminished as a result of technological, regulatory and business practice changes Therefore FINRA proposes retiring the following limited use examinations and registrations; Series 42, Series 62 and Series 72. Individuals registered in any of these categories may maintain their registrations. If the individual terminates and remains so for two years, he or she would not be able to register in that category again and would have to take the appropriate general licensing exam covering those categories.
As the proposal process moves forward, Kaplan is committed to keeping you informed of new developments and details and will continue to assist you with all of your securities industry licensing exam preparation.
After identifying nine series exams with common content (6, 7, 22, 57, 79, 82, 86/87, 99), FINRA has decided to restructure their licensing process next year. The common content will be tested in the new Securities Industry Essentials (SIE) exam. Download this free guide to learn more about how the new securities licensing process will work, the rationale for the change, proposed SIE exam content, and how it could change hiring and recruiting practices.