Relief for Investment Bankers – New FINRA Rule Adopts Simplified Series Exam for Qualified Persons
On February 17, 2009, FINRA announced a new proposed category for investment banking professionals – Limited Representative-Investment Banking (“Series 79”). On April 13, 2009 the SEC issued an order approving the proposal. Pursuant to the original NASD Rule 1032, a person who functions as a registered representative must pass the General Securities Representative (Series 7) examination. The proposed rule, Rule 1032 (i), now modifies this requirement to allow certain individuals who qualify under the new limited representative category to take the Series 79 as a simpler alternative. The new Rule 1032(i) is intended to substantially condense the examination prerequisite for those individuals whose activities are limited to investment banking, and will likely become effect in late 2009 or early 2010. After weighing out the effects of this new initiative, the Commission believes that the rule change will allow FINRA members to more efficiently allocate resources in order to better train their specialized personnel, which ought to result in improved compliance by principals and the employees they supervise.
When this new rule becomes effective, investment bankers will no longer be required to take the extensive Series 7, which covers many aspects of securities regulation that are irrelevant to most investment bankers. As an alternative, bankers who intend to register with a registered broker-dealer will required to take a smaller test covering specific day-to-day functions that they will likely perform on the job, including:
- Public/Private Offerings: Advising on or facilitating debt or equity securities offerings through a private placement or public offering. Such services would include but not be limited to origination, underwriting, marketing, structuring, syndication, pricing, allocation and stabilization activities for such offerings. This definition includes those working on equity and debt capital markets and syndicate desks.
- Issuer Transactions: Advising on or facilitating mergers and acquisitions, tender offers, financial restructurings, asset sales, divestitures or other corporate reorganizations or business combination transactions. The scope of such covered activities includes but is not limited to rendering fairness, solvency and similar opinions. The Series 79 registration will not be available to persons whose investment banking work is limited to public (municipal) finance offerings.
Among those exempt from taking the Series 79 include those associated persons who perform functions that are limited to:
- Advising on or facilitating the placement of direct participation program securities (who would be instead required to take the Series 22); or
- Effecting sales of private placements (who would be instead required to take the Series 82)
The Alliance of Merger & Acquisition Advisors (AM&AA) has advocated for years the adoption of a more appropriate & simplified system of regulatory rules for the securities industry, with the primary goal of helping the lower middle market achieve compliance without hindering the protection of investors. As small-to-medium sized business make up 85% of the US GNP, they would not stand to benefit from a rigid regulatory system that may restrict their ability to use financial intermediaries by imposing difficult, overly broad pre-requisites such as the Series 7 exam. The AM&AA hopes that this new condensed, ‘function-focused’ exam will lessen the burden on smaller businesses while maintaining long-term investor confidence.
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We will be contacting FINRA to determine what information, if any, has been released on the Series 79 Exam, including: proposed content, exam topics, study guides, course offerings, fees, and timeline for required registration.
If you have any questions regarding the upcoming Series 79 exam, or would like to start a hedge fund, please feel free to contact us.
