What is a SPAC and should you care about it for the FINRA Series 79 exam?

SPACs have grown by leaps and bounds in recent years, and the growth is only accelerating. What will this mean for regulations and the Series 79 exam? Continue reading

It sounds like a securities-industry riddle: what do you call a blank check company with no hard assets that holds a multimillion dollar IPO? But the answer is very real: SPACs (special purposes acquisition companies) are an alternative to traditional IPOs that have exploded in popularity.

What’s a “blank check company?”  A blank check company is an exchange-listed shell company that, according to the SEC, has “no specific business plan or…its business plan is to engage in a merger or acquisition.”

The purpose of a SPAC is to raise money to acquire a privately held company. Think of it as crowdfunding on a massive scale. First, the SPAC sells shares of itself in an IPO. Then it uses the IPO proceeds to fund a merger between itself and a target company. When the merger is complete, the SPAC’s shareholders become shareholders in the target company. Investors buy SPAC shares based on their confidence that the SPAC’s management will complete the merger, and the anticipated value of the shares after the merger.

SPACs have grown by leaps and bounds in recent years, and the growth is only accelerating. The amount raised by SPAC IPOs in 2020 more than quadrupled the amount they raised in 2019. According to Reuters, the total value of SPAC mergers in 2021 has already exceeded the total size of SPAC mergers for all of 2020.

What does this mean for regulations?

As investor excitement around SPACs has heated up, there are indications that the SEC is beginning to take a closer look at this new kind of IPO. On March 10th, the SEC issued a warning against investing based on celebrity involvement with a SPAC. Celebrities with high-profile ties to SPACs include A-Rod, Shaquille O’Neal, Serena Williams, and former Speaker of the House Paul Ryan. Acting SEC Chair Allison Herren Lee recently warned of “more and more evidence on the risk side of the equation for SPACs as we see studies showing that their performance for most investors doesn’t match the hype.”

While none of this guarantees that new rules for SPACs are around the corner, it does make it more likely that FINRA’s Series 79 investment banking exam may begin to include mention of SPACs. They are a topic that investment bankers are increasingly likely to encounter in practice, and therefore are increasingly likely to be viewed as fair game for the exam.

Solomon Exam Prep is ahead of the curve with new material in our Series 79 Study Guide. Series 79 customers can find material on SPACs now included in the online edition of Solomon Study Guide.

Potentially testable points about SPACs include:
  • SPAC are formed by “sponsors,” commonly institutional investors or high net worth individuals, who are compensated with both a portion of the IPO proceeds, as well as an equity stake in the SPAC of up to 20%.
  • SPAC’s typically avoid committing to merge with a specific company, even if the SPAC was formed with the intention of targeting that company. The SPAC’s management may respond to changing market conditions by choosing a different target, subject to approval from the SPAC’s shareholders.
  • After a SPAC goes public, its shares trade freely on exchanges even before it completes a merger.
  • A SPAC must hold at least 85% of proceeds from its IPO in an escrow account.
  • The SPAC commits to return investor funds if it fails to complete a merger within a specified timeframe.
  • As a blank check company with no business operations of its own, a SPAC cannot take advantage of certain options available to more established securities issuers. For example, a SPAC is not permitted to make an electronic version of its road show presentation.

Solomon Exam Prep will continue to follow industry trends and how they affect your licensing exams.

Solomon Exam Prep has helped thousands pass their securities licensing exams, including the SIE and the Series 3, 6, 7, 14, 22, 24, 26, 27, 28, 50, 51, 52, 53, 54, 63, 65, 66, 79, 82 and 99.

Online Testing Now Available for the Series 3 Exam

For those planning to sit for the National Commodity Futures Exam, or Series 3, FINRA is now offering candidates the option to take the exam online via Prometric’s ProProctor platform. Continue reading

For those planning to sit for the National Commodity Futures Exam, or Series 3, FINRA is now offering candidates the option to take the exam online via Prometric’s ProProctor platform. 

Since mid-2020, FINRA has offered online delivery of certain securities exams via the ProProctor remote service, allowing you to choose where and when to take your exam.

The ProProctor platform features an easy-to-use interface and 24/7 proctor support for a smooth test-taking experience. But it’s a good idea to be aware of the technical and security requirements before sitting for your exam remotely. 

In addition to the Series 3 and other NFA exams, these exams can be taken online: the Securities Industry Essentials (SIE), Series 6, Series 7, Series 63, Series 65, and Series 66 exams. 

For detailed information about taking exams online, including technical and procedural specifications, visit FINRA’s information page: https://www.finra.org/registration-exams-ce/qualification-exams/testonline  

And to read a first-hand description of the remote testing experience, see this blog post from August 13, 2020: https://solomonexamprep.com/news/finra/know-what-to-expect-testing-online-with-proproctor-from-prometric/

SEC Overhauls Marketing Rules for Investment Advisers

On December 22, the SEC announced a major rule change that it hopes will clarify what investment advisers can and can’t do when it comes to marketing their services. Continue reading

On December 22, the SEC announced a major rule change that it hopes will clarify what investment advisers are permitted to do when it comes to marketing their services.

The SEC cited the need to adapt its rules to changing communications technology. “The marketing rule reflects important updates to the traditional advertising and solicitation regimes, which have not been amended for decades, despite our evolving financial markets and technology,” said SEC Chairman Jay Clayton in announcing the overhaul.

The SEC’s current rules about advertisements and paying for client referrals will be consolidated into a single rule. Paying a third party to solicit new clients will now be considered a form of advertising, as will paid testimonials and endorsements and some one-on-one communications with clients.

Currently, each of these activities is subject to a separate set of requirements. By bringing them under the definition of advertising, the new rule replaces this complex system with a set of six broad principles that all forms of IA advertising must adhere to:

  1. No untrue statements or omissions of material facts
  2. No unsubstantiated statements
  3. No statements that imply something untrue or misleading
  4. When the benefits of the IA’s services are discussed, there must be a fair and balanced discussion of material risks
  5. “Anti-cherry picking”: the IA must present its track record in a fair and balanced way
  6. No advertisements that are otherwise materially misleading (intended as a “catch-all provision” for misleading advertising not covered above)

The rule change is expected to take effect sometime in the spring of 2021 and will affect the Series 65 and Series 66 exams.

SEC Announces Major Revisions to Registration Exemptions Aimed at “Harmonizing” Regulation A Offerings, Regulation D Private Placements, and Crowdfunding

On November 2, the SEC announced a collection of rule changes meant to, in the announcement’s words, “harmonize, simplify, and improve” its “overly complex exempt offering framework.” Continue reading

On November 2, the SEC announced a collection of rule changes meant to, in the announcement’s words, “harmonize, simplify, and improve” its “overly complex exempt offering framework.” The changes affect Regulation A, which governs small public offerings; Regulation D, which governs private placements; and Regulation CF, which governs crowdfunding. This system of exemptions allows various small offerings to avoid the normal registration process required by the Securities Act.  
The rule changes should provide a clearer choice as to which exemption is most appropriate to an issuer, based on how much the issuer needs to raise and other factors.
The changes also seek to clarify how issuers can avoid “integration” of exempt offerings. Integration is the risk that exempt offerings will be considered a single offering by the SEC, because the offerings are too similar.
Highlights of the changes include:
  • If two exempt offerings are conducted more than 30 days apart, they are almost always protected from integration.
  • An issuer can “test the waters” with potential investors before deciding which exemption it will use for an offering. Test-the-waters communications solicit interest in a potential offering before the issuer has filed anything with the SEC. Previously, an issuer could only test the waters after deciding that its potential offering would take place under Regulation A.
  • Caps on the amount that may be raised through these exemptions have been increased:
    • Crowdfunding: from $1.07 million to $5 million
    • Regulation A, Tier 2: from $50 million to $75 million 
    • Regulation D, Rule 504: from $5 million to $10 million
  • Make “bad actor” exclusions more consistent across different exemptions.
The rule changes will take effect early next year. Until the changes take effect, securities exam questions will continue to be based on the old rules. FINRA Exams affected by these rule changes include the SIE, Series 6, Series 7, Series 14, Series 22, Series 24, Series 65, Series 66, Series 79, and Series 82.

Know What to Expect: Testing Online with ProProctor from Prometric

FINRA partner Prometric has developed ProProctor for online, remote test taking. Here are some takeaways about the process. Continue reading

Lucas Rumpeltes of Solomon Exam Prep passed the SIE Exam with ProProctor

In person licensing exams have been a staple in the securities industry for decades, but with the novel Coronavirus COVID-19, FINRA has been tasked with providing a safer method for testing. Given this, FINRA partner Prometric has developed a new product titled ProProctor for online, remote test taking. Prometric is a giant in the testing industry, and operates hundreds of testing centers.

With all this as the backdrop, one month ago I was tasked with studying for and taking the SIE as a junior associate at Solomon Exam Prep. Using the ProProctor product seemed like the most convenient way to take the exam, and proved easy enough. However, for the benefit of Solomon exam takers, I would like to share some takeaways about the process.

I registered for the test three weeks ahead of time on the Prometric website, and there were still many time slots available, but the most convenient ones had been taken. The most feasible slot for me ended up being at 7:45 AM, so if you prefer to test later in the day, register ahead of time!

I immediately received a confirmation email detailing all of the procedures that I would need to follow for test day. It was a lengthy email. This is due to Prometric’s desire to avoid cheating and duplication of the test, so they are rightfully cautious. The full procedures can be found in this PDF. That being said, there are a few procedures that are very important to understand ahead of time. First is your testing environment. Ideally one is able to test in a bare, white room, at a desk, with no decorations of any kind. However, this is not always possible, so it is helpful to have a bed sheet or tarp on hand to cover anything that your proctor determines to be unacceptable. Furthermore, you cannot have any interruptions during the test, so it is imperative to notify your office mates! Prometric also recommends having a mirror on hand for the check in process. Ultimately, this is simply for the purpose of inspecting your laptop keyboard/screen if you cannot remove your webcam, so a medium sized mirror is fine. The more easily you can position it in front of your screen the better (I did not take my own advice here and had a giant mirror, which was tough to position so that my proctor could see my keyboard).

Leading up to the exam day, you should do one of Prometric’s system readiness checks, test your microphone specifically, and download/install their application. On exam day, you will be asked to follow a unique web link that is in your confirmation email to launch your exam. Once there, you will input user specific information, and it will automatically launch the application. Be warned, once you launch the exam application, you cannot access any other settings or applications on your computer, so adjust your volume or microphone controls ahead of time. Once there, you will be asked to photograph yourself, take a picture of your photo ID, and you will be sent to the security proctor.

Ultimately two different proctors will communicate with you. The process for meeting with them is seamless, and they will answer any questions you may have. The first will conduct the security checks and you will have a webcam view of them. The security checks are detailed on the ProProctor website, as well as in the confirmation email, but here are a few tips. I wore pants with lots of pockets, which was a mistake. Wearing as few items of clothing as possible, with as few pockets as possible, is helpful because they will ask you to empty them. Additionally, they advise no jewelry. Ideally, the only things in the testing room are you, your photo ID, and your computer. There is nothing else allowed (with the exception of tests that have certified testing materials).

The security checks also include room checks, which necessitates either an external webcam or an easily portable laptop. The fewer furniture items in the room, the easier the check will be. Finally, the security proctor will detail their break policy. I did not use the break, and it should ultimately be seen as an emergency asset. The test time does not stop while you take it, and you will have to redo all security checks upon returning.

Once all of the security protocol is over with, your security proctor will pass you on to another proctor. The new proctor will greet you via the application chat, but you will not see them on screen. They will, however, see your video and hear your audio. Additionally, they prohibit you from speaking out loud during the exam. You may mouth or whisper the words, but they do not allow you to speak. Once the exam commences, it is straightforward. There is a calculator in the application, as well as a “scratch pad” where you may type things. Be warned, you may not go back to questions once you move on.

When I was taking the SIE, I felt confident once I got to this point, since I was mostly worried about complying with the security checks. However, there is protocol from Prometric should you be disconnected from the application for any reason. I was disconnected with just six questions left (!), so it would have been helpful to know this ahead of time. Needless to say, I panicked. Prometric recommends a wired internet connection for this reason, but I gambled with wifi. Ultimately this was not the reason I was disconnected (my internet connection was fine), but the application automatically closed and I was forced to consult the FAQ.

From here, Prometric recommended that I check my internet connection, wait three minutes, restart my computer, and relaunch the exam. This proved to be perfect advice, and I was readmitted to the system. I had to re-do the entire security check with a new set of proctors, but my test time was paused and my progress had been saved. I finished my last six questions without a hitch. In other words, if you are disconnected, do not panic and simply follow their directions on the FAQ. If the issue persists, they recommend that you contact support.

As with the in person exams, my preliminary results were shown at the conclusion of the exam, and I was free to continue with my work day. All in all, the process was relatively user-friendly, and well worth it since I was able to avoid going to a testing center.

New FINRA Guidance on Entertainment Expenses for Virtual Meetings

The use of virtual meetings and video conferencing has exploded in recent months. FINRA has responded with new guidance about how its limits on gifts and entertainment expenses apply in a world where business meetings often don’t take place in person.

When a firm hosts a traditional, in-person meeting with institutional investors or other broker-dealers, reasonable expenses associated with these meetings don’t count toward FINRA’s $100 limit on gifts. A common example is the refreshments provided to those in attendance.

But what if you’re courting a new institutional investor through a virtual meeting? Are you allowed to have food and beverages delivered to those attending the meeting without worrying about the $100 limit on gifts? FINRA says yes, as long as the expenses are reasonable. According to FINRA:

[W]here a member firm’s associated persons personally host an interactive virtual business entertainment event or meeting, FINRA would view the associated persons’ provision of reasonable amounts of food and beverage … during that virtual business entertainment or meeting as not being subject to the $100 gift limit.

In order to keep your virtual meetings in compliance with this guidance, the refreshments:

  • Cannot be so expensive “as to raise any question of propriety”
  • Must be intended to be consumed at the meeting, by the attendees
  • Cannot be conditioned on meeting a sales goal (for example, when meeting with associated persons of another broker-dealer, you can’t provide refreshments selectively to the high sellers)
  • Cannot be used as a cover for providing something that is actually a gift (for example, a bottle of champagne meant for the attendee to take home)

The Solomon Exam Prep team is always on the lookout for how current developments affect the securities industry. For more updates from our Industry News blog, use the subscribe form on this page.

FINRA and NASAA launch online testing service for six securities exams

FINRA and the NASAA are now offering Prometric’s ProProctor remote assessment service which allows you to choose where and when you take your security exam. This user-friendly testing platform Continue reading

FINRA and the NASAA are now offering Prometric’s ProProctor remote assessment service  which allows you to choose where and when you take your security exam. This user-friendly testing platform offers self-service capabilities, with live agents available at all times to offer support for candidates if required. 

ProProctor features advanced security measures to ensure the same safety standard is being met comparable to conventional test centers, guaranteeing a consistent and fair testing experience for all candidates. These advanced security measures include multiple ID authentication and facial detection checks, personal security checks, 100% live-monitoring, 360-degree environmental readiness checks, live security agents, proactive protocols such as device checks, as well as record and review functionalities.

Each test candidate is assigned three agents to ensure the exam is administered safely and securely, with a proctor present throughout the entire test.

In order to access Prometric’s ProProctor system, you must install an application on your laptop or desktop and perform a system check. 

It is important to note the following difference with exams at the traditional test center: online tests via ProProctor are forward-moving only. No flagging a question and returning to it. No changing your answer.

The online exams have an onscreen calculator, a virtual scratchpad to capture your notes digitally as well as highlight and strikethrough functionality, which allow you to mark through or bring attention to the portions of the displayed exam question. 

Test-takers and firms may schedule online test appointments for the following six exams: the  SIE, Series 6, Series 7, Series 63, Series 65, and Series 66.

To find out more about this exciting new testing option, go to FINRA’S information page or go to  Prometric’s ProProctor information page.

FINRA delays Online Testing Service

It was previously announced that FINRA and NASAA had been working to introduce an online testing service as an alternative to candidates taking their exam at traditional test centers, to be launched Continue reading

It was previously announced that FINRA and NASAA had been working to introduce an online testing service as an alternative to candidates taking their exam at traditional test centers, to be launched on May 24th.

FINRA has now announced that this service, which is currently in its pilot phase, requires further validation before it can be implemented and therefore will not be launched on May 24th as planned. This also means that there will be a delay in booking appointment times for the five exams that will be included in its initial launch, including the SIE, Series 6, Series 7, Series 63, and Series 66 exams.

FINRA has also updated policies for test candidates, extending enrollment windows that have either expired, or are due to expire between March 16th and June 30th, 2020. This includes all FINRA, NASAA and MSRB exam enrollment dates, with affected enrollment windows being systematically updated in CRD.

Prometric will continue to reopen test centers in accordance with local, state and federal regulations. You can check their Site Openings page, which is continually being updated. You can also read more about the Prometric policies to ensure candidate safety on their Covid-19 Update page.

If your Solomon Exam Prep materials are due to expire before June 1st, contact Customer Service on 503 601 0212 or by email at info@solomonexamprep.com for a complimentary extension until August 1st.

Masks and other new Prometric test centers requirements

Prometric has announced social distancing procedures with the re-opening of test centers. Test-takers must bring and wear a mask while at the test center. Anyone without a mask Continue reading

Prometric has announced social distancing procedures with the re-opening of test centers.  Test-takers must bring and wear a mask while at the test center.  Anyone without a mask will be denied entry and marked as a “no show.”

Other changes: 

  • Test takers will be required to stand on the ‘stand here’ sign or ‘X’ in place on the floor, designating a safe distance away from the test center employee.
  • Test takers will be seated in a manner that ensures distancing guidelines are satisfied during testing.
  • Monitoring of the test room will be done exclusively using existing DVR monitoring. Physical walk throughs will be waived unless there is adequate space to comply with local government distancing guidelines.
  • Return of scratch paper instead of dry erase boards.
  • Test center staff to clean all surfaces, including every workstation, admin desk, and proctor desk, between each test taker and at the start and end of each day.

For the full list of Prometric test center procedures and requirements, please click here.

You can also see a list of which test centers have reopened here.

Online testing service to be introduced

It has now been announced that FINRA and NASAA plan to implement a new remote testing service, which will allow exam candidates to take selected exams using a camera-equipped computer. Continue reading

Due to the COVID-19 pandemic, on March 17 Prometric closed its testing centers in the US and Canada, with these closures being extended until May 31st. It has now been announced that FINRA and NASAA plan to implement a new remote testing service, which will allow exam candidates to take selected exams using a camera-equipped computer. Exam testing will continue to be administered by Prometric, with their staff supervising the exams via video and online monitoring tools.

While this remote testing service is currently in its trial phase, FINRA plans to launch the service “in the near future” for selected exams, including the SIE, Series 6, Series 7, Series 63 and Series 66. It is expected that further exams will be included in the weeks following the launch of this innovative service.

Details will be available on FINRA’s COVID-19 information page from May 1st.  

Prometric also announced that it plans to resume testing at certain test centers on May 1st, with limited capacity to maintain safe social distancing protocols. Further information will be updated on the Prometric Coronavirus Update page.

Solomon Exam Prep is offering complimentary extensions for students who have Solomon study materials expiring before June 1st. Contact Customer Service at info@solomonexamprep.com or phone us on 503 601 0212 to have your Solomon study materials extended until August 1st.