Series 86/87

Series 86/87 is a test known as the Research Analyst Qualification Exam and is administered by the Financial Industry Regulatory Authority (FINRA). Professionals who pass the exam can function as research analysts for FINRA-member broker/dealers. Research analysts are primarily responsible for producing the content in research reports, and their names appear on the reports.

The Series 86/87 exam [also know the Research Analyst Qualification Examination (RS)] is actually two exams in one. The Series 86 (Part I) tests research analysis knowledge and contains 100 scored questions and an additional 10 unscored pretest questions. The Series 87 section (Part II) which tests Regulatory Administration and Best Practices, contains 50 questions and five additional unscored pretest questions. It focuses on industry rules. Candidates have a total of four-and-a-half hours to complete the Series 86. A score of 73% or better is required for passing. Candidates are given 1 hour and 45 minutes to complete the Series 87, which requires a score of 74% to pass.

Covered research analyst activities for those who have passed the Series 86/87 include preparation of written or electronic communications that analyze equity securities and/or companies and industry sectors. 

The exam requires a thorough knowledge of not only company analysis, but also industry analysis, management study and knowledge of broad supply and demand parameters for a given industry or sector. Financial metrics should be well-understood at this point, as well as earnings modeling methods and industry dynamics for the purposes of creating useful and accurate financial reports that will be used to educate and assist sales staff.

The analysis-focused Series 86 contains the following parts:

• Function 1: Information and Data Collection
• Function 2: Analysis, Modeling and Valuation

 The regulatory and best-practices-focused Series 87 contains the following parts:

• Function 3: Preparation of Research Reports
• Function 4: Dissemination of Information

Those who have already passed both Level I and Level II of the Chartered Financial Analyst (CFA) Exam, or both Level I and Level II of the Chartered Market Technician (CMT) Certification Examination, may request an exemption from the Series 86 portion only. For candidates without a CFA, they must first pass one of the following prerequisite tests: Series 7, Series 17, Series 37 or Series 38.

1. What registration and qualification requirements must supervisors of registered research analysts possess?

All registered FINRA research analysts must be supervised by a research principal who will be required, in addition to passing the General Securities Principal (Series 24), to also pass either Part II of the Research Analyst Exam-Regulation (Series 87) or the NYSE Supervisory Analyst Examination (Series 16).

2. Are "sell-side" equity analysts required to register as research analysts and pass the Series 86/87?

Yes. The registration and qualification requirements of Rule 1050 do not distinguish between "sell-side" and "buy-side" analysts. Any person who prepares written or electronic communications that includes an analysis of equity securities and sufficient information upon which to base an investment decision would be required to register as a research analyst.

3. Does NASD 1050 apply to everyone who works in equity research or just those who write a research report that will be seen by the public?

Rule 1050 applies to associated persons who prepare publicly disseminated research reports. Associated persons who prepare reports for use only by a member's sales force, money managers, or other employees of the firm, and who do not have reason to believe that the reports will be redistributed publicly, would not be subject to this rule.

4. Is a research analyst who is employed by a foreign broker/dealer affiliate of a FINRA member required to register pursuant to Rule 1050 if the member uses that analyst's research reports or distributes in the United States in accordance with SEC Rule 15a-6?

A "research analyst" employed by a non-member affiliate of a FINRA member is not required to register as a research analyst pursuant to Rule 1050 unless the research analyst is an "associated person" of the FINRA member as that term is defined in the FINRA By-Laws.

For more information, see the FINRA's Series 86/87 Content Outline, NYSE Rule 344 Research Analysis and Supervisory Analysts and NASD Rule 1050 Research Analysts. And for test-day logistics and protocols, see FINRA's On the Day of Your Exam.