Overview of Sales Representative Qualification Examinations, Etc.

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1 12th ASF Tokyo Round Table Overview of Sales Representative Qualification Examinations, Etc. November 28, 2016 (15:15 to 16:15) Noriaki Nakamura Assistant Manager Sales Representative Examination & Registration Division Japan Securities Dealers Association

2 Contents I. Systems for Qualification Exams & Registration of Sales Representatives (SRs) II. Types of SRs and Scopes of Qualification Exams III. Scope of Internal Administrator Qualification Exam IV. Conceptual Flow of Qualification Exams V. Verification of Qualification Exams VI. Training Program for Renewing SR Qualification VII. Number of Registered Sales Representatives & Registrations VIII. Implementation of Sales Representative Qualification Exam (for FY 2015) IX. Implementation of Internal Administrators Qualification Exam (for FY 2015) X. Implementation of Training Program for Renewal of Sales Representative Qualification(FY2015) 1

3 I. Systems for Qualification Exams & Registration of Sales Representatives (SRs) JSDA SR registration task (Administration entrusted by government) FIEA Application for SR registration Association members - Regular members: Securities companies - Specified business members - Special members: Banks, etc. Entrustment Financial instruments Intermediary service providers Conducting exams (Self regulatory operation) SR registration & qualification administration system SR registration, SR qualification(exam Results) Administration JSDA s Self Regulatory Rules Obtaining SR qualification (Pass SR qualification Exams) = Pre-requisite for SR registration Qualification renewal training (every 5 years) =Prerequisite for maintaining qualification as SRs Sales representatives (on behalf of association members) Duties of SRs (Solicitation, acceptance of orders, etc.) Customers 2

4 II. Types of SRs and Scopes of Qualification Exams 1.Regular (Securities Companies) Type of SR Class-1 SR:Covers the entire range of SR duties Class-2 SR:Mainly for cash market transactions Type of exam Class-1 SR Qualification Exam (Japanese/English) Class-2 SR Qualification Exam (Japanese/English) Scope of questions Business knowledge (margin transactions, derivatives transactions (including complex investment trusts & structured bonds similar to OTC derivatives transactions)) Business knowledge (equity, bonds, investment trusts) Knowledge of Laws and Regulations (laws such as FIEA, JSDA and TSE rules) Basic knowledge (basic knowledge about securities markets, the Joint-stock Company Act, economy/finance/public finance, financial statements/corporate analysis, securities taxation, sales activities) No. of questions Timeframe (min) Passing score 308/ /300 (Note) Until recently, those who had not passed the Class-2 Qualification Exam for Sales Representatives were not eligible to take the Class-1 Qualification Exam. However, this requirement was lifted in January

5 II. Types of SRs and Scopes of Qualification Exams (Continued) 2.Special (Banks, insurance companies) Type of SRs Type of exam Scope of questions Special Member Class-1 SR:Covers the entire range of duties of SR regarding the business of registered financial institutions Special Member Class-2 SR: Mainly for bonds and investment trust S.M.Class-1 SR Qualification Exam (Japanese) Business knowledge (margin transactions, derivatives transactions, (including complex investment trusts & structured bonds similar to OTC derivatives transactions)) S.M.Class-2 SR Qualification Exam (Japanese) Business Knowledge (bonds, CP, investment trusts) Knowledge of laws and regulations (Such as FIEA and JSDA rules) Basic knowledge (basic knowledge about securities markets and sales activities) No. of questions Timeframe (min) Passing score (Notes) 230/ /200 Until recently, those who had not passed the S.M.Class-2 Qualification Exam for Sales Representatives were not eligible to take the S.M.Class-1 Qualification Exam. However, this requirement was lifted in January

6 III. Scope of Internal Administrator Qualification Exam Type of qualification 1) Internal Administrator 2) Special Member Internal Administrator Special Member Internal Administrator Type of exam Internal Administrator Qualification Exam (Japanese, English) Special Member Internal Administrator Qualification Exam (Japanese) Scope of questions Basic knowledge for internal administration and legal compliance FIEA and related laws and regulations JSDA s articles of association and rules Articles of association & rules of exchanges Firm s Internal administrative rules, etc. No. of questions Timeframe (min) Passing score Eligibility for exam / / Officers of both Regulars and Special, or 2. Persons for whom a Regular Member and Special Member finds it necessary to have them take the examination, and who are qualified as Class-1 SR 1. Officers of Special ; or 2. Persons for whom a Special Member finds it necessary to have them take the examination, and who are qualified as Special Member s Class-1 SR 5

7 IV. Conceptual Flow of Qualification Exams Association members - Regular : Securities companies - Specified Business : - Special : Banks, etc. 1. Apply for exam 3. Exam result (Exam day + 2 business days) JSDA SR registration and qualification administration system SR registration, SR qualification (exam results) administration Officers & employees 2. Take exam Exam venues (exam operators) Given every business day on computers at around 160 venues throughout Japan (operation and implementation are entrusted to outside operators) 6

8 V. Verification of Qualification Exam Checks and balances provided by the Sales Representative Examination & Registration Division, which produces the exam questions, and the Sales Representative Examination Monitoring Division, which checks them and ensures the appropriateness of the questions on the SR Qualification Exam. SR Examination & Registration Division Collect information Produce questions Modify questions Complete questions SR Examination Monitoring Division Collect information Identify events that influence exam questions Verify appropriateness of exam questions When necessary, instruct SR Examination Div. to suspend the exam or make modifications 7

9 VI. Training Program for Renewing SR Qualification 1. Registered SRs Registration date 1 st day of the registration month every 5 years Suspension of qualification Revocation of qualification Period in which program must be taken Allowance period 2. Those who will be newly registered as SRs (when more than 2 years have passed since passing exam) Registration date 1 year 180 days Suspension of qualification Revocation of qualification Period in which program must be taken Allowance period 180 days 180 days (Notes) 1. Previously, JSDA provided three types of qualification renewal training programs for SRs: training programs for Regular, training programs with Special, and training programs for Special Member Class-4 SRs. These programs were merged into a single program in January Conducted on computers similar to the qualification exam for SRs (Timeframe for taking course is 2 hours, followed by a test checking the degree of understanding. Those who score over 70% pass.) 8

10 VII. Number of Registered Sales Representatives & Registrations Number of firms (End of March 2016) Number of SRs (End of March 2016) (Note) (Unit: Person) Number of new registrations (During FY2015) (Note) (Unit: Person) Regular Specified Business Special Total , , ,804 10, ,767 45,329 (Note) Numbers of SRs and new registrations include the respective financial instruments intermediary service providers. 9

11 VIII. Implementation of Sales Representative Qualification Exam (for FY 2015) (person) 45,000 44,884 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, ,948 2,605 Regular, etc Specified Business 16,392 8,480 Special, etc. 16,987 5,594 General Public 5,794 Class-1 SR Exam Class-2 SR Exam Spe. Member Class-1 SR Exam Spe. Member Class-2 SR Exam (Notes) 1. The numbers of Regular and Special include financial instruments intermediary service providers with which those member firms are contracted. 2. of the general public (namely those who are not officers nor employees) are eligible to the take Class-2 SR Exam (since 2004) and Class-1 SR Exam (since 2012). 10

IX. Implementation of Internal Administrators Qualification Exams (for FY 2015) (person) 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 4,835 8 0

12 IX. Implementation of Internal Administrators Qualification Exams (for FY 2015) (person) 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 4, ,841 2,595 Internal Administrator Qualification Exam for Regular Internal Administrator Qualification Exam for Special 0 Regular Specified Business Special 11

X. Implementation of Training Program for Renewal of Sales Representative Qualification(FY2015) (person) 70,000 60,154 60,000 50,000 40,000 30,000 20,000 10,000 13,041 12 0 Regular, etc.

13 X. Implementation of Training Program for Renewal of Sales Representative Qualification(FY2015) (person) 70,000 60,154 60,000 50,000 40,000 30,000 20,000 10,000 13, Regular, etc. Specified Business Special, etc. (Notes) 1. The numbers of Regular and Special include financial instruments intermediary service providers with which those member firms are contracted. 2. Previously, JSDA provided three types of qualification renewal training programs for SRs: training programs for Regular, training programs with Special, and training programs for Special Member Class-4 SRs. These programs were integrated into a single program in January (Consequently, there is currently only one program available.) 12

14 Thank you for your attention 13

Regulatory Notice 18-27

Regulatory Notice 18-27 Restructured Qualification s and Related Fees Effective Date: October 1, 2018 Summary Effective October 1, 2018, FINRA is restructuring its representative-level qualification examination