FINRA New Ops Certification: Two Exams Better?

What is the difference between a stock, a bond, a derivative, an exchange-traded fund and other financial products? What are customer suitability rules, margin rules and custody rules?

These might sound like simple questions, but for US brokerage operations managers who must abide by changes in test formats imposed by the US Financial Industry Regulatory Authority (FINRA), knowing the right answers could determine whether or not they are registered as operations professionals.

For applicants to entry-level operations jobs, knowing the answers will be just as important. It could spell the difference between being accepted or rejected for a position, Wall Street recruitment specialists tell FinOps Report. “We’ll give priority to those who have passed the new Securities Industry Exam,” advises one human resource manager at a New York brokerage firm.

Since October 1, 2011, FINRA has required brokerage officials overseeing employees in post-trade functions must pass a single Series 99 exam to be registered as an operations professional. These post-trade functions range from account opening, collateral and margin management, to reconciliation, clearance and settlement. The test covers the basics of the securities industry as well as broker-dealer operations and regulations. The passing grade is 68 percent.

As of October 1, 2018, operations managers at FINRA’s member firms must pass not one, but two exams . FINRA’s first exam, known as the Securities Industry Exam (SIE), will focus on the essentials of the securities industry while the second test will address the essentials of broker-dealer operations and regulations.

Anyone passing the SIE exam must pass the second operations-dedicated exam within four years. FINRA will be posting the required passing score for each exam on its website before October. Anyone who fails either the SIE or operations-dedicated exam must wait for 30 days before taking the test over.

For the first time ever, FINRA will also allow anyone applying for any job at a member firm to take the SIE. The applicant doesn’t have to work for a FINRA member firm. Human resource managers at five US brokerages tell FinOps they are hopeful the new exam format will attract more interest in the securities industry and attract better talent. Passing the new SIE exam will be required not only to be registered as an operations professional, but also to sell mutual funds or stocks, to work as an investment banker, or to work as a private placement banker. “The restructured program eliminates duplicative testing of general securities knowledge on the current exams,” says John Kalohn, vice president of testing and continuing education for FINRA in Washington, D.C.

What’s Different

Operations managers tell FinOps they are worried about the change in exam format. The reason: they are often knowledgeable only about specific products and post-trade functions. “We are concerned that the SIE will have more product-focused questions than was previously the case with the single Series 99 exam,” says one operations manager at a New York brokerage. “We are also afraid of how specific the new operations-focused exam will be about different operations functions.”

FINRA officials say that operations managers requiring certification won’t have to know more than they already do. However, there will be far more emphasis on the basics. Of the 100 questions on the current Series 99 test, only 32 are based on essentials of the securities industry. Forty eight focus on the basic knowledge of operations and 20 on professional conduct. The new SIE exam will be 75 questions long and include questions on specific securities products and their associated investment risks.

Operations managers are often assigned to a specific function, such as custody, margin or reconciliation. Or they focus on a specific product. Managers typically remain in a specific business line for several years if not their entire career. Therefore, they might have little opportunity to learn about a broader range of functions or products. What’s more many operations managers don’t have business-based degrees. They learned their tasks on the job from peers, supervisors or internal classes.

The new FINRA operations-focused exam might have only 50 questions about knowledge of broker-dealer operations and regulations instead of the current 68 questions on the Series 99 exam. However, the 50 questions will focus on the correct approach to each operations function. “The updated qualification exam is designed to assess a candidate’s broad knowledge of the operations functions that support a broker-dealer business, regulations designed to achieve investor protection and the identification and escalation of red flags,” says Kalohn.

Candidates will be expected to know the associated tasks involved in each function, as well as related rules and regulations. Case in point, a customer-onboarding manager had better understand the paperwork required to open a customer account, as well as customer and anti-money laundering regulations.

For operations managers already working at US brokerage firms, passing the new exams might not affect their jobs, other than to reassure their supervisorshave that they understand the big picture. “Of course, passing both exams provides the brokerage with some indication that the employee has a solid understanding of the securities industry and job responsibilities,” says Stuart Rosenthal, director of Rosenthal Consulting Group, a New York-based executive search firm specializing in securities operations and compliance. “However, nothing beats experience.”

There is also still time for current operations professionals to prepare for the two exams, but also an opportunity to get in under the wire with the existing exam. “If you want to minimize the work you put into studying, you should consider taking the Series 99 before October 1,” says Jeremy Solomon, president of Solomon Exam Prep, a Portland, Oregon-based test preparation exam specializing in securities certification.

FINRA says that anyone who passes the current version of the operations-based exam before the start date of the double exams will be given credit for the SIE and will not have to take both. The Series 99 exam is a computerized test offered on a continuous basis, so anyone can take the test at any time he or she is able to find an appointment at a FINRA-approved test center.