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A Mid-Sized Investment Banking Firm
(Prepared for 1996)
1996 Continuing Education Plan I. INTRODUCTION The purpose of this Continuing Education Plan (the "Plan") is to comply with the Continuing Education requirements set forth in Part XII to Schedule C of the By- Laws of the National Association of Securities Dealers, Inc. The plan will apply to the firm's registered personnel who have direct contact with customers, their immediate supervisors, as well as any employee designated by his or her immediate supervisor (the "Covered Persons"). The objective of the Plan is to enhance securities knowledge, skill, and professionalism of the Firm's Covered Persons. The Department responsible for development of, and monitoring compliance with, the Plan is the Compliance Department, which is currently represented by [Name.] II. NEEDS ANALYSIS A. Methodology As a basis for the conclusions and training determinations set forth in the plan, the Firm has performed an analysis of its overall business. This analysis was used to identify and target specific training needs. The analysis was performed by the Compliance Department with the assistance of [outside law firm]. Data was gathered for the analysis by means of questionnaires sent to Senior Management of each department. In addition, a review of the Firm's personnel records was made to determine the experience and background of all Covered Persons. B. The Company 1. Products and Service Founded in 19[__], the Firm is dedicated to providing capital raising (public and private) and mergers and acquisitions services to leading growth companies in the distinct areas of [specified industries], the Firm is a full service investment bank. The Firm currently makes a market in 100+ Nasdaq-NMS stock in the two areas of [specified industries]. The Firm has two locations. The first location is comprised of 3 Covered Persons in the Corporate Finance Group. All other business activity in the Sales & Trading, Research, Corporate Finance and Operations/ Administration takes place in the [second location.] M&A SERVICES: Representing public and private companies (in the industries highlighted above) in corporate mergers, sales, and acquisitions, rendering fairness opinions, arranging strategic partnering transactions, developing and implementing hostile takeover defense strategies, and managing stock repurchase programs. Currently we have no Covered Persons in this area. CORPORATE FINANCE: The Firm is a selective underwriter of equity offerings in the [specified industries]. Our size allows focused and detailed transaction execution for a select group of companies. Currently we have 12 Covered corporate finance partners/associates. (One associate will be registered within the next 6 months). RESEARCH: The cornerstone of the Firm's operations is research expertise. Currently, our research teams, comprised of an analyst and an associate, cover 100+ different companies in the industries highlighted above. The Firm focuses on 9 high-growth sectors within the [specified industries]. Currently we have 20 Covered research analysts and associate employees. (Two research employees will be registered within the next 6 months). SALES & TRADING: The Firm's sales & trading department makes a market in 100+ stocks in the selected industries. The Firm's institutional sales force has long standing relationships with the 350 leading buyers of growth company stocks, providing access to potential investors on a worldwide basis. These institutions are critical to the success of all growth stock offerings, as they typically represent in excess of 80% of all buying interest. Currently we have 35 Covered Persons (3 sales assistants will be registered within the next 6 months). SYNDICATE: One of the Firm's newly created departments, the syndicate department will work closely with corporate finance to facilitate superior syndicate structure and settlement for the various underwriting that we manage or co-manage or in which we participate in as a syndicate member. Currently, we have 2 Covered Persons in this department. FUND MANAGEMENT: The Firm currently has three closed-end funds under management with two registered employees in this department. OPERATIONS/ADMINISTRATION/COMPLIANCE: Maintains books and records of the firm. The Firm currently has 4 registered employees in these departments. Two additional employees may be registered in 1996. For purposes of Schedule C of the By-Laws of the National Association of Securities Dealers, this group of registered employees is not required to be included in the Firm Element of the CEP, however, it is up to the discretion of the Head of Operations to determine if this category of registered person will be included in the 1996 plan or in the future. 2. Professional Experience Level All Covered Persons are Series 7 licensed, and those in a supervisory or management role are Series 24 principals. Any new employee hired into any of the above groups who is not registered upon hiring will be registered within a six month time frame. However, to maintain high professional standards in our firm, we will require all unregistered employees who are in the Sales & Trading, Research, Corporate Finance, Syndicate & M&A departments to participate in the firm element of the CEP. Following are the breakdowns of the experience and education of the Covered Persons.
Education (Minimums): HS=10% Some College=20% College Degree=50% Advanced Degree=20% In addition, none of the Firm's current Covered Persons have had disciplinary actions brought against them by a regulatory or self-regulatory agency. This section provides a good overview of the Firm's securities business and its personnel, including their functions, experience, and education. It is also noteworthy that the Firm has opened its continuing education program to non- registered personnel in various departments and registered employees in the operations area. C. Factors In order that the Plan meets the specific needs of the Company, the foregoing information with respect to the Company's size, organizational structure, and scope of business, have been taken into account when considering the following factors mandated in the guidelines established by the Securities Industry/Regulatory Council on Continuing Education. 1. Economic and Market Conditions Currently, there are no economic or general market conditions warranted to include in the Plan for 1996. 2. Existing and Planned Business Initiatives Currently, the Firm has a small retail component in the sales and trading area serviced by the Corporate Services Group ("CSG"). The CSG mainly services individuals who acquire wealth upon a successful completion of a public offering which the Firm facilitated and individuals associated with issuers that are our corporate clients. The CSG plans to expand its retail business to include clients not associated with companies we bring public. This effort will require us to expand our supervisory responsibilities and include topics such as Suitability and Risk Disclosure. We also have the newly created Syndicate Department and new managers in Corporate Finance, Sales & Trading, and a new co-manager in Research. Because of these changes, the Firm most likely will grow by at least 10-15 new employees to make the total firm size roughly around 110-115 employees in the year 1996. The Compliance Department in conjunction with department managers will monitor for potential needs of amendments to the Plan. 3. Specific Product and Service Related Information The Firm specializes in capital formation for companies in the [specified] industries. The Firm's services are centered in the areas of institutional sales, market making (equity products only, no debt instruments or options trading), corporate financing, and research. 4. Legal and Regulatory Developments The legal and regulatory developments on which the firm believes education of its Covered Persons is warranted are: a. Shorter settlement periods b. Continuing Education Requirements c. Limit order protection for retail clients d. Securities Litigation Reform e. Institutional Clients - Suitability Issues/Concerns f. Rules 10b-5, 6 & 10 g. Rule 10b-5 liability h. Information Screen (Chinese Wall) 5. Customer Complaints, Arbitration, Litigation The Firm has had no customer complaints, and no customer arbitration or litigation. 6. Department Feedback The Firm solicited feedback from its Compliance Department with respect to topics for inclusion in the plan. That Department has identified the following topics: Regulatory Developments, Registration Requirements, Employee Training, Reporting, Documentation, Supervisory Procedures/House Policies, Employee Trading. The Firm also solicited feedback from its Operations/Administration Department with respect to educational topics. Those groups identified: Maintenance of Books and Records, Maintenance of Customer Account Documentation, New Account Information, Correction of Error Procedures, Regulation T, and Short Sales Rules. 7. Sales and Marketing Strategies The Firm's coordination of Research and Corporate Finance in connection with our investment banking activities necessitated our inclusion of continuing education on (Chinese Wall) and Insider Information into our Plan. 8. Regulatory Reviews In the past five years, the Firm has elected to follow Acceptance, Waiver, and Consent Procedures in connection with an excessive spread report and Nasdaq volume reporting. It was also alleged by [a state securities regulator] that the Firm sold securities to non-exempt persons in that state without complying with broker- dealer or agent licensing requirements. These actions together with the recent regulatory reviews have highlighted the importance of the Firm's Covered Persons receiving education in the areas of NASD Trading Reporting Procedures, Research Reports and Employee Trading, Free-Riding and Withholding, and State Securities regulation (Blue Sky). These topics have been covered in written memorandums as set forth in item 9, below. 9. Previous and Current Training The annual compliance meeting attended by the Covered Persons contains an element of training regarding compliance matters. In addition, during the past two years Covered Persons have received written material (in memo form) on the following topics: Holding Period for Employee Trading (1995) Free-Riding and Withholding (1995, 1994) Front Running Research (1995, 1994) Customer Limit Orders (1995, 1994) Short Sales Rules (1995, 1994) Interpositioning (1994) Outside Business Activities/Outside Accounts (1994) Penny Stocks (1994) Rule 10b-6 "Passive Market Making" (1995-Group Meeting, 1994) Rule 10b-18 "Safe Harbor" Adoption (1994) Blue Sky and Agent Licensing (1995) 10. SRO and Industry Information The Compliance Department in conjunction with [outside law firm] keeps abreast of the industry-wide regulatory changes and information. If information is deemed to be relevant for the firm's CEP, it will be adopted into the Plan. 11. Performance Reviews Performance reviews have not identified training needs within the continuing education objective. 12. Regulatory Element Results The Firm has not yet received feedback from the Regulatory Element of the CEP. This section presents the results of the Firm's review of certain factors identified in the Firm Element guidelines and provides a general indication of those areas to be addressed in the training plan. Additionally it clearly assigns responsibility for monitoring the need for plan updates to the Compliance Department with input from the Firm's department heads. Additional details of how the Firm will amend its plan would be helpful. The Firm does a good job of touching all the bases, but the plan would have been clearer if it had elaborated more on the specific training issues contained within certain areas. For example, the analysis would have been stronger if it had identified specific training objectives that responded to the regulatory issues summarized in Paragraph 8 (above). III. THE CONTINUING EDUCATION PLAN A. Medium/Content and Audience The Firm believes that its continuing education would best be delivered via self- study computer- based training modules. The Firm will supplement these modules with group training at the annual compliance meeting, informal small group instructions (for certain classes of Covered Persons), and written memoranda. To better highlight our continuing education material, written memoranda and group training instruction material shall be labeled with a header: Firm Continuing Education. The Firm will use [Vendor] to service its computerized training needs. 1. Computer Based Training/Booklet Modules The Firm has selected the following modules for inclusion in its 1996 Training Plan. Suitability & Risk: Designed to help registered representatives determine the suitability of the Firm's recommendations and make proper risk disclosure to customers. Representatives will review the process of gathering information required to determine suitability, communicating all necessary risk factors, evaluating risk tolerance, and providing sound justifiable recommendations. * This module will be required for Covered Persons in the Sales & Trading Department's Corporate Services Group, Sales Assistants & Sales Associates. Documentation of Client Accounts & Orders: A comprehensive guide to the creation and maintenance of proper documents and procedures necessary to comply with industry regulations. This module also examines how records are intended to protect the interest of customers, registered representative and broker/dealers. In addition, it reviews the documents associated with opening a variety of accounts and entering orders for securities transactions. * This module will be required for Covered Persons in the Sales & Trading Department's Corporate Services Group, Sales Assistants & Operations Assts. (Projected) Institutional Sales & Trading: Provides a thorough analysis of sales and trading rules as they apply to transactions for institutional customers and a broker/dealer's own account. The unique regulatory environment governing institutional business is reviewed in detail. Subject highlights include proprietary trading, insider trading, Chinese Walls, and Suitability issues for institutional investors. * This module will be required for Covered Persons in the Sales and Trading Department. (Projected) OTC Markets: A comprehensive review covering the major listed exchanges, Nasdaq, and the over-the-counter marketplace. Content includes rules and regulations, order types, transactions, and ethical behavior. * This module will be required for Covered Persons in the Sales & Trading, Research & the Fund Management Departments. (Projected) Equity Securities: A study of the characteristics of common stock, preferred stock, rights, and warrants, including a discussion of types of common stock classified by investment features. It also reviews information used by analysts when making recommendations. Suitability issues are also covered. * This module will be required for Covered Sales Assistants or any employee (whether covered or not) upon the discretion of department heads. Investment Banking: This module examines the operations of investment banking departments and the regulations governing their activities. Subjects include: the need for capital, methods of capital raising, mergers and acquisitions, registered offerings, shelf-registrations, and private placements. * This module will be required for Covered Persons in all Departments. Ethics & The Registered Rep: This module examines moral issues a representative/brokerage firm faces when dealing with the public and the fiduciary responsibilities a firm has towards its customers. Specifically discusses: The Manning Rules, Insider Trading, Investment Advisory Services, The Research Analyst, Unauthorized Trading. * This module will be required for Covered Persons in all Departments. Supervisory Rules & Procedures: An overview of the supervisor's role that emphasizes the early detection of potential problems. * This module will be required for all Covered Persons in Supervisory roles. This section contains a good breakdown of the Firm's training goals. Particularly noteworthy is the requirement across all departments for "Ethics" training and the special emphasis on supervisory training. However, the plan does not clearly relate the specific training in its training plan to specific issues identified by the needs analysis. Also, given the wide disparity in experience among its employees, the Firm may wish to consider offering training that reflects the diverse experience levels of its covered persons. 2. Group Training Education in the areas of prohibited practices and house policies, regulatory changes, and any arbitration and litigation issues will be discussed during a special educational segment at the Firm's Annual Compliance Meeting. This meeting will be conducted by the Compliance Officer and shall specifically include information relating to Chinese Wall procedures. In addition, Covered Persons who are designated by their department manager will receive additional education via small group instruction. The instruction will be given by in-house employees who are knowledgeable in a selected topic. Group instruction will also be given by the Compliance Officer, the Assistant Compliance Officer, or the Operations Supervisor to discuss operational issues, account documentation, due diligence, and such other areas as the department managers shall determine. 3. Written Memoranda All Covered Persons shall receive written memoranda on the Continuing Education Requirements. In addition, education on such other topics as may be determined during the year by the Compliance Department and the Department heads may also be delivered via written memoranda and/or outside professionals. B. Record Retention/Tracking The Compliance Department shall maintain a roster of Covered Person, which shall reflect the education required of each Covered Person and track the status of their completion. The format of the roster is attached to this Plan. (Not included here.) In addition, the Compliance Department shall maintain files as follows: 1. Computer Based Training This file will contain course outlines, completion reports, and analyses of completed materials, by module. 2. Group Training This file will contain course outlines, including date and time delivered, and attendance lists. 3. Written Memoranda This file will contain copies of all Written Memoranda, names of recipients, and/or distribution lists acknowledgments. This section does several things well. Of special note: 1) It clearly assigns responsibility for monitoring compliance with the continuing education requirements to a specific department (the Compliance Department); 2) It requires this department to maintain a central file of all materials used in the Firm's continuing education program; and, 3) It provides for a participation tracking system for computer-based and group training sessions and for the distribution of memoranda dealing with regulatory issues. |
