Grandfathering & Graduation Exemptions

Q. What is the Regulatory Element?

A. The Regulatory Element of Continuing Education is a computer-based education program designed and administered to ensure that registered persons are kept up-to-date on regulatory, compliance, and sales practice matters in the industry.

Q. I have never been required to take a Regulatory Element session before or have not taken one in several years. Why must I do this now?

A. The Securities Industry/Regulatory Council on Continuing Education recognized that there is great value in exposing all industry participants to the benefits of the Regulatory Element, in part because of the significant regulatory issues that have emerged over the past few years. The Regulatory Element programs are continuously updated to address current regulatory concerns as well as new products and trading strategies. Those registered persons who were exempt from the Regulatory Element program due to a grandfathered or graduated status have not had the benefit of this material. In addition, a new Ethics module will be included in the program effective April 2005.

Q. What is the Securities Industry/Regulatory Council on Continuing Education?

A. The Council was organized in 1995, to facilitate cooperative industry/regulatory coordination in developing and maintaining the CE Program, recognizing applicable industry regulations and changing industry needs. The Council consists of representatives from six self-regulatory organizations (SROs) and 14 industry representatives. The Council also benefits from guidance and input from liaison personnel from the Securities and Exchange Commission (SEC) and the North America Securities Administrators Association (NASAA). The Council's roles include recommending and helping to develop specific content for the Regulatory Element, defining minimum core curricula for the Firm Element, developing and updating information about the program for industry-wide dissemination, and maintaining the program on a revenue-neutral basis.

Q. What are the three Regulatory Element programs and which one would I have to take?

A. The three Regulatory Element programs are the S201 Program for registered supervisors/principals, the S106 Program for Series 6 representatives, and the S101 Program for Series 7 and all other registration categories.

Q. How long is each CE session?

A. Each CE session is scheduled for 3 1/2 hours; however, you may complete your session in less time.

Q. Is the CE Regulatory Element a test? Can I fail?

A. The Regulatory Element consists of computer-based training programs, not graded tests. The S101 and S106 are comprised of eight modules, in each of which the participant must show a specific level of proficiency. The S201 program is comprised of six cases that participants must complete. If the CE session is not completed within the appointment time, the participant will receive an "Incomplete" and must make an appointment to retake the entire session at another time.

Q. Is there any preparation material I can review prior to my session?

A. Yes, a content outline is available for the S101 and S106 at www.cecouncil.com. Once on the main page, click on "Regulatory Element," then "Content Outline." In addition, actual scenarios from previous releases of the S101 and S201 are available for purchase at the same site. From the main page, select "CEP Training Material." Training Guides for the scenario library are also located at that site and may be useful material to review.

Q. When was the rule change rescinding all exemptions from participation in the Regulatory Element approved?

A. The SEC approved changes to NYSE Rule 345A and FINRA Rule 1120(a) in September 2004.

Q. When will this rule change become effective?

A. The effective date of the rule change is April 4, 2005.

Q. How many registered persons are affected by this rule change?

A. Approximately 109,000 registered persons currently are exempt from the Regulatory Element.

Q. Will everyone who is currently exempt need to take the Regulatory Element on or about April 4, 2005?

A. No, the re-entry into the Regulatory Element program will occur over a three-year period using each registered person's "base date."

Q. What is a base date?

A. In most cases, the base date is the person's initial securities registration. However, the base date may be revised to the effective date of a significant disciplinary action, the date on which a formerly registered person re-qualifies for association with an SRO by qualification exam, or the date the registered person re-entered the industry via an exam waiver.

Q. Does a directed sequence resulting from a significant disciplinary action change my base date?

A. Yes, the directed sequence date becomes the new base date.

Q. How often do I have to take the Regulatory Element Program?

A. The registered person's first Regulatory Element requirement will begin two years from his or her "base date," then every subsequent third year. The window opens on the anniversary date and remains open for 120 days.

Q. Will this rule change result in seat availability problems at the test centers?

A. Because the process of bringing back all 109,000 individuals will take 3 years, it is not anticipated that any extraordinary stress will be placed upon the capacity of the existing test/training facilities. As of January 2004, the two vendors who now administer CE sessions, Pearson VUE and Prometric, have doubled the seating capacity from the previous year.

Q. How can I contact the vendors?

A. The Regulatory Element programs are administered at conveniently located test centers operated by Pearson VUE and Prometric professional testing center networks. Appointments to take the Regulatory Element sessions can be scheduled through either network:

• Pearson Professional Centers: contact Pearson VUE's National Registration Center at 1-866-396-6273 (toll free), or 1-952-681-3873 (toll number) or go to www.pearsonvue.com/finra for Web-based scheduling.
• Prometric Testing Centers: contact Prometric's National Call Center at 1-800-578-6273 (toll free) or go to www.prometric.com/finra for Web-based scheduling.

Q. What is the earliest day I can call or schedule my appointment on-line to take the CE session?

A. Although the appointment date must be within the 120-day window, the registered person may schedule the appointment 30 days in advance of the window opening date.

Q. Will Web CRD® notify firms when these individuals approach their requirements?

A. Provided that the firm has established a contact under NFI in Web CRD and made the appropriate selections, it will receive the following CE Firm Notifications:

• Notifications when a registered individual is within 30 days of the end of his or her CE Required window
• Notifications when a registered individual is within 90 days of the end of his or her CE Required window
• Notifications when a registered individual enters Firm CE Inactive Queue

For more information on e-mail notifications, reports and queues, go to www.nasd.com and click on Regulatory Systems | CRD | User Support.

Q. What CE reports can be generated through CRD?

A. The following reports are available:

• CE - Approaching CE Queue Download - Download a text file of individuals in the firms Approaching CE Individual Firm Queue which can be used in a spreadsheet
• CE - Approaching CE Queue Report - List of all individuals in the firms Approaching CE Individual Firm Queue
• CE - Approaching CE 2-Year Termed Report - Lists all individuals who have been CE inactive for 2 years and who will become CE 2-Year Termed
• CE - CE Download - Download report containing each individual's CE data, including CE Status and CE Base Date
• CE - Current Inactive CE Individuals Within a Firm - Lists all individuals who are currently CE Inactive and the date from which they became CE Inactive
• CE - Previously Inactive CE Individuals Within a Firm - Lists all individuals who were employed with a specific firm and at the time of employment were CE Inactive during the timeframe selected
• CE - 2 Year Termed Report - Lists all individuals who have become CE 2 -Year Termed

Q. Can CRD be queried in subsequent months to aid in identifying individuals approaching their CE requirement?

A. Yes, in addition to the Firm Notifications, the firm can also utilize the following Firm Queues on CRD:

• Approaching CE Required - List of individuals who must meet Continuing Education requirements in the near future (30 days)
• CE 2-Year Termed List of all registered individuals who have been CE inactive for 2 years and who's registrations have become 2-Year CE Terminated
• CE Inactive - List of individuals who have become inactive due to failure to comply with CE requirements
• CE Satisfied List of individuals who have satisfied their CE requirements
• Currently CE Required - List of individuals that are currently required to take the CE requirement

Q. I am unable to work with computers and/or read computer screens. Can I receive an exemption from the Regulatory Element? If not, what kind of special accommodations can I receive?

A. No exemptions from the Regulatory Element are granted. However, if you have a disability recognized by the Americans Disability Act (ADA), you may be eligible to receive special accommodations with the proper documentation. For more information on special accommodations, visit What if I Require Special Assistance?

Q. Can firms administer CE sessions in house?

A. Yes, to obtain more information regarding In-Firm Delivery, go to www.cecouncil.com then from the home page, click Regulatory Element/In-Firm Delivery Information.

Q. Can firms obtain a roster of current exempt registered persons?

A. A complete roster of exempt registered persons was sent by regular mail and e-mailed to the firm's Continuing Education contact, in mid November, 2004, by the FINRA. Letters were also sent by regular mail from the NYSE, to all of their member firms, at the end of January, 2005. Those member firms that did not acknowledge receipt of the letter from the NYSE were subsequently contacted. In addition, to these communications, the FINRA will also send a follow up email and letter in mid/late February 2005. This roster will also include the date each registered person will be reentered into the Regulatory Element.

Q. If a recent termination occurred for an employee in the past, how can the supervisor/principal registration be reinstated?

A. If the registration(s) was termed less than two years ago (at the time of the request), you may submit an amended Form U4 re-requesting the position. If the registrations were termed over two years ago, the individual must retake the exam or apply for a waiver.

With the introduction of the S201 in 1998, a registered person holding a supervisor/principal registration less than 10 years (7/1/88) was brought back into the program. Under limited circumstances, a firm may have been permitted to process a "Position Downgrade" which terminated the principal registration(s) so that the individual(s) reverted to a grandfathered status. It is important to note that the ability to revert to a grandfathered status is no longer an option.

Q. Who can I contact regarding these changes?

A. Written inquiries can be sent to Joe McDonald, Associate VP, Testing & Continuing Education, FINRA, 9509 Key West Ave., Rockville, MD 20850, or e-mailed to continuinged@nasd.com or Roni Meikle, Director of Continuing Education, New York Stock Exchange, 20 Broad Street, New York, NY 10005 or rmeikle@nyse.com.

If you have additional questions on the Regulatory Element please refer to the Regulatory Element.