Remisiers rushing to pass exam?

This is the big title, I mean printed in very very big fonts in the ST, of Goh Eng Yeow’s article about remisiers rushing to sit for an exam that probably will not be held again. The exam, called Module 6A, is needed if remisiers are to execute trades for their clients on Specified Investment Products, which also read as dangerous or highly complex products. This requirement came about after the Lehman bonds or toxic products sold and many investors got badly burnt. The MAS now wants to ensure that investors and remisiers are fully aware of the complexities of these products and the high risk that they are taking when trading in them.

So remisiers must pass this exam, to equip them with sophisticated knowledge of these products, and to be in a position ‘to advise their clients’ when trading these products. This advising role of remisiers, with the passing of the module, they would be more professional in executing such trades. And since both clients and remisiers are professionally qualified, they should bare the risk should things turn foul and don’t go and kpkb with the authorities. This is now not a case of willing buyer willing seller, but informed and professionally trained buyers and sellers, and with equally professionally qualified remisiers to make sure things are handled professionally. I am also not sure how would these changes make the trading of SIP products safer. But it must be a good step forward.

What I am puzzled is that if passing an exam on this module is essential to executing SIP products, shouldn’t the exam be held regularly, maybe once or twice a year, or is this the last time that such an exam will be held?

The other matter that is new to me is that most brokerages have central buyers that execute trades like foreign stocks for the clients of remisiers as part and parcel of the system. And there has never been an issue about the commissions going back to the remisiers. Why is it that should central buyers have to assist in the trading of SIP products, that the commission becomes an issue, who should the commission goes to? The general sharing formula is 60:40 or 55:45 in favour of the company with the remisiers bearing the bad debt risks. So, with SIP products, new commission sharing formulas were being floated with some brokerages hinting to taking the full commission for themselves or maybe a higher percentage than the 60%. And there is also a question of risk, who is going to bear the risk of bad debts?

Why shouldn’t the brokerages continue with the central buyer system to assist remisiers in the execution of SIP trades, incidentally trading foreign stocks in overseas bourses used to be classified as SIP for a while, and maintain the same commission sharing formula? The other point is that such trades, now mainly high risks derivatives and ETF products need well trained professionals who are dealing with such products on a full time basis to be able to provide the level of expertise to their clients.

Passing Module 6A and executing derivatives and SIP products as a part of the main business to me is grossly inadequate relative to the full time traders or central buyers handling such businesses. The highly complex products and the high risks expected would really need very much more care than just passing an exam. It is a full time thing, requiring a lot of expertise and attention and complex computations and monitoring of the movements of such products unlike stocks and shares. A little exception is the ETFs which are technically safer products as they are derived from a basket of blue chip stocks in a market. Of course some of these products could be designed differently and can be risky and complex as well.

Would the sitting and passing of Module 6A be a game changer that makes the risk in trading SIP products more bearable or the remisiers be more professional? More knowledgeable is not necessary the same as more professional. Would it be better for such trades to be done by the central buyers?

Is there really an issue in the apportioning of the commission? Would the business or income of remisiers who missed taking this exam be affected? How many clients are really active in trading SIP products? Would the livelihood of remisiers be affected if they did not sit for this exam?