In this article, I’d like to provide an overview of the most common financial securities examinations needed to work as a licensed securities professional in the United States.
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Series 3
The Series 3 is one of the best-known examinations. Successful completion entitles you to sell commodity futures as well as options on commodity futures.
The Series 3 exam is administered by the Financial Industry Regulatory Authority (FINRA) on behalf of the National Futures Association (NFA). It covers topics such as options, futures, hedging and margin requirements, as well as market and regulatory knowledge.
The exam consists of 120 questions and is divided into two parts. You have two and a half hours to answer the questions and must have a score of at least 70 percent on each part to pass.
Series 4
The Series 4 exam is also administered by FINRA. It is known as the Registered Options Principal Qualification Examination (OP). The holder of the license is entitled to trade options and supervise sales personnel.
You must pass the Series 7 to take the exam.
The Series 4 covers topics such as market making and compliance, as well as options on equities, currencies, interest rates, indexes and government bonds.
The exam consists of 135 multiple choice questions. You have three hours and 25 minutes to complete it and must have a score of at least 72 percent to pass.
Series 7
The Series 7, also known as the General Securities Representative Examination (GS), is a general securities test. Together with the Series 3 and 55, it is one of the best-known qualifications and the basis for many additional licenses. The holder of the license is entitled to sell all securities products except for futures and options.
It is thus a crucial requirement to work as a broker and allows you to trade all types of securities, from stocks and bonds to options and funds.
However, you can only take the exam if a FINRA member firm agrees to sponsor you.
The exam covers topics such as stock recommendations, mutual funds, bonds, regulatory requirements and client accounts. There are two parts, each containing 130 questions. You have three hours to complete each part, and you must answer 72 percent of the questions correctly to pass.
Series 24
Also known as the General Securities Principal Qualification Examination, the Series 24 is a requirement to manage a brokerage branch. To be eligible for the Series 24, you must already have passed one of the following exams: Series 7, 17, 37, 38, 62, 79 or 82.
The exam lasts three hours and 45 minutes, and 70 percent of the 150 questions must be answered correctly to pass.
The Series 24 covers topics such as investment banking, market making and brokerage activities.
The exact breakdown is as follows:
- Investment banking and research: 33 questions (22 percent of the exam).
- Market making and trading: 31 questions (21 percent).
- Brokerage operations: 29 questions (19 percent).
- General personnel activities and sales: 43 questions (29 percent).
- Finance and compliance: 14 questions (9 percent).
Series 27
In order to work in the accounting department or serve as chief financial officer (CFO) of a firm, you need to take the Series 27 exam. It covers legal regulations for brokers, accounting, regulatory requirements and compliance. It consists of 145 multiple-choice questions and lasts three hours and 45 minutes. To pass, you need to answer 69 percent of all the questions correctly.
The five areas covered are:
- Financial reporting (25 questions)
- Operations, general securities industry regulations, as well as books and records (42 questions)
- Customer data protection (24 questions)
- Net capital (41 questions)
- Funding and cash management (13 questions)
The Series 27 is very similar to the Series 28, which is called the Introducing Broker/Dealer Financial and Operations Principal Examination. In fact, the Series 28 is a kind of abbreviated version of the Series 27. You need to pass the Series 27 to work in the accounting department of any broker-dealer with a minimum net capital requirement of $250,000.
Series 31
Successful completion of the Series 31, also known as the Futures Managed Funds Examination, entitles you to sell managed futures funds and to supervise related activities. The exam consists of 45 multiple-choice questions and lasts 60 minutes. You must answer at last 70 percent of the questions correctly to pass.
The exam covers margin, futures, forward contracts and regulatory issues.
Series 34
Passing the Series 34 – the Retail Off-Exchange Forex Examination – is required to engage in off-exchange forex transactions with retail customers. It consists of 40 multiple-choice questions and lasts 60 minutes. A score of 70 percent is required to pass.
Exam content is divided into five areas:
- Definitions and terminology
- Forex trading calculations
- Risks associated with forex trading
- General forex facts
- Forex regulatory requirements
Series 42
The Series 42 is mandatory for options traders and also a prerequisite for obtaining a Series 62 or 72 license. It is called the Registered Options Representative Qualification Examination (OR). It focuses on options, particularly on those listed on the Chicago Board Options Exchange. It consists of 50 multiple-choice questions, of which 70 percent must be answered correctly to pass. The exam lasts 90 minutes.
Content is divided into four areas:
- Terminology, option types, strategies and taxes (20 questions)
- Options accounts (14 questions)
- Trading and settlement (10 questions)
- Regulatory requirements and reporting (6 questions)
Series 51
The full title of the Series 51 is the Municipal Fund Securities Limited Principal Qualification Examination. Candidates have 90 minutes to complete the test and must answer 70 percent of the 60 multiple-choice questions correctly to pass.
Content is organized as follows:
- Regulatory structures: 5 percent
- Product knowledge: 27 percent
- General supervision: 17 percent
- Fair practice and conflicts of interest: 17 percent.
- General sales: 18 percent
- Underwriting and disclosure obligations: 6 percent.
- Operations: 10 percent
The exam fee is $225 and the estimated preparation time is 20 hours.
Series 55
The Equity Trader Qualification Examination is the best-known of the FINRA’s qualifications. Passing it allows you to actively trade stocks. Exam content includes over-the-counter (OTC) and exchange trading, the trading regulations of the New York Stock Exchange (NYSE), legal requirements, and electronic trading systems. There are 110 questions and you have hours to answer them. A passing score is 67 percent.
The questions are selected from the following three areas:
- Trading (45 questions)
- Order handling (36 questions)
- Record keeping and regulatory reporting (19 questions)
Series 56
The Series 56 is also known as the Proprietary Trader Qualification Examination. It is a requirement for proprietary trading. It consists of 105 questions, lasts two hours and costs $195. A passing score is 70 percent.
Series 57
The Series 57 is a requirement for anyone seeking to trade stocks and debt securities on a commission basis. It consists of 125 questions, and 70 percent must be answered correctly to pass. It lasts three hours and 45 minutes and preparation time is estimated to be 50 hours. There is an examination fee of $120.
It covers four areas:
- Market overview and products: 17 percent
- Professional conduct and regulatory compliance: 10 percent
- Trading activities: 63 percent
- Trade reporting: 10 percent
Additional licenses
There are many more securities licenses and qualifications than those listed above. Please visit this site for an overview.
Conclusion
Germany offers a number of licenses, but there are many more in the United States. In both countries, the exams aren’t difficult and don’t require excessive preparation. However, it’s important to keep in mind that licenses won’t necessarily help you with your trading, and even the Series 55 or 56 is no guarantee of greater profitability. That said, the FINRA licenses are interesting and can help you gain a basic understanding of certain markets.
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