Series 24

The Series 24, also known as the General Securities Principal Qualification Examination, is a license and exam administered by the Financial Industry Regulatory Authority (FINRA) in the United States. The Series 24 examination evaluates the competency of candidates aiming to become principals in the securities industry. Successfully passing the Series 24 exam authorizes the candidate to manage or supervise the investment banking or securities business of a broker-dealer.

Examination Overview

The Series 24 exam consists of 150 multiple-choice questions that cover a comprehensive range of topics necessary for managing a broker-dealer. Candidates are given three hours and 45 minutes to complete the exam, and a passing score is 70%. The key areas evaluated in the Series 24 exam include:

1. Supervision of Investment Banking, Underwriting Activities, and Research
2. Supervision of Trading and Market Making Activities
3. Supervision of Brokerage Office Operations
4. Sales Supervision, General Supervision of Employees, Regulatory Framework of BD
5. Compliance with Financial Responsibility Rules

Key Topics Covered

Supervision of Investment Banking, Underwriting Activities, and Research

This section examines the knowledge required to supervise the dissemination of investment banking and research information. It focuses on compliance with regulations pertaining to underwriting (both primary and secondary offerings), mergers and acquisitions, public offerings, private placements, and research report dissemination. Key regulations include:

• Regulation M: Addresses activities that could manipulate security prices in connection with offerings.
• Regulation S-K: Provides detailed instructions for disclosure requirements.
• Regulation S-X: Outlines the form and content of financial statements required.

Supervision of Trading and Market Making Activities

This section assesses candidates’ understanding of the rules and regulations governing trading practices. Topics include the supervision of over-the-counter markets, NYSE and NASDAQ markets, and roles of market makers and specialists. Key areas include:

• Order Audit Trail System (OATS): Records information relating to orders, quotes, and trades.
• Regulation ATS (Alternative Trading Systems): Governs trading systems that are not registered as exchanges.
• FINRA Rule 2020: Focuses on unethical trading practices.

Supervision of Brokerage Office Operations

Candidates are tested on their abilities to supervise the operational aspects of a brokerage office, including the management of books and records, safeguarding of customer funds and securities, and proper maintenance of back-office functions. Critical areas include:

• Customer Account Management: Managing and overseeing new accounts, customer complaints, and record retention.
• Regulation S-P: Governs the privacy of consumer financial information.
• FINRA Rule 4510: Relates to recordkeeping requirements for broker-dealers.

Sales Supervision, General Supervision of Employees, Regulatory Framework of BD

This section delves into the supervision of sales activities and the oversight of broker-dealer personnel. Candidates are evaluated on their ability to ensure compliance with sales practices, advertising regulations, and hiring practices. Key regulations include:

• FINRA Rule 2210: Governs communication and sales literature.
• FINRA Rule 3110: Requires firms to establish and maintain a system for supervising the activities of their personnel.
• SEC Rule 15c3-3: Known as the Customer Protection Rule, requiring broker-dealers to protect customer funds and securities.

Compliance with Financial Responsibility Rules

This section examines the financial responsibility of broker-dealers, including net capital requirements, customer reserve requirements, and the segregation of customer funds. Candidates must understand how to ensure the financial stability and compliance of their firm with the following:

• SEC Rule 15c3-1: Establishes net capital requirements for broker-dealers.
• SEC Rule 17a-5: Requires broker-dealers to file regular financial and operational reports with the SEC.
• SIPC (Securities Investor Protection Corporation): Provides limited protection to customers in the event of a broker-dealer’s bankruptcy.

Eligibility and Preparation

Eligibility Requirements

To qualify for the Series 24 exam, candidates must first pass the Series 7 (General Securities Representative) or Series 62 (Corporate Securities Limited Representative) exam unless they hold another valid qualification that meets FINRA’s prerequisites. Candidates must be associated with a FINRA member firm and must obtain the relevant sponsorship from their employer.

Preparation Resources

Given the breadth of the material covered in the Series 24 exam, thorough preparation is essential. FINRA provides a content outline to guide candidates through the key areas needed for the test. Several third-party providers also offer preparatory courses, practice exams, and study guides designed specifically for the Series 24 exam. Popular providers include:

• Kaplan Financial Education: Offers comprehensive study packages, practice exams, and live or on-demand courses. Kaplan Financial Education
• STC (Securities Training Corporation): Provides in-depth guides, practice tests, and classroom instruction options. Securities Training Corporation
• ExamFX: Features online courses, interactive learning tools, and simulated exams. ExamFX

Importance of the Series 24 License

Professional Pathways

Obtaining the Series 24 license is often a critical step for individuals seeking senior management positions within the securities industry. It not only empowers the individual to oversee compliance and regulatory aspects but also positions them as central figures in maintaining the ethical and financial integrity of their firm. The license is crucial for roles such as:

• Compliance Officers: Ensuring that firms adhere to applicable laws and regulations.
• Branch Managers: Overseeing operations and sales activities at local branch offices.
• Regulatory Supervisors: Managing the firm’s adherence to both internal policies and external regulatory requirements.

Regulatory Compliance

The Series 24 exam ensures that principals possess the necessary expertise to implement robust supervisory systems that protect investors and uphold market integrity. With an increasing focus on compliance and regulatory oversight, the license underscores the principal’s commitment to maintaining a fair and transparent marketplace. Through this credential, FINRA aims to enhance investor confidence and trust in the financial system.

Continuous Education

After obtaining the Series 24 license, principals must comply with continuing education requirements to stay informed of regulatory updates and industry best practices. The continuing education program is comprised of:

• Regulatory Element: Conducted by FINRA, this includes mandatory training sessions focusing on changes in regulatory requirements or industry policies.
• Firm Element: Managed by the individual’s firm, this tailored program addresses specific needs and business practices of the firm.

Series 24 Exam Structure and Scoring

The questions on the Series 24 exam are weighted according to their importance and difficulty. The exam includes both scored and unscored (pretest) questions, although candidates will not know which questions are unscored during the test. The major sections and the number of questions allocated to each are as follows:

1. Supervision of Investment Banking, Underwriting Activities, and Research (31 questions)
2. Supervision of Trading and Market Making Activities (41 questions)
3. Supervision of Brokerage Office Operations (15 questions)
4. Sales Supervision, General Supervision of Employees, Regulatory Framework of BD (49 questions)
5. Compliance with Financial Responsibility Rules (14 questions)

Candidates receive an initial pass or fail status immediately upon completing the exam, followed by a detailed score report that highlights their performance in each section. A minimum score of 70% is required to pass the exam.

Conclusion

The Series 24 exam plays an essential role in preparing financial professionals for supervisory roles within the securities industry. Its comprehensive coverage of investment banking, trading, brokerage operations, sales supervision, and financial responsibility ensures that candidates are well-equipped to maintain the integrity and compliance of their firms. As the landscape of the financial industry continues to evolve, the Series 24 license remains a cornerstone for those striving to manage and lead within this dynamic sector.

To summarize, obtaining the Series 24 license is not just about passing an exam; it’s about committing to a higher standard of professional conduct and regulatory compliance, thereby fostering a safer and more transparent investment environment for all participants. For more detailed information and resources, candidates can refer to the FINRA website: FINRA.