Study Notes for Chapter 17: Becoming a Registered Representative

Introduction to Chapter 17: Becoming a Registered Representative

  • Ken Finnen from Capital Advantage Tutoring introduces Chapter 17, focusing on the requirements and roles related to becoming a registered representative (registered rep).

Overview of the Securities Industry Essentials (SIE) Exam

  • Definition and Purpose of SIE Exam:

    • The SIE exam is a general knowledge exam that covers various aspects of the securities industry. It's essential for those looking to start a career in finance or investment.

  • Eligibility:

    • Anyone over the age of 18, regardless of their association with a firm, can take the SIE exam.

  • Validity:

    • Passing the SIE exam grants certification that is valid for four years, making it advantageous for college students and recent high school graduates who are considering a career in finance.

  • Important Note:

    • Taking the SIE exam does not make someone an associated person; it is merely a prerequisite to take further qualifying exams (such as Series 6, 7, 63, 65, or 66).

Associated Persons Definition and Classification

  • Definition of Associated Person:

    • An associated person (AP) refers to an officer, director, partner, or branch manager at a member firm involved in investment banking or securities business. Non-linked positions (e.g., back-office clerical roles) do not qualify as APs.

  • Limitations of Non-registered Individuals:

    • Individuals who have taken the SIE and other qualifying exams but are not registered cannot engage in investment-related activities, except for limited activities such as:

    • Inviting potential clients to firm-sponsored events.

    • Discussing investments without taking orders or accepting referrals.

Restrictions for Non-registered Persons

  • Order Restrictions:

    • Non-registered individuals cannot accept, pre-qualify, or process any investment orders. They must hand over orders to their registered representatives for confirmation and processing.

  • Referral Prohibition:

    • They cannot receive payment or commissions for clients until they are registered.

Qualification Types

  • Registered Representatives and Principals:

    • Registered reps handle sales but do not approve transactions.

    • Principals serve as supervisors and managers (e.g., Series 24) and must approve client accounts and transactions.

Types of Registrations and Exams

  • Series 6:

    • Limited registration to sell mutual funds, variable annuities, and UITs. Cannot sell closed-end funds on the secondary market.

  • Series 7:

    • Comprehensive securities registration allowing trading of virtually all securities including stocks, bonds, and options.

  • Series 22:

    • Registration limited to selling direct participation programs (DPPs).

  • Series 57:

    • Equities trader registration for NASDAQ trading.

  • Series 79:

    • Registration for investment banking and debt/equity offerings.

  • Series 82:

    • Private placements sales registration.

  • Series 99:

    • Back office registration.

  • Series 50 and 52:

    • Municipal advisor representative and municipal securities principal registrations, respectively.

  • Series 24:

    • Comprehensive supervision registration covering all areas except municipal transactions and options.

  • Series 26:

    • Principal registration for those with Series 6 capabilities.

  • Series 27:

    • Financial and operational registrations.

Examination Protocols

  • Retake Policy:

    • If an exam is failed, candidates must wait 30 days to retake it. After three failures, a 180-day waiting period is enforced.

  • Confidentiality and Academic Integrity:

    • Examination contents are strictly confidential; sharing or reproducing exam material can lead to severe penalties including suspension from FINRA.

Supervision and Record-Keeping

  • Supervisor Role:

    • Each registered rep must have a designated supervisor who reviews and approves their transactions, ensuring compliance with regulations.

  • Record Maintenance:

    • Fines for transactions that should have been caught can extend to both the registered rep and their supervisor.

Application Process for Registration

  • U4 Form Completion:

    • Prospective registered reps fill out a detailed application (Form U4) including personal history, employment for the last ten years, and any legal disclosures.

  • CRD System:

    • Central Registration Depository (CRD) system stores all relevant registration info, including examination scores and background details.

  • Statutory Disqualification Conditions:

    • Certain legal situations (e.g., felony convictions, regulatory violations) can disqualify individuals from registration.

Background Checks and Fingerprinting

  • Background Checks:

    • Firms must conduct background checks that may include reviewing public records and the details listed on the U5 form when a representative leaves a firm.

  • Fingerprint Requirements:

    • Generally required for all registered reps and principals, excluding those who do not handle securities or related responsibilities.

Continuing Education Requirements

  • Regulatory and Firm Element:

    • Registered individuals must complete continuing education modules:

    • Regulatory: Administered by FINRA on the second anniversary of registration and every three years thereafter. Failure to complete results in inactive status.

    • Firm Element: Conducted by the firm annually based on risk assessments.

  • Military Active Duty Exception:

    • Registered personnel called to active duty receive special status allowing them to maintain their registrations during absence.

Expiration of Registration

  • Re-registration Process:

    • If a registered individual does not return to work within two years, their licenses expire. However, the SIE exam remains valid for four years.