Series 3 Exam

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National Commodity Futures Examination: Series 3

History

The Series 3 was first administered in 1966. [1] The exam was originally developed by the Chicago Board of Trade (CBT) and overseen by NASD, the National Association of Securities Dealers (Canadian Securities Institute, or CSI, in Canada).[2] The CBT became the government U.S. Commodity Futures Trading Commission (CFTC) as a result of the Commodity Futures Trading Commission Act of 1974. Licensing and examination for commodity futures traders was not uniformly administered, however, until the self-regulatory National Futures Association (NFA) was created in 1981. Today the NFA oversees broker licensing and registration, including the uniform requirement for future commodities brokers to pass the Series 3 examination.[3] The test is still administered by NASD for the NFA.

In 2004, a proposal to add questions on security futures trading to the Series was abandoned by the NFA because of the low volume of such trades in actual practice. Also that year, NASD contracted with Pearson VUE to nearly double the number of available Series 3 testing locations.[4]

Whether or not to disclose candidates’ exam scores and number of failed attempts remains a controversial topic. This information is maintained in FINRA’s Central Registration Depository (CRD) database and is considered public record, so potential investors can access it through a Freedom of Information request. However, FINRA’s online broker information tool BrokerCheck, designed to protect investors by providing information about brokers they might do business with, does not carry this information. Federal regulators believe it should, but industry professionals argue that it is not a relevant indicator of a broker’s current performance.[5]

Function of the Test

Series 3 Study Guide

Stockbrokers who wish to engage in commodity futures investments or trades for their clients or organizations must register as commodities brokers with the NFA. In order to register, a broker must take and pass the Series 3 licensing examination within two years of registration. After passing the exam and registering, a broker may:

  • Work as an “Associated Person” (AP) who engages in futures trading for individual clients as an employee of a brokerage firm,
  • Trade contracts on the floor of a commodities exchange as a “floor broker”,
  • Become an “Introducing Broker” and become the principal of their own firm, or
  • Continue on to take the Series 30 and become a manager of an investment firm branch office.[6]

There is no prerequisite for taking the Series 3, and sponsorship is not required.[7]

Test Administration

Series 3 Flashcards

Candidates must complete an online Form U10 “Uniform Examination Request” through the Financial Industry Regulatory Authority (FINRA) Web site and submit a $115 testing fee in order to apply for the Series 3 exam.[8]

Individuals must schedule their own examination dates through approved Pearson VUE or Thompson-Prometric testing centers located across the United States and abroad. The exam must be scheduled within 120 days of receiving an application confirmation from FINRA. Cancelling or rescheduling an exam within 10 days of the exam date will incur a fee of $57.50. Candidates who fail to show up for a scheduled exam, or wait until 2 or fewer business days to attempt to cancel or reschedule, must reapply with FINRA and pay an additional $115 enrollment fee. [9]

FINRA provides accommodations for people with permanent physical and/or learning disabilities that are considered substantially limiting under the Americans with Disabilities Act (ADA). Requests for these accommodations must be made at the time of enrollment by completing a “Special Accommodations Eligibility Questionnaire” and a “Special Accommodations Verification Request Form.”[10]

Limited English Proficiency (LEP) candidates who are non-native English speakers and whose language skills may impact their ability to comprehend and answer exam questions may request additional testing time by submitting an “LEP Request Form” via e-mail or facsimile. Approved LEP candidates will have an additional 60 minutes in which to complete the exam. LEP candidates should wait for e-mail approval of their LEP status from FINRA before scheduling their exam date to insure that an appropriate time allocation is made by the testing center.[11]

There is a 2 year window after passing the Series 3 in which to register with the NFA as a floor broker, AP, or principal. Those who fail the Series 3 exam may take it again as many times as necessary to obtain a passing score. The waiting period between attempts is 30 days for the second and third attempt, and 180 days for subsequent attempts.[12]

Test Format

Sections of the Series 3 Test
Series 3 Test Subject Areas # of Items
Market Knowledge 85
Regulations 35
Total 100%

Test Environment

The Series 3 Exam takes place at multiple testing centers, so specific rules and regulations will vary depending on where candidates take the exam. It is always recommended to arrive 15-30 minutes early for the exam to make sure there is sufficient time to register and get settled in. Generally, no phones, outerwear, or personal items of any kind are allowed in testing centers.[13]

Test Structure

The Series 3 Exam, or National Commodity Futures Examination is made up of 120 multiple choice questions that have to do with eight topics: Futures Trading Theory and Basic Functions Terminology; Futures Margins, Options Premiums, Price Limits, Futures Settlements, Delivery, Exercise, and Assignment; Basic Hedging, Basis Calculations, Hedging Futures; Spreading; Speculating in Futures; Option Hedging, Speculating, Spreading; and Regulations. The time allotted to take the exam is two and a half hours.[14]

Test Content

  • Sample Series 3 Questions
  1. What is a performance bond also referred to as?
    A. Future
    B. Option
    C. Margin
    D. Hedge
  2. What is a request for additional margin?
    A. Margin call
    B. Margin maintenance
    C. Initial margin
    D. Margin spread
  3. The life of a futures contract is determined by which of the following?
    A. Price
    B. Trading
    C. Negotiation
    D. Delivery month
  4. Security futures prices are determined in their contracts rather than through continuous competitive bidding as stock prices are determined.
    A. True
    B. False
  5. When will a long spot-short futures position profit?
    A. When the basis narrows
    B. When the basis widens
    C. When the basis remains constant
    D. When the basis increases
  6. Transaction costs include all except which of the following?
    A. Commissions
    B. Margin costs
    C. Interest costs
    D. Premium
  7. An arbitration claim must be filed within what time period from the date that a customer knew, or should have known, of the acts or transactions that form the basis for the claim?
    A. 12 months
    B. 18 months
    C. 2 years
    D. 3 years
  8. The commodity pool operator (CPO) of a commodity pool that is required to register its securities under the Securities Act of 1933 must deliver what document in addition to the disclosure document prior to accepting or receiving funds from a prospective participant?
    A. Prospectus
    B. Annual report
    C. Financial statements
    D. Statement of additional information
  9. An answer to the complaint must be filed within how many days of the National Futures Association’s (NFA’s) Business Conduct Committee issuing the complaint?
    A. 30
    B. 45
    C. 60
    D. 75

More free Series 3 practice test questions.

Scoring

The Series 3 consists of 120 multiple-choice questions in two broad sections: market knowledge, and regulations. Both sections must be completed in 2 ½ hours. A score of 70 or above in each section is required to pass. Since the score is based on the number of correct answers divided by the total number of questions on the exam, there is no penalty for guessing and it is best to try to complete all of the questions in the allotted time. [15]

Recent/Future Developments

Although the NFA decided not to follow through with a 2004 proposal to update the Series 3 exam with questions related to security futures trading, a number of questions have been prepared and may be included at some future date should trading volume increase significantly. NFA and NASD continue to monitor the trade volume and number of registered brokers opting to take security futures training to identify the need for future modifications to the exam.[16]

Answers to Sample Questions

1;C 2;A 3;D 4;B 5;A 6;D 7;C 8;D 9;A

References

  1. ^ Implementation Dates of Qualification Examinations October 19, 2014
  2. ^ Commodity Futures Act October 20, 2014
  3. ^ [Wheels of Fortune: The History of Speculation from Scandal to Respectability.] October 21, 2014
  4. ^ NFA Postpones Updating Exams for Security Futures Products October 21, 2014
  5. ^ Exam Scores and Failures Belong on BrokerCheck October 19, 2014
  6. ^ The Series 3 Exam: Creating a Career With Commodities October 14 2014
  7. ^ Proficiency Examinations FAQsOctober 19, 2014
  8. ^ FINRA Administered Qualifying Examinations October 19, 2014
  9. ^ Proficiency Exam Study Outline: Series 3 October 19, 2014
  10. ^ FINRA Special Accommodations October 19, 2014
  11. ^ Candidates with Limited English Proficiency (LEP) October 19, 2014
  12. ^ Proficiency Examinations FAQsOctober 19, 2014
  13. ^ FINRA Tests 4 January 2014
  14. ^ Series 3 Subject Areas 4 January 2014
  15. ^ Qualifications Frequently Asked Questions (FAQ) – Examinations October 19, 2014
  16. ^ Proposed Rule October 21, 2014