Series 56 Exam

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Series 56 Test

History

Proprietary traders differ from general stock brokers in that they buy, sell and trade stocks, bonds and securities for their own firm, using the firm’s capital, rather than for clients of the firm. Instead of taking orders from clients, the proprietary trader assumes their own position in the trade, using the firm’s capital, and directly profits (or loses) rather than receiving a commission. Such trades carry a high risk and a high payoff, and can generate large profits for investment firms that engage in them.[1] In 1999, the Gramm-Leach-Bliley Act removed the regulatory firewall between commercial and investment banks, and paved the way for commercial banks to conduct proprietary trades. There was a great deal of controversy regarding the role that deregulation and subsequent proprietary trading activities were responsible for the 2008 financial crisis and thus, whether new financial reforms were needed that would place limits on proprietary trading activities.[2] In 2010, the Dodd-Frank financial oversight law prohibited commercial banks from conducting proprietary trades, leading some high-profile traders to leave their firms to form their own smaller, private firms using their own capital.[3] As of September, 2011 proprietary traders were required to be licensed through taking the Financial Industry Regulatory Authority (FINRA) Series 56 Proprietary Trader Exam. Exemptions are made for brokers who have already taken and passed the Series 7 General Securities Representative Exam. The exam first became available in June of 2011.[4]

Function of the Test

Series 56 Study Guide

The Series 56 exam is required for licensing as a proprietary securities trader.[5] The exam demonstrates to employers, regulators, and the public that the licensed broker meets general competency standards for the profession.[6] The Series 56 is owned by a group of proprietary securities exchanges, and passing the exam allows brokers to perform proprietary trades on those exchanges. Exchanges that recognize the Series 56 include The National and International Stock Exchanges (NSX and ISE), the Chicago Board Options Exchange (CBOE), and the C2 Options Exchange(C2).[7]

Test Administration

Series 56 Flashcards

The Series 56 exam is administered by FINRA.[8] In order to register for the exam, a candidate must be registered by their employer through the Central Registration Depository (Web CRD) system.[9] The cost to take the exam is $195.[10] Once a candidate is approved to take the exam, the exam must be scheduled with a Pearson VUE or Prometric testing center within the 120-day eligibility period supplied by FINRA. Exams may be scheduled by phone or online.[11] Candidates with permanent disabilities covered under the Americans with Disabilities Act (ADA) may be provided with special testing accommodations, including additional exam time, private testing rooms, and someone to assist with reading questions and/or interacting with the computerized testing program. Any type of accommodation may be requested using the required “Special Accommodations Eligibility Questionnaire” and “Special Accommodations Verification Request Form.” FINRA uses its discretion in determining which types of accommodations will be provided on a case-by-case basis.[12]

Sections of the Series 56 Test
Series 56 Test Subject Areas Percent
Personnel, Business Conduct, Recordkeeping and Reporting Requirements 9%
Markets, Market Participants, Exchanges, and Self Regulatory Organizations 8%
Types and Characteristics of Securities and Investments 20%
Trading Practices and Prohibited Acts 50%
Display, Execution, and Trading Systems 13%
Total 100%

Test Structure

The Series 56 Exam consists of five general topics: Personnel, Business Conduct, Recordkeeping and Reporting Requirements; Markets, Market Participants, Exchanges, and Self Regulatory Organizations; Types and Characteristics of Securities and Investments; Trading Practices and Prohibited Acts; and Display, Execution, and Trading Systems. In all, there are 100 multiple choice questions with a 2.5 hour time limit to complete all of them. There are also five additional, unidentifiable pretest questions that will not count towards scoring.[13]

Test Environment

The Series 56 exam is available at both Pearson VUE and Prometric testing centers. At both centers, test-takers are expected to arrive at least thirty minutes prior to the exam to allow time to check in. For admission, candidates need to present a valid, government issued identification that contains a signature and photo. Personal items are not allowed into the testing rooms. This includes bags, wallets, electronics, coats, and hats. A four-function calculator, dry erase pen, and dry erase boards will be provided by the testing center.[14]

Scoring

The exam consists of 100 multiple choice questions. Candidates must achieve a score of 70% (70 questions correct) in order to pass the exam. Since only correct answers are counted, there is no penalty for guessing the answers.[15]

References

  1. ^ What is Proprietary Trading? May 24, 2015
  2. ^ Making the Dodd-Frank Act Restrictions on Proprietary Trading and Conflicts of Interest Work May 24, 2015
  3. ^ Inside the Prop Trading Exodus May 24, 2015
  4. ^ Series 56 – Proprietary Trader Examination May 24, 2015
  5. ^ About the Series 56 Exam May 25, 2015
  6. ^ Registered Representatives Brochure May 25, 2015
  7. ^ Custom Programs – Series 56 Exam Preparation May 25, 2015
  8. ^ Custom Programs – Series 56 Exam Preparation May 25, 2015
  9. ^ Individual Registration May 25, 2015
  10. ^ Qualification Exams May 24, 2015
  11. ^ Schedule an Exam May 24, 2015
  12. ^ Candidates Requiring Special Accommodations May 24, 2015
  13. ^ Series 56 Content Outline 05 May 2015
  14. ^ Exam Day 05 May 2015
  15. ^ Qualification Exams May 24, 2015