Obtaining a series 3 license begins by filing an application with the National Futures Association (NFA). The examination is administered by the Financial Industry Regulatory Authority (FINRA). Applicants must register for the test with FINRA and pay the applicable fees. The series 3 exam consists of 120 multiple choice questions and the time allotted is two hours and 30 minutes.
Passing the series 3 examination is a prerequisite for membership with the NFA. Registration with the Commodity Futures Trading Commission (CFTC) and membership with the NFA are requirements for securities representatives in the futures industry. Individuals applying for NFA membership as a commodity trading advisor (CTA), a commodity pool operator (CPO), or a number of other related categories are required to obtain a series 3 license. Individuals in all of these categories must satisfy proficiency requirements for security futures products.
The test required for a series 3 license covers CFTC and NFA rules and regulations. Futures theory and hedging techniques are covered extensively on this exam and generally require numerous mathematical calculations. Options, contracts, margin, and settlements also comprise a good portion of the test. The series 3 exam outline is available online from the NFA along with information on how to apply. Various financial industry educational programs provide study aids and sample tests, which can be helpful in preparation for the exam.
NFA registration and passing the exam are the initial steps in the compliance procedure. A Federal Bureau of Investigation (FBI) deep background check will be required along with fingerprints and historical information. Online forms, application fees, and membership dues must be completed before a series 3 license can be issued. A security account must be established with the NFA and a designated security manager must be registered.
Compliance requirements are unique to each category, but all categories must maintain books and records that are available for inspection at any time. The NFA may conduct on site audits at any time, and records must be maintained for five years. Promotional materials and other communications with the public must comply with strict NFA and CFTC guidelines.
In order to solicit clients, a CTA or CPO must submit a disclosure document to the NFA for review. This document must be filed annually and should provide an exhaustive list of business operations and trading activities, including the securities traded and style of trading. These documents must be delivered to prospective clients, signed, and retained in firm records. Disclosures are very technical and must comply with the high standards of the regulatory authorities.
Compliance regulations are enforced to maintain a series 3 license. Futures professionals are considered self regulatory and must conduct business according to regulations provided by the CFTC and the NFA. Annual compliance requirements include registration updates and payment of dues. Ethics training and a disaster recovery plan are among the extensive duties and responsibilities of a licensed securities professional.
