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Taking the Series 3

Private fund advisers that will be required to register with the Commodity Futures Trading Commission (“CFTC”) and become members of the National Futures Association (“NFA”) by the end of the year due to the rescission of the CFTC exemption from registration previously available under Section 4.13(a)(4) of the Commodities Exchange Act should ensure that their associated persons (“APs”) pass the Series 3 examination. In order for a firm to become a NFA member, at least one “Principal” of the firm must register as an AP.  Passing the Series 3 is necessary in order to register as an AP.

“Principals” include individuals who:

  • hold more than 10% ownership interest in the firm directly or indirectly; 
  • are general partners, managing members or managers of the firm;
  • are directors or officers of the firm with specific titles such as the president, chief executive officer, chief operating officer or chief financial officer;
  • are in charge of business units or divisions; or
  • exercise a controlling influence on the firm.

In general, individuals who, through their conduct or activity, directly or indirectly control a registrant are principals of the registrant, irrespective of their formal title or financial interest in the registrant.  Chief Compliance Officers are considered principals in this respect.  Similarly, individuals who hold specific positions or titles with registrants are also principals of the registrant, irrespective of their ability to control the registrant's business.

Given that one of these individuals must register as an AP in order for the firm membership to be approved, a firm should ensure that at least one of its Principals takes the Series 3 as soon as possible. There are waiting periods before re-taking the exam if one fails; so the sooner the process starts the better.  There is a 30-day waiting period before an individual can retake the exam a second time; another 30-day waiting period before the third attempt; and a 180 day waiting period before the fourth attempt. 

It is important to note the definition of AP because although a firm must register at least one principal as an AP, the firm must register all the APs it employs. APs are individuals involved in a capacity that involves the “solicitation or acceptance of customer orders” or “the supervision of any person or persons so engaged”.  All persons, regardless of position title, who supervise persons who “solicit” must register as APs.  The CFTC has clarified that this includes not only people who are immediate supervisors of APs but everyone in “the line of supervisory authority” regardless of how senior the position, including the chief operating officer and the president of the firm.  Thus, several persons may need to pass the Series 3 before registering at the firm level, in order to fully comply with the rules.  The registration of these individuals is not needed in order for the firm registration to be effective, but is nonetheless necessary if these individuals are to lawfully continue their activities.

Over the last years, the NFA has found that several individuals employed by member firms should be registered as APs but are not, so this has become a focus of attention for the regulator.   Note that an alternative to the Series 3 is the Series 31 for those individuals who hold a Series 7 license and intend to engage in limited future activities.

Steps to taking the Series 3:

  • Apply with FINRA to take the exam by completing Form U10 on FINRA’s website. Note than an individual does not need to be sponsored by a firm in order to take the Series 3 exam (as is the case for other FINRA administered exams).
  • Once the U10 has been approved and processed by FINRA, you will receive a “Notice of Enrollment”. You should then schedule an appointment to sit for the exam within 120-days from receipt of the notice.

Please contact us if you have any questions regarding the CFTC registration process.

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