The Series 79 Exam: What It Is And When You Need It

By Peter Cherewyk AAA

The Series 79 exam is a lighter version of the Series 7 exam, but don't be fooled, the exam is deceptively difficult.

Tutorial: Advanced Financial Statement Analysis

The Series 79 exam is for those looking to work in the area of investment banking. Before 2009 the more popular exam (the Series 7) was required to be a general broker, but some representatives found they were only performing investment banking activities, which is only a small portion of the Series 7 exam. Retail securities firms provide a different set of functions and services than investment bankers, so the Series 7 testing material covered topics beyond the duties of most investment bankers. Because of these concerns, a job analysis was conducted and a committee of investment bankers agreed on the major duties, job functions and tasks associated with this investment banking. In 2009 the Securities and Exchange Commission (SEC) approved the more focused, Investment Banking Representative Qualification Examination (Series 79). This exam is also referred to as the "Limited Representative" Investment Bankers's exam because it was designed for entry level investment bankers.

Who Needs the Series 79
What is investment banking and how do you know you need the Series 79 license? Besides being told by your employer, there are specific areas of finance where you will probably need this license. NASD Rule 1032 defines the different types of representative categories, and section (i) Limited Representative - Investment Banking gives a more than thorough explanation of the areas.

Prerequisites
The series 79 satisfies the Series 24 prerequisite as a representative exam. But because the Series 79 focuses on investment banking, the Series 24 General Securities Principal will be limited to investment banking supervisory responsibilities if they only have the Series 79. The Series 7 is more general and is not a substitute for the Series 79. So those looking to move into supervising investment bankers will need the Series 79 even if they already have the Series 7. This is one of the only cases where the Series 79 can be used as a prerequisite instead of the Series 7. (Knowing how the primary and secondary markets work is key to understanding how stocks trade, read A Look At Primary And Secondary Markets.)

Generally if you deal in either of these two main areas of activities, either as a worker or a supervisor, you might need the Series 79.

1. Debt or equity offerings through public or private placement.

Other activities involved which the series 79 might be required for:

  • Pricing of securities in the debt and equity offerings
  • Origination, which deals with equity capital markets and debt capital markets
  • Underwriting
  • Marketing
  • Structuring
  • Syndication
  • Managing the allocation and stabilization activities of offerings

or

2. Mergers, acquisitions and financial restructuring

Some responsibilities that a series 79 will train on or might be required for.

There Are Exceptions
Even if the employee participates in these investment banking activities they might not need a Series 79 if the exposure is very limited. Also in some jobs where new associated employees rotate among different business areas and departments for training purposes, there is some leeway. These workers will be given a six month grace period from when they start working in investment banking activities. Normally, working in these areas would trigger the need to register as an Investment Banking Representative, but this exception allows firms to train employees. For a complete guide to exemptions look at NASD Rule 1032 (i).

The Series 79 Exam
The exam is made up of 175 multiple choice questions consisting of four potential answers, but there are 10 additional questions which are added that don't count toward your score. This brings the total questions taken to 185. The 10 additional questions are potential exam questions, and examined by a committee to determine the difficulty. Candidates are given five hours to complete the exam which gives them 1 minute and 37 seconds per question. This is done on computer so the results are given right after the exam as a pass or fail, as well as a breakdown of the performance in each section.

Sections

1. Collection, analysis and evaluation of data (43%)
This section is the largest with 75 questions and includes finding the relevant data, and understanding where you will need to look to get it. For example, knowing what will be in proxy statements Form 14A or Form 4s for beneficial ownership of directors. This section also goes into communicating with different departments and clients. Using metrics and ratios, and trends to evaluate what you have found in the firm and sector data. Finally, this section wraps up with understanding due diligence activities, such as knowing the buy and sell side due diligence and regulatory requirements. (Certain transactions reveal much about a stock. We go over what to consider and where to find it, read Keeping An Eye On The Activities Of Insiders And Institutions.)

2.Underwriting/new financing transactions, types of offerings and registration of securities (25%)
This section has 43 questions and deals with regulations of filing and registering securities. This includes forms (such as the prospectus), rules and required financial statements. This section also covers the distribution of marketing materials and many associated rules.

3.Mergers and acquisitions, tender offers and financial restructuring transactions (19%)
This section has 34 questions and goes into the buy side and sell side transactions, the fairness opinion and of course the SEC rules and regulation. This section also goes into tender offer regulations and financial restructuring. (Learn more in Buy Side Vs. Sell Side Analysts.)

4. General securities industry regulations (13%)
This section has 23 questions and goes into proper business conduct including registration of individuals, continuing education, and handling customer complaints.

Requirements and Passing
Candidates must be sponsored by a FINRA member before they can even take the exam. Requirements for eligibility include taking the appropriate qualification examination. This is outlined in NASD rule 1032 (i).

Candidates need to answer a certain number of questions correctly to pass but the actual number is not known. Also, the pass score can change from one year to the next. Some think the pass rate is around 73%, which is about 128 correct answers, but this doesn't include the 10 additional questions thrown in, and is only an estimate.

Investment Banking Representative Qualification Examination
Before 2009, whether working as a representative with retail clients or just doing investment banking activities you would need the Series 7. Now, if you have decided to focus on investment banking as a career you can take the Series 79 to become a limited representative. Later, if you want to move into a retail securities firm you can take the Series 7. But don't take this test lightly; it is more focused but extremely challenging.

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