What Is a Registered Principal?
The term registered principal refers to a licensed securities dealer empowered to oversee operational, compliance, trading, and sales personnel. Put simply, a registered principal is someone who holds a position in management in a securities or investment company. A registered principal must hold a principal license and since they also function in securities dealing, they must also possess some of the most basic securities licenses. These individuals are legally liable for any problems that occur in their firms and, as such, must be registered with regulators at the state and/or federal levels.
- A registered principal is a licensed securities dealer empowered to oversee operational, compliance, trading, and sales personnel.
- Registered principals must hold principal licenses as well as some of the most basic securities licenses.
- These individuals are legally liable for any problems that occur in their firms because they are responsible for licensing and compliance issues at their firms.
Understanding Registered Principals
Registered principals are management professionals who work in securities, investment, and other financial companies including brokerages. Firms are required to have at least two registered principals unless they are classified as sole partnerships. These individuals have a series of responsibilities that include supervising sales, operational, and trading teams while ensuring that their firms comply with all the necessary regulatory requirements. Registered principals make sure:
- paperwork submitted by their firms to regulators is accurate and filed on time
- employees and other key personnel are all properly licensed
- the firm maintains minimum capital requirements
- compulsory fees are paid on a timely basis
Registered principals at brokerage firms oversee the sales and trading functions, supervise an investment firms' regulatory compliance or their overall operations. Permitted activities include trading, market-making, underwriting, and advertising—sales and advertising literature must be approved by a principal prior to use. Individuals involved in investment banking may also be required to be registered principals.
The privileges extended to registered principals come with significant responsibility—even to the point of legal liability. Because compliance is a big part of their duties, they are held responsible for any mistakes or problems that arise at their firm. So if a trader isn't properly licensed or there's a discrepancy in some of the required filings submitted by the company, the registered principal is the individual who must answer to state or federal authorities.
The Financial Industry Regulatory Authority (FINRA)—as well as other regulatory bodies—requires individuals to pass the Series 24 exam before they can become a registered principal. An individual who passes this exam is able to conduct supervisory and compliance duties, as well as underwriting, trading, and marketing activities. This is in addition to the usual exams that are required for broker-dealers, such as the Series 7 exam. Those who wish to be registered options principals (ROPs)—professionals who want to oversee options trading at financial companies—need to pass the FINRA Series 4 Exam.
You must pass the Financial Financial Industry Regulatory Authority's Series 24 exam in order to become a registered principal.
As noted above, passing FINRA's Series 24 exam—also known as the General Securities Principal Qualification Examination—is required in order to become a registered principal. The exam consists of 160 questions—10 of which are unscored and randomly placed throughout the test. Candidates are given three hours and 45 minutes to complete the exam. A score of 70% is required to pass. The exam covers five main job functions:
- Function 1: Supervision of registration of broker-dealer and personnel management activities. This section consists of nine questions.
- Function 2: Supervision of general broker-dealer activities. There are 45 questions in this section.
- Function 3: Supervision of retail and institutional customer-related activities. In this portion, candidates are required to answer 32 questions.
- Function 4: Supervision of trading and market-making activities. This portion has 32 questions.
- Function 5: Supervision of investment banking and research, which consists of 32 questions.
Registered principal candidates must pass at least one other exam in order to take the Series 24. These include the:
- Series 7 exam—General Securities Representative Qualification Examination
- Series 17 exam—Limited Registered Representative
- Series 37 exam—Canada Securities Representative Exam
- Series 38 exam—Canada Securities Representative Exam
- Series 57 exam—Security Trader Exam
- Series 62 exam—Corporate Securities Representative Exam
- Series 79 exam—Investment Banking Representative Exam
- Series 82 exam—Private Securities Offerings Representative Exam
When an individual passes the Series 57 exam, the candidate receives the designation of trader principal rather than that of a general principal upon passing the Series 24.