Series 3: What it is, How it Works, Alternatives

What Is the Series 3?

The Series 3 is an exam, also known as the National Commodities Futures Examination, administered by the Financial Industry Regulatory Authority (FINRA) on behalf of the National Futures Association (NFA). Candidates who pass the exam are eligible to register with the NFA and sell commodity futures contracts and options on commodity futures contracts. The Series 3 is one of a number of exams for investment professionals administered by FINRA, including the Series 7, General Securities Representative Exam, which is required for brokers who wish to sell corporate, government, or other types of securities.

How the Series 3 Works

The Series 3 exam covers topics that commodities brokers need to know, such as options, futures, hedging, and margin requirements, as well as market and regulatory rules. The exam consists of 120 multiple-choice questions in two parts, and candidates have two hours and 30 minutes to complete it. Unlike the Series 7 exam, candidates do not need to be sponsored by a firm in order to take the Series 3.

Candidates must achieve a score of around 70% in each part to pass the exam. (There is no official pass rate, but the widely accepted pass rate is around 70%.) Those who fail to pass may take the exam over again, although they may be subject to a waiting period. The exam costs $130.

The NFA, a self-regulatory organization for the U.S. derivatives market, requires anyone "who is applying for NFA membership as a futures commission merchant (FCM), retail foreign exchange dealer (RFED), introducing broker (IB), commodity pool operator (CPO), or commodity trading advisor (CTA), leverage transaction merchant (LTM) or as an associated person (AP) of these entities, to satisfy proficiency requirements."

In most cases, individuals seeking NFA membership or registration as an associated person must pass the Series 3 exam within two years before they apply. That's unless:

• The individual is currently registered as a floor broker
• The individual passed the Series 3 more than two years preceding the application and since that date has not had a continuous registration gap for more than two years as an AP or FB or FCM, IB, CPO, CTA, or LTM who is a member of NFA.

To sign up for any futures industry exams, an applicant must apply online at the FINRA website. Typically, FINRA will notify directly the NFA that an individual has passed one of the futures industry exams. In some circumstances, however, the NFA may request that candidates provide proof that they passed.

Alternatives to the Series 3

Rather than the Series 3, individuals may be eligible to take other exams and pursue other registration options based on their registration status and the nature of the business they conduct. Those include:

• Futures Managed Funds Examination (Series 31)
• Limited Futures Examination-Regulations (Series 32)

Other certification exams related to the Series 3 are the Series 30 (NFA Branch Manager Examination) and Series 34 (Retail Off-Exchange Forex Examination).

The Series 3 is not considered a prerequisite or corequisite for any of these other exams.

For more information on the Series 3 and other futures industry exams, visit the NFA's Proficiency Requirements page. And for more details on taking the test, visit FINRA's On the Day of Your Qualification Exam resource page.