What Is the Series 31?
The Series 31 is an exam and securities license entitling the holder to sell managed futures funds or supervise those activities. It also certifies individuals who want to receive trailing commissions on commodity limited partnerships, managed accounts, or commodity pools as advised by Commodity Trading Advisors (CTA).
The Series 31 Exam is a National Futures Association (NFA) exam administered by the Financial Industry Regulatory Authority (FINRA). Also known as the Futures Managed Funds Examination, it covers topics such as rules, regulations, and responsibilities with respect to the futures industry.
- The Series 31 is a financial industry licensing exam that allows one to sell or supervise managed futures funds or commodity pools.
- Managed futures accounts are investment vehicles that hold positions in derivatives, such as commodity futures, stock options, and interest rate swaps.
- The exam is administered by the National Futures Association (NFA) in conjunction with FINRA.
Series 31 Structure
In the United States, providers of managed futures accounts are regulated by the Commodity Futures Trading Commission (CFTC) as well as the National Futures Association (NFA).
The Series 31 Exam consists of 45 multiple-choice questions, which candidates have 60 minutes to complete. A passing score is 70%. Candidates must be registered with FINRA to take the test. The exam's cost is $85.
Series 31 Requirements
An individual may utilize a Series 31 if they meet the following criteria:
- They are registered with FINRA as a General Securities Representative with a FINRA member firm;
- The FINRA member firm is also an NFA FCM (futures commission merchant) or IB (introducing broker) Member firm or an applicant for NFA FCM or IB membership and is sponsoring the individual for AP registration; and
- The individual is going to limit futures activities on behalf of that NFA/FINRA sponsoring firm to soliciting funds, securities, or property for participation in a commodity pool, soliciting discretionary accounts to be managed by CTAs, or supervising persons who perform these same limited activities.
Series 31 Outline
The Series 31 covers these major subject areas:
- General Market Knowledge: This includes definitions and significance of margins, futures and forward contracts, prince limits, open interest, offsetting contracts, "marking-to-market," settlement, spread trades, basis, hedging, yield curve, cost of carry, leverage, and price volatility.
- General Regulation: Arbitration claims and awards, NFA disciplinary process, NFA Compliance Rule 2-9 (supervision of employees), "Qualified Eligible Participant," registration requirements, trading on foreign markets, books, and records to be maintained.
- CPO/CTA Regulations: Reports to customers, exemptions from registration, records to be maintained, limited partnerships, accepting funds from customers.
- CPO/CTA Disclosure Documents: Management and incentive fees, performance records, conflicts of interest, how long a CPO (commodity pool operator) or CTA can use a disclosure document, pool units purchased by principals, disclosure statements, business backgrounds of principals, NFA review of document before use and disclosure of disciplinary action.
- Know Your Customer Rule: Client information required and risk disclosures.
- Disclosure by CPOs and CTAs Required for Upfront Fees: Disclosure of upfront fees and expenses and the effect of upfront fees and organizational expenses on net performance.
- Promotional Material (Compliance Rule 2-29): Definition of promotional material, standardized sales presentations, use of a third-party consulting or advertising firm, reprints of articles from industry publications, recordkeeping of promotional material, past performance, hypothetical trading results, written procedures for promotional material and supervisory review of promotional material.
For more detail, see the NFA's Series 31 Study Outline.