The Series 56 is a designation required by the SEC for any person who wishes to participate in proprietary trading activities. The designation is obtained by passing a 100 question comprehensive exam administered by FINRA, and allows a trader to participate in proprietary trading over many exchanges such as the Chicago Board of Options Exchange (CBOE), (CBSX), the National Stock Exchange (NSX), and the International Stock Exchange (ISE).
The Series 56 was first required in 2011, and was created by the self-regulating organizations mentioned above. The exam covers topics such as securities markets and how they operate, trading products, fraud prevention, investment strategies, and trading and reporting practices. Designed specifically for proprietary traders, the exam ensures that traders are educated and relatively sophisticated market participants. This is for the healthy operation of securities markets as well as for the trader’s personal protection, as market operations have become increasingly complex as technology advances.
The series 56 exam allows a testing time of 2 ½ hours, and requires a passing score of 70. Initially pass rates for the exam were very low as high quality study material had yet to be developed. The materials have quickly improved, and while official statistics are not available the exam is now relatively easy to pass for those who study. If a prospective trader fails the test, he must wait 30 days to take the test again. If the trader fails a second time, he must wait another 30 days. If he fails a third time, he must wait 180 days to re-take the test.
A Series 7 license is considered to supersede the Series 56, and if a trader holds an active Series 7 a waiver may be granted by the CBOE and the trader will not have to pass the Series 56 exam.
While traders might not enjoy having to pass the Series 56 exam, ultimately the information that must be known to pass the exam is for the protection of the trader and for our securities markets.