Series 63 exam

What Is the Series 63 Exam?

The Series 63 exam, formally known as the Uniform Securities Agent State Law Examination, is a qualification required by most U.S. states for financial professionals who intend to transact securities business within their jurisdictions. It falls under the broader category of Financial Regulation and securities licensing. Developed and administered by the North American Securities Administrators Association (NASAA) in coordination with the Financial Industry Regulatory Authority (FINRA), the Series 63 exam assesses a candidate's knowledge of state securities laws, rules, and regulations, primarily those outlined in the Uniform Securities Act.³⁹, ⁴⁰, ⁴¹ This examination is crucial for ensuring that individuals working as securities agents and certain investment adviser representatives understand their obligations regarding investor protection and ethical conduct at the state level.³⁸

History and Origin

The need for the Series 63 exam emerged from the evolution of state-level securities regulation, often referred to as "blue sky laws." These laws, designed to protect investors from fraudulent schemes, predated federal securities legislation.³⁶, ³⁷ The first Uniform Securities Act was promulgated in 1930 by the National Conference of Commissioners on Uniform State Laws (NCCUSL) to bring consistency to the disparate state regulations. Although that initial act saw limited adoption, a significantly revised version, the Uniform Securities Act of 1956, gained widespread acceptance across numerous jurisdictions.³⁴, ³⁵

The Series 63 exam itself was created in 1979 by NASAA to ensure that individuals selling securities at the state level possessed a foundational understanding of these state laws.³³ It focuses on principles derived from the Uniform Securities Act of 1956, along with amendments adopted by NASAA and rules concerning dishonest and unethical business practices.³¹, ³² This examination serves as a critical component in the dual regulatory system of U.S. securities markets, complementing the oversight provided by federal bodies like the U.S. Securities and Exchange Commission (SEC).

Key Takeaways

• The Series 63 exam is a state-level securities qualification required for most individuals transacting securities business.
• It is developed by the North American Securities Administrators Association (NASAA) and administered by the Financial Industry Regulatory Authority (FINRA).²⁹, ³⁰
• The exam primarily covers the principles of state securities regulation, particularly the Uniform Securities Act, and ethical business practices.²⁷, ²⁸
• Passing the Series 63 is generally a prerequisite for registration as a securities agent or certain investment adviser representatives in most U.S. states.²⁶
• It consists of 60 scored multiple-choice questions, requiring a passing score of 72% (43 correct answers).²⁵

Interpreting the Series 63 Exam

Passing the Series 63 exam signifies that a financial professional has demonstrated a fundamental understanding of state securities laws and regulations. This includes knowing the rules related to the registration of securities, broker-dealers, and agents, as well as prohibited practices and the authority of state securities administrators.²³, ²⁴ The exam is not just about memorizing rules; it tests the application of ethical principles and fiduciary duty in real-world scenarios.²¹, ²²

For an individual, passing the Series 63 typically enables them to register and conduct business in a state where the exam is a requirement, thereby enhancing their professional capabilities within the securities industry. For investors, the existence of such licensing requirements aims to ensure that the professionals they deal with adhere to a baseline of regulatory knowledge and ethical standards designed for their protection.²⁰

Hypothetical Example

Consider an individual, Sarah, who has just completed her securities licensing coursework and is seeking to become a registered agent for a broker-dealer in a state that requires the Series 63 exam. Sarah must register with FINRA and schedule her Series 63 exam through them, which is administered on behalf of NASAA.¹⁸, ¹⁹

During her preparation, Sarah focuses on understanding the Uniform Securities Act, especially sections pertaining to the registration of agents, broker-dealers, and securities offerings, as well as rules regarding unethical business practices and client communications. On exam day, she answers 45 out of 60 scored questions correctly, achieving a passing score. This demonstrates her competency in state securities laws, allowing her firm to proceed with her state registration. Without passing the Series 63, Sarah would not be permitted to buy and sell equity securities or other investment products on behalf of clients in that state.

Practical Applications

The Series 63 exam is practically applied as a gatekeeping mechanism for entry into the securities profession at the state level. It ensures that individuals who interact with the public concerning investments possess a foundational understanding of the legal and ethical responsibilities unique to state regulation.

• Securities Agent Registration: Most states require broker-dealer agents to pass the Series 63 in addition to other federal exams (like the Series 7) to become licensed and conduct business.¹⁷
• Investment Adviser Representative Registration: In some cases, individuals serving as investment adviser representatives may also need to pass the Series 63, depending on state-specific licensing requirements and the scope of their activities.¹⁶
• Compliance and Ethics: The exam reinforces knowledge of ethical practices and obligations, helping to maintain standards of conduct in the financial services industry.¹⁴, ¹⁵
• Investor Protection: By requiring knowledge of state securities laws, the Series 63 contributes to the overall framework designed to protect individual investors from fraudulent and manipulative practices. State securities regulators, often referred to as "blue sky" regulators, play a vital role in enforcing these localized laws.¹², ¹³

Further information about state securities regulators and their role in investor protection can be found through resources provided by Investor.gov, an educational website of the SEC.¹¹

Limitations and Criticisms

While the Series 63 exam is vital for state-level regulation, it does have limitations. One common critique is that it primarily focuses on state "blue sky" laws and regulations, which can sometimes overlap with or be perceived as redundant alongside federal securities laws, such as the Securities Exchange Act of 1934. However, state regulators emphasize that their role is crucial for addressing local fraud and providing an additional layer of investor protection where federal oversight may not fully reach or specifically address certain intrastate activities.

Another limitation is that while the Series 63 exam tests knowledge of rules and ethical obligations, passing it does not guarantee ethical behavior or expertise in all areas of financial practice. It sets a minimum competency standard for understanding regulatory frameworks, but ongoing continuing education and adherence to internal firm policies are also necessary to ensure sustained compliance and client-centric practices. Some individuals may find the exam challenging due to the precise legal terminology and the need to differentiate between various registration requirements and exemptions.¹⁰

Series 63 vs. Series 7 Exam

The Series 63 exam and the Series 7 exam are both critical securities licenses, but they serve different purposes within the financial industry's regulatory framework. The key distinction lies in their scope:

The Series 63 is state-specific, focusing on the "blue sky" laws that govern securities activities within individual states.⁹ In contrast, the Series 7, formally known as the General Securities Representative Qualification Examination, is a broader federal-level exam that covers a wide range of securities products and regulatory aspects of sales. Most securities professionals need to pass both exams—the Series 7 to qualify to sell various securities products, and the Series 63 to meet the state-specific regulatory requirements for conducting that business.

FAQs

Who needs to take the Series 63 exam?

Individuals seeking to register as securities agents (stockbrokers) for broker-dealers, and in some cases, certain investment adviser representatives, typically need to pass the Series 63 exam. This requirement applies to those who will transact securities business in states that mandate the exam for registration.

How long is the Series 63 exam?

The Series 63 exam consists of 60 scored multiple-choice questions, plus 5 unscored experimental questions, for a total of 65 questions. Candidates are allotted 75 minutes to complete the exam.

⁷, ⁸### What is a passing score for the Series 63 exam?
To pass the Series 63 exam, candidates must correctly answer at least 43 out of the 60 scored questions, which equates to a score of 72%.

⁶### What topics are covered on the Series 63 exam?
The Series 63 exam covers a range of topics related to state securities regulation, including the registration requirements for agents, broker-dealers, and investment advisers, as outlined in the Uniform Securities Act. It also extensively tests knowledge of prohibited practices, ethical obligations, and the powers of the state securities administrator.

³, ⁴, ⁵### Is the Series 63 exam difficult?
The Series 63 exam is often considered challenging due to its focus on precise legal definitions and nuanced interpretations of state securities laws. While generally shorter than other securities exams, success requires dedicated study of the Uniform Securities Act and understanding its application to various scenarios.¹, ²