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The Series 4 is the Registered Options Principal Qualification Examination administered by the Financial Industry Regulatory Authority. Passing it makes you a Registered Options Principal, authorized to supervise options trading, customer options accounts, options sales activities, and options-related recordkeeping at a broker-dealer. It is a principal-level license, meaning it qualifies you to oversee others rather than simply sell securities.
Think of the Series 4 as the compliance badge for running the options desk at a brokerage.
The exam tests your ability to supervise all aspects of a firm's options business. That includes reviewing options account applications and determining customer suitability, approving options trading strategies, monitoring position limits and exercise limits, and overseeing options advertising and communications with the public.
The six major job functions covered are: supervising customer accounts and options trading strategies, overseeing sales activities and trading practices, managing recordkeeping and reporting, handling personnel management and business conduct, reviewing exchange rules applicable to options trading, and ensuring compliance with securities laws governing options activity.
The Series 4 exam consists of 125 multiple-choice questions. You have three hours and 15 minutes to complete it. The passing score is 72%, one of the higher thresholds in the Financial Industry Regulatory Authority's exam catalog. The exam fee is $200. You must also pass the Securities Industry Essentials exam and the Series 7 before taking the Series 4.
The Financial Industry Regulatory Authority uses a standard-setting process to establish each exam's passing score based on the minimum competency level required to supervise those activities safely. The Series 4 requires 72% because supervisory authority over complex options transactions carries higher stakes than some other licensing functions. The Series 79 investment banking exam also uses a 73% passing threshold for the same reason.
Every broker-dealer that conducts options business must designate at least one Registered Options Principal. That principal reviews and approves customer account applications for options trading, monitors trading activity for compliance with suitability and position limit rules, and approves options advertising. Without a Series 4 principal on staff, the firm cannot accept options transactions for customers.
The Series 9/10 allows sales supervisors to oversee options sales activities but does not replace the Series 4. A Registered Options Principal's authority is broader: it covers the overall management of the firm's options compliance program, not just day-to-day sales supervision.
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