Registered Principal

What Is a Registered Principal?

The term registered principal refers to a licensed securities dealer empowered to oversee operational, compliance, trading, and sales personnel. Put simply, a registered principal is someone who holds a position in management in a securities or investment company. A registered principal must hold a principal license and since they also function in securities dealing, they must also possess some of the most basic securities licenses. These individuals are legally liable for any problems that occur in their firms and, as such, must be registered with regulators at the state and/or federal levels.

Understanding Registered Principals

Registered principals are management professionals who work in securities, investment, and other financial companies including brokerages. Firms are required to have at least two registered principals unless they are classified as sole partnerships. These individuals have a series of responsibilities that include supervising sales, operational, and trading teams while ensuring that their firms comply with all the necessary regulatory requirements. Registered principals make sure:

Registered principals at brokerage firms oversee the sales and trading functions, supervise an investment firms' regulatory compliance or their overall operations. Permitted activities include trading, market-making, underwriting, and advertising — sales and advertising literature must be approved by a principal prior to use. Individuals involved in investment banking may also be required to be registered principals.

The privileges extended to registered principals come with significant responsibility — even to the point of legal liability. Because compliance is a big part of their duties, they are held responsible for any mistakes or problems that arise at their firm. So if a trader isn't properly licensed or there's a discrepancy in some of the required filings submitted by the company, the registered principal is the individual who must answer to state or federal authorities.

The Financial Industry Regulatory Authority (FINRA) — as well as other regulatory bodies — requires individuals to pass the Series 24 exam before they can become a registered principal. An individual who passes this exam is able to conduct supervisory and compliance duties, as well as underwriting, trading, and marketing activities. This is in addition to the usual exams that are required for broker-dealers, such as the Series 7 exam. Those who wish to be registered options principals (ROPs) — professionals who want to oversee options trading at financial companies — need to pass the FINRA Series 4 Exam.

You must pass the Financial Financial Industry Regulatory Authority's Series 24 exam in order to become a registered principal.

Special Considerations

As noted above, passing FINRA's Series 24 exam — also known as the General Securities Principal Qualification Exam — is required in order to become a registered principal. The exam consists of 160 questions — 10 of which are unscored and randomly placed throughout the test. Candidates are given three hours and 45 minutes to complete the exam. A score of 70% is required to pass. The exam covers five main job functions:

Registered principal candidates must pass the Securities Industry Essentials (SIE) Exam and at least one other exam in order to take the Series 24. These include the:

When an individual passes the Series 57 exam, the candidate receives the designation of trader principal rather than that of a general principal upon passing the Series 24.