By Jessica Titlebaum

A new regulatory exam is hanging over the heads of market makers, proprietary traders and floor brokers called the Series 56, also known as the Proprietary Trader Exam.

Created by the self-regulatory organizations and a variety of exchanges including the Chicago Board Options Exchange, Nasdaq OMX and the International Securities Exchange (ISE); the exam tests traders’ knowledge of the securities markets, trading and reporting practices, investment strategies and anti-fraud provisions as they pertain to the proprietary trading role.

The Proprietary Trader exam is similar to the Series 7 with the difference being it is focused on trading-specific topics. According to those familiar with the matter, the exam looks at the direction, knowledge and dealings associated with proprietary trading.

For those traders who have already passed the Series 7 exam, it may be possible to fill out a waiver form to circumvent the Series 56. Representatives of the Chicago Board Options Exchange will accept applications on a case-by-case basis. If you are interested in filling out a waiver form, please visit www.cboe.org/examwaiver.

Study Materials Needed

After a request from the Chicago Board Options Exchange to push the deadline back from August 12, the Securities and Exchange Commission now requires traders to pass the Series 56 by September 19, 2011.

With the deadline quickly approaching, many traders have expressed concern about the lack of readily available study materials. The CBOE as well as the ISE has published content outlines that look at specific rules covered on the Series 56. Also, the CBOE's Options Institute plans to offer study materials by the end of July.

Gavin Rowe, managing director at the International Trading Institute, praises the Chicago Board Options Exchange’s efforts.

“The CBOE appears to have worked with the SEC to set a more realistic deadline and a functional waiver process for the exam,” said Rowe.
“Reasonably, the Exchange seems willing to consider the merits of having passed alternate securities exams as well as extended, unblemished prior trading experience. As word spreads, I assume that the anxiety in the trading community will moderate.”

While this time is sometimes slow for the financial industry, it seems like options traders may be hitting the books this summer. Good luck traders!