What Is an NASD License and How Do You Maintain It?

Financial professionals working in securities must meet licensing requirements to ensure they have the necessary knowledge and ethical standards. One such requirement was the NASD license, which governed individuals dealing with stocks, bonds, and other investments under the National Association of Securities Dealers (NASD). Although FINRA replaced NASD in 2007, many still refer to these licenses by their former name.

Eligibility Criteria

To obtain a securities license, individuals must be sponsored by a FINRA-registered firm. Independent applications are not permitted, so candidates must first secure employment or an affiliation with a FINRA-member firm.

Applicants undergo a background check, including a review of financial history, criminal record, and past regulatory infractions. FINRA collects this information through Form U4 (Uniform Application for Securities Industry Registration or Transfer). A history of fraud, felony convictions, or financial misconduct can disqualify an applicant or require additional scrutiny.

While no formal degree is required, many professionals in the industry hold degrees in finance, economics, or business. Though FINRA does not mandate a specific academic background, firms often prefer candidates with relevant coursework or experience in financial markets, investment analysis, or risk management.

Examination Requirements

Securities professionals must pass specific FINRA-administered exams to demonstrate knowledge of financial regulations, investment products, and ethical responsibilities. The required exams depend on the role an individual intends to pursue.

Series 7

The Series 7 exam, or General Securities Representative Qualification Examination, is required for individuals who want to sell a broad range of securities, including stocks, bonds, mutual funds, and options. It consists of 125 multiple-choice questions, with a time limit of 225 minutes. A passing score is 72%.

The exam covers equity and debt instruments, options trading, retirement plans, and regulatory requirements. It also assesses a candidate’s ability to recommend suitable investments while complying with SEC and FINRA regulations.

Before taking the Series 7, candidates must pass the Securities Industry Essentials (SIE) exam, which covers fundamental industry knowledge. The Series 7 qualifies individuals to engage in nearly all types of securities transactions except for commodities and futures, which require separate licensing.

Series 63

The Series 63 exam, or Uniform Securities Agent State Law Examination, is required for individuals selling securities at the state level. Unlike the Series 7, which focuses on product knowledge and trading regulations, the Series 63 tests an individual’s understanding of state securities laws and ethical responsibilities. The exam consists of 60 multiple-choice questions, with a passing score of 72%. Candidates have 75 minutes to complete it.

Based on the Uniform Securities Act, the exam covers registration requirements, fraudulent practices, and fiduciary responsibilities. Most states require the Series 63 in addition to a product-specific exam like the Series 7. While FINRA administers the test, it is developed by the North American Securities Administrators Association (NASAA), which oversees state-level securities regulation.

Series 24

The Series 24 exam, or General Securities Principal Qualification Examination, is required for individuals in supervisory roles, such as branch managers or compliance officers. It consists of 150 multiple-choice questions, with a passing score of 70%. Candidates have 3 hours and 45 minutes to complete it.

The exam covers broker-dealer operations, regulatory reporting, financial responsibility rules, and supervisory procedures. It also includes sections on preventing market manipulation, handling customer complaints, and enforcing compliance with SEC and FINRA regulations.

To take the Series 24, candidates must already hold a qualifying representative-level license, such as the Series 7. Passing the Series 24 allows individuals to oversee registered representatives, approve new accounts, and ensure compliance within their firm.

Maintaining an Active License

Securities professionals must meet ongoing regulatory requirements, including continuing education, firm association, and compliance with industry rules.

FINRA’s Continuing Education (CE) requirements consist of two components: the Regulatory Element and the Firm Element. The Regulatory Element applies to all registered individuals and must be completed within 120 days of their second registration anniversary and every three years thereafter. This training covers changes in securities laws, ethical responsibilities, and best practices for client interactions. The Firm Element is customized by each broker-dealer based on the specific risks and activities of its employees. Firms assess training needs annually and design programs to address compliance issues, new products, and emerging industry trends.

A license remains active only while an individual is employed by a FINRA-member firm. If an individual leaves a firm, their registration becomes inactive, and they have a two-year window to associate with another firm before being required to retake licensing exams. During this period, they cannot engage in securities transactions or represent themselves as licensed professionals. If re-employment does not occur within the timeframe, they must restart the licensing process, including retaking the necessary exams.

Securities professionals must also comply with FINRA’s annual renewal process, which includes paying registration fees and updating personal and professional information through the Central Registration Depository (CRD) system. Any changes in criminal history, financial issues such as bankruptcies, or regulatory actions must be disclosed. Failure to update this information accurately can result in fines or disciplinary measures.

Possible Suspension or Revocation Reasons

Regulatory violations, unethical conduct, or financial misconduct can lead to the suspension or revocation of a securities license. Serious offenses include insider trading, market manipulation, and misrepresenting investment risks. Violations of the Securities Exchange Act of 1934, such as front-running trades or engaging in pump-and-dump schemes, can result in severe penalties, including permanent disqualification from the industry.

Failure to adhere to fiduciary responsibilities can also lead to disciplinary action. While broker-dealers are generally held to a suitability standard under FINRA Rule 2111, investment advisers must comply with a fiduciary duty under the Investment Advisers Act of 1940. Recommending investments based on commissions rather than client interests, excessive trading (churning), or unauthorized transactions can trigger enforcement actions by FINRA or the SEC, potentially resulting in license suspension.

Regulatory infractions related to Anti-Money Laundering (AML) compliance are another common cause for disciplinary measures. Under the Bank Secrecy Act and FINRA Rule 3310, firms must implement procedures to detect and report suspicious financial activity. Failing to conduct proper customer due diligence (CDD) or neglecting to file Suspicious Activity Reports (SARs) can lead to fines and registration termination.