Series 6

A security is any investment instrument that represents ownership, a creditor relationship, or rights to ownership. The Securities Act of 1933 provides a comprehensive definition that includes stocks, bonds, notes, debentures, evidence of indebtedness, certificates of interest or participation in profit-sharing agreements, investment contracts, voting trust certificates, fractional undivided interests in oil, gas, or mineral rights, and any put, call, straddle, option, or privilege on any security.

The Howey Test, derived from the Supreme Court case SEC v. W.J. Howey Co. (1946), establishes the criteria for determining whether an arrangement constitutes an investment contract and therefore a security. Under this test, an investment contract exists when there is an investment of money in a common enterprise with an expectation of profits derived primarily from the efforts of others.

Securities fall into two primary categories: equity securities and debt securities. Equity securities represent ownership interests in corporations and include common stock, preferred stock, and convertible securities. Debt securities represent creditor relationships and include bonds, debentures, notes, and other evidence of indebtedness.

For Series 6 purposes, the focus centers on specific securities products: mutual funds (open-end investment companies), variable annuities, variable life insurance policies, unit investment trusts, and municipal fund securities such as 529 college savings plans. These products share characteristics that distinguish them from individual stocks and bonds traded on exchanges.

Certain securities are exempt from registration requirements under the Securities Act of 1933. These exemptions exist because the securities are already subject to other regulatory oversight or because the nature of the issuer reduces investor risk. Exempt securities include U.S. government securities (Treasury bills, notes, and bonds), municipal securities issued by state and local governments, securities issued by banks and savings institutions, commercial paper with maturities of 270 days or less, and securities issued by nonprofit religious, educational, or charitable organizations.

Insurance products that do not have variable features, such as fixed annuities and whole life insurance policies, are not considered securities and fall under state insurance regulation rather than federal securities law.

Securities that must be registered with the SEC before being offered to the public include corporate stocks and bonds, mutual fund shares, variable annuity contracts, variable life insurance policies, and unit investment trust units. These products require full disclosure through registration statements and prospectuses to ensure investors have access to material information before making investment decisions.

FINRA is a self-regulatory organization (SRO) authorized by Congress to protect investors by ensuring the securities industry operates fairly and honestly. Created in 2007 through the consolidation of NASD and the regulatory functions of the New York Stock Exchange, FINRA oversees more than 3,400 brokerage firms and approximately 625,000 registered representatives.

FINRA operates under the supervision of the Securities and Exchange Commission (SEC) and derives its authority from the Securities Exchange Act of 1934. As an SRO, FINRA writes and enforces rules governing the activities of member firms and registered representatives, examines firms for compliance, fosters market transparency, and provides investor education.

FINRA performs several essential regulatory functions. Registration and licensing involves qualifying individuals and firms to participate in the securities industry through examination and background checks. Rulemaking establishes conduct standards for member firms and associated persons. Examination programs assess firm compliance with securities laws and FINRA rules. Enforcement actions address violations through disciplinary proceedings, fines, suspensions, and bars from the industry. Market regulation monitors trading activity for manipulation and other violations. Dispute resolution provides arbitration and mediation services for investor and industry disputes.

Broker-dealers must become FINRA members to conduct securities business with the public. Membership requires filing Form BD (Uniform Application for Broker-Dealer Registration), demonstrating adequate net capital, establishing supervisory procedures, and agreeing to comply with FINRA rules and the federal securities laws.

Member firms must employ qualified principals to supervise business activities and ensure that all persons engaged in securities business are properly registered. Firms must also maintain required books and records, file periodic reports, and cooperate with FINRA examinations and investigations.

FINRA maintains various registration categories based on the securities activities individuals will perform. Series 6 registration permits representatives to sell investment company products (mutual funds), variable contracts (variable annuities and variable life insurance), and certain other products. Series 7 (General Securities Representative) permits a broader range of activities including individual stocks and bonds. Series 63 (Uniform Securities Agent State Law) and Series 66 (Uniform Combined State Law) address state registration requirements.

Principals who supervise registered representatives must hold appropriate principal licenses. Series 26 (Investment Company and Variable Contracts Products Principal) qualifies individuals to supervise Series 6 representatives. Series 24 (General Securities Principal) provides broader supervisory authority.