Chapter 2: General Broker-Dealer Supervision
This chapter covers 30% of the Series 24 exam (approximately 45 questions), the single largest section. It defines the firm-wide supervisory infrastructure: the procedures, conduct standards, compensation rules, product approvals, disciplinary process, recordkeeping requirements, and financial responsibility framework that govern every activity downstream.
What You'll Learn
| Unit | Topic | Key Concepts |
|---|---|---|
| 1 | Written Supervisory Procedures and Controls | FINRA supervisory system, internal supervisory controls, CEO/CCO annual certification, business continuity plans, OSJ classification and inspections |
| 2 | Conduct of Associated Persons | Anti-fraud provisions, misuse of customer assets, fiduciary duty, insider trading, market manipulation, personal trading, outside business activities, customer borrowing/lending |
| 3 | Compensation Practices | Networking arrangements, payments to unregistered persons, cash and non-cash compensation, gifts and gratuities, the per-associated-person (per-AP) transaction record requirement |
| 4 | Product and Service Supervision | New product due diligence, suitability framework, variable contracts, investment companies, Securities Act exemptions, Trust Indenture Act, Membership Application Program |
| 5 | Disciplinary Actions and Customer Disputes | Customer complaint recordkeeping and reporting, expungement of customer dispute information, FINRA investigations, arbitration and mediation |
| 6 | Books and Records | The broker-dealer recordmaking and record retention requirements, retention periods (3 years, 6 years, life of firm), WORM storage, electronic communications, designations, third-party recordkeeping |
| 7 | Financial Responsibility and Funding | The net capital rule, the customer protection rule, early warning thresholds, hypothecation rules, SIPC funding, FOCUS reports |
Why This Chapter Matters
This is where the supervisor's job lives day-to-day. The exam expects principal-level fluency across:
- The written supervisory procedure stack that documents every control
- The personal-conduct rules that define what associated persons can and cannot do
- The compensation rules that govern who can receive what kind of payment
- The product approval process that gates new offerings before they reach customers
- The complaint and disciplinary apparatus that detects, investigates, and remediates misconduct
- The recordkeeping rules that determine what must be preserved and for how long
- The financial responsibility regime that keeps the firm itself solvent and customers' assets protected
Functions 3, 4, and 5 in later chapters all depend on the controls established here.
Exam Strategy
This chapter alone drives nearly a third of your score. Master:
- Net capital mechanics: minimum tiers, haircut concepts, early warning multipliers, prompt notification requirements
- Customer Protection Rule: the reserve formula and possession-or-control requirements
- Retention periods: 3 years (general), 6 years (customer account records, complaints), life of firm (org records, partnership/incorporation documents)
- Inspection cadence: OSJ at least annually, non-OSJ branches at least every 3 years
- Substance, not rule numbers: the supervisory system requirements, internal supervisory controls, CEO/CCO annual certification, business continuity plans, the books-and-records recordmaking and retention requirements, the net capital requirement, and the customer protection requirement
-> Start Unit 1: Written Supervisory Procedures and Controls