Investment Banking Entry Requirements Explained

Passing the Series 79 exam is required for applicants of entry-level jobs as investment banking representatives. This test is a necessary step to obtaining registration for the job in addition to the Securities Industry Essentials (SIE) exam. Both tests are administered by the Financial Industry Regulatory Authority (FINRA) and are necessary for FINRA sponsorship.

The Series 79 is considered a lighter version of the Series 7 exam but it’s deceptively difficult. It covers mergers and equity and debt offerings.

Understanding the Investment Banking Exam Evolution

The Series 7 was required of all financial professionals before 2009, including those who wanted to become investment bankers. Investment banking is only a small portion of the Series 7 exam, most of which is more relevant to the functions and services of retail securities firms. After conducting a job analysis, an investment banking committee agreed on the major duties, job functions, and tasks associated with those working in the field. This allowed changes to be made.

The Securities and Exchange Commission (SEC) approved the new Series 79 exam in 2009. This test is also known as the Investment Banking Representative Qualification Examination and is commonly referred to as the Limited Representative Investment Bankers exam because it was designed for entry-level investment bankers.

An individual will likely need the Series 79 license for specific areas of finance. FINRA Rule 1220(b)(5) defines the different types of representative categories and section (i) Limited Representative-Investment Banking gives a thorough explanation of the areas.

Eligibility and Prerequisites for Series 79 Exam

The Series 79 exam satisfies the Series 24 prerequisite as a representative exam. It focuses on investment banking so the Series 24 General Securities Principal is limited to investment banking supervisory responsibilities if the candidate has only passed the Series 79 exam.

Testers generally need the Series 79 registration even if they already have the Series 7. This is one of the only cases where the Series 79 can be used as a prerequisite instead of the Series 7. Candidates may need the Series 79 to work in several key areas including debt, equity, or mergers and acquisitions (M&A).

Navigating Debt and Equity Offerings

Companies have several options available to them when they need to raise money. They may issue a debt or equity offering in addition to borrowing money from a financial institution.

• A debt offering normally comes in the form of a coupon or corporate bond in which the issuer promises to pay the bondholder or investor their principal investment along with interest by a certain date.
• An equity offering involves the issuance of new shares of corporate stock. This gives investors an ownership stake in the company.

Debt or equity activities that may require a series 79 include:

• Pricing of securities in debt and equity offerings
• Origination, which deals with equity capital markets and debt capital markets
• Underwriting
• Marketing
• Structuring
• Syndication
• Managing the allocation and stabilization activities of offerings

Mastering Mergers, Acquisitions, and Financial Restructuring

Advisory services are an essential part of an investment banker’s role particularly with regard to mergers and acquisitions. M&A refers to the consolidation of companies or assets. This can take place through several financial transactions. Some responsibilities that a Series 79 might be required for under this category can include:

• Tender offers
• Selling assets
• Corporate reorganization or divestitures
• Transactions involving business combinations, which might include rendering solvency and fairness opinions

Exceptions and Exemptions to Series 79 Requirements

Series 79 registration may not be required for professionals who have limited involvement in investment banking activities. There’s some leeway in some jobs in which new associates rotate among various business areas and departments for training purposes. These financial professionals are generally given a six-month grace period while they’re training. You can look at FINRA Rule 1230 for a complete guide to exemptions.

Exploring the Series 79 Exam Structure

A tutorial on the exam is provided before taking it. It consists of 75 multiple-choice questions and is completed on a personal computer. Each candidate’s exam includes 10 additional questions that don’t contribute to the candidate’s score.

Candidates are given 150 minutes to complete the exam. The results are available immediately after the exam as a pass or fail grade with a breakdown of the candidate’s performance in each section. Individuals must answer 73% of the questions correctly for a passing score.

Candidates must be sponsored by a FINRA member to take the exam. Requirements for eligibility include taking the appropriate qualification examination. Individuals are required to pass both the Series 79 and SIE exams to become registered.

Breakdown of Series 79 Test Sections

The test includes three sections. The 10 additional questions are scattered randomly throughout and aren’t identified as such.

Collection, Analysis, and Evaluation of Data

This is the largest section, taking up 49% of the exam with 37 questions. It includes identifying the relevant data and knowing where to find it. You may have to know what will be in proxy statements Form 14A or Form 4s for beneficial ownership of directors.

This section also deals with communicating with various departments and clients, using metrics and ratios, and analyzing trends to evaluate what you’ve found in the firm and sector data.

Candidates are also tested on their understanding of due diligence activities in this section such as the regulatory requirement for the buy and sell sides.

Underwriting/New Financing, Offerings, and Securities Registration

This section has 20 questions, making up 27% of the test. It deals with regulations for filing and registering securities. This includes forms such as the prospectus as well as rules and the required financial statements. It also covers the distribution of marketing materials and any associated rules.

M&A, Tender Offers, and Financial Restructuring

This section is roughly 24% of the exam with a total of 18 questions.

Some of the issues covered in this part of the exam relate to buy-side and sell-side transactions, fairness opinion, and SEC rules and regulations. It also tests a candidate’s knowledge of tender offer regulations and financial restructuring.

The Bottom Line

Professionals who want to become entry-level investment bankers must pass the Series 79 exam along with another test, the Securities Industry Essentials exam. The Series 79 tests an individual’s knowledge and skills in several areas including debt and equity offerings, tender offers, mergers and acquisitions, new financing, and financial restructuring.

Anyone who wants to perform certain duties in the financial industry must become a registered representative with the Financial Industry Regulatory Authority. Individuals must pass these exams to become registered. The type of exam depends on the type of position they seek.