Function 4: Supervision of Trading & Market Making Activities (19% Exam Weight)

Series 24 — Function 4: Supervision of Trading & Market Making Activities

Master the Series 24 — Function 4: Supervision of Trading & Market Making Activities function of the Series 24 (General Securities Principal) exam with official regulatory rules, quantitative formulas, and targeted practice drills.

Start Series 24 Focused Drill →

Authoritative Series 24 Study Notes

Key Concepts & Regulatory Highlights

Covers principal supervision of equity and fixed-income trading desks and market making, including SEC Regulation SHO (Rule 200 order marking, Rule 203 locate, Rule 204 fail-to-deliver close-out), FINRA Rule 5270 (front-running block orders), SEC Rule 602 / FINRA Rule 5220 (Firm Quote & backing away), FINRA Rule 5320 (Manning Rule customer limit order protection), and TRACE / ORF trade reporting.

📐 Essential Calculation Formulas

Regulation SHO Rule 204 Fail-to-Deliver Close-Out

Short Sale = T+2 Morning | Long Sale / Market Maker = T+4 Morning

Threshold securities (fails >=10,000 shares and >=0.5% of outstanding for 5 days) must be closed out within 13 consecutive settlement days.

Manning Rule Institutional Block Exception Threshold

>= 10,000 Shares AND >= $100,000 Market Value

Both conditions must be met for a market maker to trade ahead of an institutional limit order (absent customer opt-in).

📜 Core Regulatory Rules & Requirements

✓SEC Regulation SHO Rule 204 (Close-Out): A fail-to-deliver at a clearing agency must be closed out by borrowing or purchasing shares no later than the beginning of regular trading hours on the settlement day following the settlement date (T+2 for short sales; T+4 for long sales or bona fide market making).

✓FINRA Rule 5320 (Manning Rule — Limit Order Protection): A market maker holding a customer limit order cannot trade for its own proprietary account at a price that would satisfy the customer's limit order unless it immediately (within 60 seconds) executes the customer limit order at the same or better price. Large institutional orders (>=10,000 shares AND >=$100,000 value) may opt out.

✓SEC Rule 602 / FINRA Rule 5220 (Firm Quote Rule): Market makers must honor their published bid and ask prices up to their displayed quotation size. Refusing to fill an incoming order at the quoted price/size is a prohibited 'backing away' violation.

✓FINRA Rule 5270 (Front-Running Block Transactions): Prohibits trading the same security or any related derivative/option for a proprietary or personal account while in possession of material non-public market information regarding an imminent customer block order (10,000+ shares or $100,000+ market value).

✓Trade Reporting (TRF / ORF / TRACE): NMS and OTC equity trades executed during market hours must be reported within 10 seconds; TRACE-eligible corporate debt trades must generally be reported within 15 minutes.

💡 High-Yield Exam Watchouts

•Under Regulation NMS Rule 612 (Sub-Penny Rule), market participants cannot display, rank, or accept quotations in increments smaller than $0.01 for any NMS stock priced at $1.00 or more per share.
•Market-Wide Circuit Breakers halt trading across all U.S. equity markets for 15 minutes when the S&P 500 drops 7% (Level 1) or 13% (Level 2) before 3:25 PM ET, and halt trading for the remainder of the day on a 20% drop (Level 3) at any time.

Why Study Series 24 — Function 4: Supervision of Trading & Market Making Activities?

The Series 24 — Function 4: Supervision of Trading & Market Making Activities portion of the General Securities Principal (Series 24) exam is critical for passing on your first attempt. Understanding these concepts builds both test-day precision and practical regulatory fluency.

Our practice questions and formulas are engineered to mirror the official Series 24 blueprint and statutory complexity you'll encounter at Prometric.

Oro Pro Pass

Oro Pro Pass — Unlock All 8 FINRA Series, Mock Exams 2–4 & Ad-Free Study

Upgrade to remove all advertisements and unlock full-length disjoint simulations for Series 6, 7, 63, 65, 66, 79, and 24.

View Pro Pass Plans →

Ready for the full simulation experience?

Try a Comprehensive Series 24 Practice Exam →