Function 2, Professional Conduct and Ethical Considerations, is 30% of the Series 99 (15 of 50 scored questions). It covers four areas: relationships and dealings, customer privacy, escalating complaints and red flags, and broker-dealer supervision and control. It is smaller than Function 1 but it is the function candidates most often under-prepare, and 15 questions is nearly the entire margin you get above the 68% passing line.
Why this function is worth more than it looks
Thirty percent sounds like the part you can afford to skim. Run the arithmetic instead: the passing score is 68%, so you can miss 16 of 50 questions. Function 2 contains 15. If you write it off, you have spent essentially your entire error budget before answering a single question about operations.
The other reason to take it seriously is that it is genuinely easy to score. Function 2 is smaller, more conceptual, and less dependent on arbitrary numbers than the operations material. Hours spent here convert to points faster than hours spent anywhere else on the exam.
Relationships and dealings
~3 of 15How an operations professional deals with customers, other member firms, and third parties, and the conduct standards that govern those interactions.
Customer privacy
~4 of 15Protecting customer information from improper use and disclosure, including controlling access when information moves between departments or outside the firm.
Escalating complaints and red flags
~3 of 15What obligates you to escalate, what a red flag looks like in an operational context, and where it goes when you spot one.
Broker-dealer supervision and control
~5 of 15How supervisory systems and internal controls are structured, and the operations professionalâs place inside them. The largest single area in Function 2.
Customer privacy: the two rules that matter
Privacy is the most heavily tested area in Function 2 after supervision, and it splits into two distinct obligations that candidates routinely blur together.
Information obtained in a fiduciary capacity
When a member firm acts as a paying agent, transfer agent, trustee, or similar fiduciary, it learns who owns which securities. That information is off limits for the firmâs own business development: it may not be used to solicit purchases, sales, or exchanges.
The exception is narrow and specific: the firm may use it for solicitation only at the request of and on behalf of the issuer.
The exam will describe a firm that learned about a shareholder base while acting as transfer agent and then wants to market to those shareholders. Absent an issuer request, on the issuerâs behalf, that is prohibited. Information picked up in a fiduciary role cannot be repurposed into a prospect list.
Regulation S-P and nonpublic personal information
The privacy framework governs how a firm handles nonpublic personal information (NPI), meaning customer financial information that is not publicly available. Four obligations to know:
Notice
Firms provide customers with notice of their privacy policies and practices.
Opt-out
Customers get an opportunity to opt out of most disclosures of NPI to nonaffiliated third parties, subject to exceptions.
Disclosure conditions
There are defined conditions under which NPI may be shared outside the firm at all.
Safeguarding
Firms must protect customer records and information from unauthorized access or use.
The operational angle matters here: a lot of privacy exposure in a broker-dealer happens internally, when customer information moves between departments without access controls. The exam expects you to see that as a privacy problem, not just an IT one.
Fifteen Questions You Can Actually Win
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Choose Your PathEscalation: the operations professionalâs real job
Function 2 keeps returning to one question: when something looks wrong, what are you obligated to do?
Operations staff sit where problems become visible. A transfer that does not reconcile, a pattern of corrections on one account, a customer complaint routed to the back office, a request that does not fit the accountâs documented profile. The exam tests whether you know that noticing carries an obligation.
Two habits of mind to bring into the exam:
- Escalation is not optional or discretionary once something meets the threshold for it. The right answer is rarely âhandle it yourselfâ or âwait and see whether it recurs.â
- A complaint is a complaint regardless of the channel it arrives through. The exam will try informal-sounding routes to see whether you treat them as outside the process.
When a Function 2 question offers a plausible-sounding option that resolves the problem quietly and inside your own team, it is almost always the distractor. The exam is testing whether you route things to supervision, not whether you are resourceful.
Supervision and control
The largest area in Function 2 covers how supervisory systems and internal controls are built, and where an operations professional fits into them.
You are not being examined as a principal here. The Series 99 is a representative-level registration, and the Series 24 is the exam for people who actually run supervisory systems. What Function 2 asks is whether you understand the structure you are operating inside: that supervision is systematic rather than ad hoc, that controls exist to catch specific failure modes, and that your role includes feeding the system accurate information and escalating what it needs to see.
Expect questions about the purpose of a control rather than its implementation detail. If you can answer âwhat failure is this control designed to prevent,â you can usually reason to the right choice.
How to study Function 2
Three practical notes:
Do not save it for last. The most common failure pattern is spending three weeks on operations, running out of calendar, and skimming Function 2 the night before. Interleave it: a conduct unit after every two or three operations units.
Study it conceptually, not by memorization. Unlike Function 1, this material rewards understanding the principle behind a rule. If you know why fiduciary-capacity information is restricted, you do not need to memorize the fact pattern.
Use practice questions early. Conduct questions are scenario-shaped, and the skill being tested is picking the right response from four plausible ones. That is a skill you can only build by doing it.
For the other 70% of the exam, see Function 1: broker-dealer operations. For a week-by-week plan that interleaves both functions, see the Series 99 study guide. Scenario practice is what this function rewards, so take the free Series 99 practice exam, which scores conduct separately from operations.