What it is:
The Series 82 is an exam for individuals who want to be licensed to do primary offerings of private placements.
How it works/Example:
The Financial Industry Regulatory Authority (FINRA) administers the Series 82 exam as mandated by the Gramm-Leach-Bliley Act of 1999.
A private placement is the opposite of a public offering. Stocks or bonds issued pursuant to a private placement have different reporting standards and generally are not subject to public scrutiny. In a private placement, the issuer works with an individual or bank to find investors (usually large institutional investors, like pension funds, insurance companies and mutual funds) willing to buy the company's stocks or bonds. This all takes place privately, not in the open market.
For example, a firm decides it would like to sell $50 million in stock. Instead of doing an IPO, the company hires a banker with a Series 82 license to approach a limited number of institutions who are known for doing this sort of transaction. The banker finds a mutual fund interested in buying $25 million in stock, an insurance company interested in buying $15 million, and a pension fund interested in buying $10 million. The transactions happen privately and are only announced after they have occurred.
Why it matters:
The Series 82 is a very limited exam, consisting of 100 questions on a very narrow range of topics. It should only be taken by people wishing to specialize in this niche.
Private placements do not follow the same rules as IPOs or any other public offering. They do not have to be registered with the SEC and, in many cases, the issuer chooses a over a public offering because there's no requirement to disclose detailed financial information or a prospectus. Because of this lack of disclosure, only large, sophisticated investors, called Qualified Institutional Buyers (QUIBs), are allowed to participate in private placements. For the same reasons, only Series 82 license holders are allowed to act as sales representatives for these highly specialized transactions.