I mean, correct me if I'm wrong, but isn't that the point of a proprietary firm is that their own capital is traded and not client's? Hence, why would you need a Series 7? Is it to make sure the trader knows the financial industry?
depending on the SRO, for example some SEC broker/dealer's SRO may be with the CBOE/CBSX. They do not require traders to take the series 7 but all traders need to fill out a u4/finger print card as the trading firm still and may get audited so all traders still have to register
You are not trading your own dough but the partnership's, it ensures you are not an escaped felon by doing a fairly thorough background check. It's really not that hard of an exam if you study for a few weeks, are you new?
It has to with when NASD said that regular people were not allowed to have that kind of crazy leverage that prop firms give. NASD(or I guess they are FINRA now) said that they were concerned that ordinary citizens would be targeted by prop firms to "come trade millions of dollars with just a small deposit of their own money" In order for FINRA to feel better about letting people use large leverage they made an agreement with these prop firms that if people go their series 7 license, they would be ok to trade.
Does this demand for the Series 7 applies to the USA citizens only or other traders who don't have US citizenship but want to trade in USA need to get this form too?
Actually, the only way to get around the 'pattern daytrader' designation, which requires a minimum of $25k in capital and you can never go below it, you need to be FINRA registered with the broker dealer you are trading with. The firm must keep a portion of the profits to make this legitimate and keep it from being a straight retail account. This allows them also to give you greater leverage, retail accounts are limited to 20 to 1 intraday. Profit 'split' in this case is the reason the 99% payout at a number of shops, once again not a retail account but a 'partners' account.