Free SIE Exam Flashcards

The primary federal regulator of the securities industry. Enforces securities laws, reviews registration statements, oversees market participants, and protects investors through disclosure requirements.

The largest self-regulatory organization (SRO) overseeing broker-dealers. Licenses securities professionals, administers qualification exams (SIE, Series 7), creates/enforces rules, and monitors trading activity.

A non-profit that protects customers when brokerage firms fail. Coverage: up to $500,000 per customer (including $250,000 for cash). Does NOT protect against market losses or bad advice.

Creates rules governing municipal securities transactions. Important: MSRB writes rules but does NOT enforce them—enforcement is done by FINRA and the SEC.

A non-governmental organization that creates and enforces industry rules under SEC oversight. Examples: FINRA, MSRB, NYSE. They regulate their members directly.

An equity security representing ownership in a corporation. Features: voting rights (typically 1 vote per share), potential dividends (not guaranteed), last claim in liquidation, unlimited upside potential.

An equity security with priority over common stock for dividends and liquidation. Features: fixed dividend rate, no voting rights (typically), paid before common stockholders, less price volatility than common.

Rights allowing existing shareholders to purchase newly issued shares before the public, maintaining their proportional ownership and avoiding dilution.

A measure of company profitability. Formula: Net Income ÷ Shares Outstanding. Used to compare profitability across companies of different sizes.

Stock valuation metric. Formula: Market Price per Share ÷ EPS. High P/E (20+) suggests growth expectations; Low P/E (<15) may indicate undervaluation or limited growth.

A debt security where a corporation borrows money from investors. The issuer promises to pay periodic interest (coupon) and return principal at maturity. Bondholders are creditors, not owners.

Inverse relationship: When interest rates rise, bond prices fall. When interest rates fall, bond prices rise. This is because existing bonds become more or less attractive compared to new issues.

A municipal bond backed by the full faith, credit, and taxing power of the issuing government. Considered safer than revenue bonds because the issuer can raise taxes to pay.

A municipal bond backed only by revenue from a specific project (toll road, airport, hospital). Riskier than GO bonds because repayment depends on project success.

Interest is exempt from federal income tax. May also be exempt from state/local tax if you live in the issuing state (triple tax-free). Capital gains are still taxable.

A contract giving the holder the RIGHT to BUY a security at a specified price (strike price) before expiration. Buyers are bullish (expect price to rise). Max loss for buyer = premium paid.

A contract giving the holder the RIGHT to SELL a security at a specified price (strike price) before expiration. Buyers are bearish (expect price to fall). Max loss for buyer = premium paid.

The predetermined price at which an option holder can buy (call) or sell (put) the underlying security. This price remains fixed throughout the option's life.

The price paid by the buyer to the seller (writer) for an option contract. Represents the maximum loss for the buyer and maximum gain for the seller.

A pooled investment that combines money from many investors to buy a diversified portfolio. Features: professional management, diversification, priced once daily at NAV, prospectus required.

The per-share value of a mutual fund. Formula: (Total Assets − Liabilities) ÷ Outstanding Shares. Calculated once daily after market close (4 PM ET).

A fund that trades like a stock on an exchange throughout the day. Features: typically tracks an index, lower expense ratios than mutual funds, real-time pricing, tax-efficient.

8.5% under FINRA rules for funds offering dividend reinvestment and breakpoints. Lower maximums apply if these features are not offered.

Retirement account with potential tax-deductible contributions. Earnings grow tax-deferred. Withdrawals taxed as ordinary income. RMDs required starting at age 73. Early withdrawal penalty: 10% before age 59½.

Retirement account with after-tax contributions (NOT tax-deductible). Qualified withdrawals are completely TAX-FREE. No RMDs during owner's lifetime. Early withdrawal penalty on earnings before 59½.

Mandatory annual withdrawals from Traditional IRAs and most retirement accounts starting at age 73 (per SECURE 2.0 Act). Failure to take RMD results in 25% penalty on amount not withdrawn.

Employer-sponsored retirement plan allowing pre-tax salary deferrals. Features: employer may match contributions, higher contribution limits than IRAs, loans may be permitted, vesting schedules apply to employer contributions.

An order to buy or sell immediately at the best available price. Guarantees EXECUTION but NOT price. Best for liquid securities when speed matters more than price.

An order that executes only at a specified price or better. Guarantees PRICE but NOT execution. Buy limits placed below market; sell limits placed above market.

An order that becomes a market order when a trigger price is reached. Sell stop = below market (protects long position). Buy stop = above market (protects short position).

Trade date plus 1 business day—the standard settlement period for most securities (stocks, bonds, ETFs). Buyer must pay, seller must deliver securities by settlement date.

Bid = highest price a buyer will pay. Ask = lowest price a seller will accept. The difference between them is the spread. You buy at the ask and sell at the bid.

Federal Reserve rule setting initial margin requirements. Currently 50%—investors must deposit at least 50% of a securities purchase price; can borrow the other 50% from broker.

Minimum equity required to maintain a margin position. FINRA minimum: 25% for long positions. If equity falls below this, a margin call is triggered requiring deposit or liquidation.

A demand from a broker to deposit additional funds or securities when account equity falls below maintenance requirements. Must be met promptly or positions may be liquidated.

Risk affecting the entire market that CANNOT be diversified away. Caused by: interest rate changes, recessions, inflation, political events. Measured by beta.

Risk specific to a company or industry that CAN be reduced through diversification. Examples: management changes, product recalls, labor strikes, competition.

The risk that rising interest rates will cause bond prices to fall. Longer-term bonds have greater interest rate risk than shorter-term bonds.

The risk that cash flows (interest, dividends, maturing principal) will be reinvested at lower rates. Highest when interest rates are falling.

A brokerage account requiring full payment for securities purchases. No borrowing from the broker. Must pay in full by settlement date (T+1).

A brokerage account allowing investors to borrow from the broker to purchase securities. Requires signed margin agreement, Reg T initial margin (50%), and maintaining minimum equity.

An account where the representative can make trades without prior customer approval for each transaction. Requires written power of attorney and principal approval of each trade.

FINRA requirement that recommendations must be suitable based on customer's investment profile: financial situation, tax status, investment objectives, risk tolerance, time horizon, liquidity needs.

SEC rule requiring broker-dealers to act in the BEST INTEREST of retail customers when making recommendations. Higher standard than suitability; requires disclosure of conflicts of interest.

Excessive trading in a customer's account to generate commissions, regardless of suitability. A prohibited practice that is grounds for disciplinary action.

Trading ahead of a customer order to profit from the expected price movement. Example: buying stock before executing a large customer buy order. Strictly prohibited.

Trading securities based on material, non-public information (MNPI). Illegal for anyone who possesses MNPI, including corporate insiders and those they tip.

Bank Secrecy Act requirement for firms to verify customer identity. Must collect: name, date of birth, address, and government ID number (SSN for U.S. persons).

Report filed with FinCEN for suspicious transactions of $5,000 or more. Filed within 30 days. Customers must NOT be notified that a SAR was filed.

Report filed with FinCEN for cash transactions exceeding $10,000 in a single day. Required regardless of suspicion. Structuring transactions to avoid CTR filing is illegal.