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.

An SEC-overseen self-regulatory organization for member broker-dealers. It administers qualification exams, registers firms and associated persons, and enforces its rules; passing the SIE alone does not authorize securities business.

Helps restore missing customer cash and securities when a SIPC-member brokerage fails: up to $500,000 per customer in a separate capacity, including a $250,000 cash limit. It does not insure market losses.

Writes rules for municipal securities dealers and municipal advisors. Enforcement is performed by other regulators, including FINRA, the SEC and appropriate bank regulators; the MSRB does not enforce its own rules.

An organization with authority to establish industry rules under government oversight. FINRA, exchanges and the MSRB have different responsibilities; not every SRO directly enforces all of its rules.

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.

Equity that generally has priority over common stock for dividends and liquidation distributions. Dividend terms and voting rights depend on the issue; preferred stock still carries credit, interest-rate and market risk.

If provided by applicable law or the corporate charter, these rights let existing owners buy a proportional share of a new issue to help preserve ownership percentage. They are not automatically available for every company.

Basic EPS = (net income minus applicable preferred dividends) / weighted-average common shares outstanding during the period. It measures earnings attributable to each common share; diluted EPS also considers potential dilution.

Market price per common share divided by earnings per share. Compare the same earnings basis and similar firms; no universal P/E cutoff proves a stock cheap or expensive, and negative earnings limit usefulness.

A debt obligation of a corporation. Holders are creditors entitled to payments under its terms, including interest when specified and principal repayment; payment remains subject to default risk.

For an existing fixed-rate bond, market price generally moves opposite to market yields, other factors unchanged. Its fixed cash flows become more or less attractive compared with newly available yields.

A municipal bond supported by the issuer’s general credit and a specified taxing pledge. Evaluate the issuer and any limits on that pledge; GO status alone does not make it safer than every revenue bond.

A municipal bond payable from specified revenues, such as an enterprise or project, rather than a general taxing pledge. Credit quality depends on the pledged revenues and bond terms, not a universal ranking below GO bonds.

Interest on many municipal bonds is exempt from federal income tax, but taxable municipal issues exist and some private-activity interest may trigger AMT. State treatment varies; selling at a gain can create taxable capital gains.

For a physically settled call, the holder has the right to buy the underlying asset at the exercise price under the contract’s terms. Cash-settled calls pay a contract-defined cash amount instead. A standalone long call benefits from a sufficient price rise; the buyer can lose the premium paid plus costs.

For a physically settled put, the holder has the right to sell the underlying asset at the exercise price under the contract’s terms. Cash-settled puts pay a contract-defined cash amount instead. A standalone long put benefits from a sufficient price fall and may hedge an existing long position.

The contract’s exercise-price reference: it determines the buy/sell price for physically settled options and helps determine the payment for cash-settled options. Corporate actions can adjust the strike or deliverable; original terms do not necessarily stay unchanged throughout the contract’s life.

The option contract’s purchase price. For a standalone long option, loss is limited to the premium plus costs. For a standalone short option, premium received is the maximum option profit before costs, while losses can be much larger.

An open-end investment company pooling investors’ money in a portfolio. Purchases and redemptions use the next computed NAV, with applicable charges; diversification, management style and risks depend on the fund.

NAV per share = (fund assets minus liabilities) / shares outstanding. Open-end funds calculate NAV at least once each business day, typically at the close of the main exchange; it is not an intraday market quote.

A pooled investment whose shares trade on an exchange during the day, potentially above or below NAV. ETFs can be index-based or actively managed; fees, liquidity and tax outcomes vary.

FINRA Rule 2341 sets an 8.5% aggregate front-end/deferred sales-charge ceiling for funds without asset-based sales charges, subject to required features such as rights of accumulation and quantity discounts. Lower limits can apply; it is not every fund’s actual charge.

An IRA whose contributions may be deductible subject to eligibility rules. Earnings generally grow tax-deferred; taxable distributions are ordinary income. Early-distribution additional tax and RMD rules have exceptions and age-dependent requirements.

Contributions are after tax. Qualified distributions require the five-tax-year rule plus a qualifying condition such as age 59½. Regular contributions come out first under ordering rules; the original owner has no lifetime RMD requirement.

Required distributions apply to traditional IRAs and many employer plans under birth-year and plan-specific rules. A missed RMD can incur a 25% excise tax, reduced to 10% with timely correction; a reasonable-error waiver may be available.

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.

Requests execution at the best available market price, generally promptly in a functioning liquid market. It does not guarantee the price, and halts or absent liquidity can prevent an immediate fill.

Sets the worst acceptable execution price: buy at the limit or lower, sell at the limit or higher. Execution is not guaranteed; a limit can be marketable when submitted.

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 is a quoted price at which a buyer is willing to buy; ask is a quoted price at which a seller is willing to sell. The ask-minus-bid difference is the quoted spread; quotes apply to specified sizes.

For a typical purchase of margin-eligible equity, Regulation T generally requires 50% initial margin. Other securities and transactions have different treatment, and firms can impose stricter house requirements.

FINRA generally requires at least 25% equity for long margin securities, with exceptions and stricter house requirements. Falling below the applicable requirement can lead to a call or liquidation.

A demand to restore required account equity. Firms may sell positions to protect themselves, sometimes without prior notice; customers are not entitled to choose what is sold or receive extra time.

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 changing market yields change a bond’s price. Other factors equal, longer duration means greater sensitivity; maturity and coupon both influence duration.

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

Requires securities purchases to be paid for without borrowing from the broker. Most covered U.S. securities settle T+1; firm payment deadlines and Regulation T cash-account restrictions also apply.

Permits borrowing from the broker against eligible collateral under a margin agreement. Initial and ongoing equity requirements apply; leverage can amplify losses and trigger forced liquidation.

Allows authorized investment discretion under the customer’s prior written authorization and the firm’s written acceptance. Discretionary orders require prompt written approval and accounts require frequent supervisory review; time-and-price discretion has a limited exception.

FINRA Rule 2111 requires suitable recommendations where it applies. It does not apply to recommendations subject to Regulation Best Interest; Reg BI governs covered broker-dealer recommendations to retail customers.

For covered recommendations to retail customers, a broker-dealer must act in the customer’s best interest without placing its own interests ahead. Reg BI has Disclosure, Care, Conflict of Interest and Compliance obligations; disclosure alone is insufficient.

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.

Illegal insider trading involves trading on material nonpublic information in breach of a relevant duty or relationship of trust; unlawful tipping can also create liability. Corporate insiders may trade lawfully when applicable rules are met.

A risk-based program to form a reasonable belief that the firm knows the customer’s true identity. Required identifying data include name, address, an identification number and, for an individual, date of birth; verification is separate from collecting data.

A broker-dealer generally files for reportable suspicious activity involving at least $5,000. File within 30 days of initial detection of facts that may require reporting; if no suspect is identified, a limited extension may apply, never beyond 60 days. Do not disclose the SAR to the subject.

Covered financial institutions report currency transactions over $10,000, aggregating transactions known to be by or for the same person in one business day. The threshold concerns currency, not every securities trade; structuring to evade reporting is illegal.