Securities Industry Essentials (SIE) Exam - Flashcards (2025)

Record Keeping Requirements (3 years)

- Employee records

- Trade confirmations

- Statements

Record Keeping Requirements (4 years)

Customer complaints (FINRA)

Record Keeping Requirements (5 years)

- Currency transaction reports (CTRs)

- Suspicious activity reports (SARs)

- Customer identification program (CIP) information

Record Keeping Requirements (6 years)

- Blotters

- Customer account records

- Customer complaints (MSRB)

Record Keeping Requirements (Lifetime)

S - Stock certificates

P - Partnership agreements

A - Articles of incorporation

M - Meeting minutes

Uniform Securities Act

Securities related legislation adopted by the U.S. states to regulate securities and finance professionals. These laws are also referred to as "blue sky laws."

Balloon Maturity

Type of serial offering, where a large number of issues come due at or near the final maturity date.

Unit Investment Trusts (UITs)

Fixed portfolio of securities assembled by financial professionals. Once created, there is no ongoing management of the investments in the portfolio. Therefore, there is no management fee.

Regulation T

Controlled by the Federal Reserve, requires a 50% deposit for initial purchases and short sales in margin accounts. This regulation covers the relationship between the lending broker-dealer and the borrowing customer.

Regulation U

Determines the parameters of the relationship between broker-dealers and banks for purposes of margin loans.

Regulation D

The private placement exemption, which allows an issuer to sell a security to an unlimited number of accredited investors and no more than 35 non-accredited investors while avoiding registration.

Regulation A

The small dollar offering exemption, which allows an issuer to sell up to $75 million of securities while avoiding the full-on registration process with the SEC.

Joint WROS Accounts

All owners equally own the account with joint rights of survivorship. When an owner passes away, their ownership goes to the remaining owners.

Tenants in Common (TIC) Accounts

Joint accounts with specified ownership percentages. When one owner passes away, their specified percentages is left to their estate.

Probate Documents

Letters testamentary and letters of administration

Transfer of Death (TOD) Designations

Identify specific persons or organizations to inherit an account's assets upon the owner's death. Accounts with TOD designations are not subject to probate, and therefore will not involve any probate documentation. It does not matter that the person died testate (with a valid will) as TOD designations trump any instruction of a will.

Joint With Rights of Survivorship (WROS) Account

In any joint account,

- Any owner can submit a trade without permission from the other owners

- Checks must be made payable to all owners of the account

_____________________________________________________________________

- If death occurs in a joint WROS account, the remaining owners receive the assets (MAIN DIFFERENCE FROM joint TIC account)

_____________________________________________________________________

- Mail may be sent to any specific owner and does not need to be sent to all owners

Joint Tenants in Common (TIC) Account

In any joint account, any owner can,

- Submit a trade without permission from the other owners

- Checks must be made payable to all owners of the account

_____________________________________________________________________

- If death occurs in a joint TIC account, the descendant's (deceased person's) portion of the account goes to their estate (MAIN DIFFERENCE FROM joint WROS account)

_____________________________________________________________________

- Mail may be sent to any specific owner and does not need to be sent to all owners

Maintenance Margin Requirement for Short Stock Position

Maintenance margin requires the customer to maintain an equity level of 30% of the current market value for any short stock position. The overall market value of ABC position is $35,000 (in this example) which is: 500 shares x $70 per share = $35,000 and 30% of $35,000 is $10,500.

American Depository Receipts (ADRs)

Receipts for shares owned in a foreign company

Senior Debenture

Long-term, unsecured corporate bond with the highest liquidation priority in the event of a liquidation

Treasury Receipt

Long-term zero coupon bond created by financial institutions. They are not direct obligations of the U.S. Government, and therefore, do not gain the same exemption from registration

529 Plans / Qualified Tuition Plans (QTPs)

529 plans, also known as qualified tuition plans (QTPs), are higher education plans that generally allow non tax-deductible contributions (although some states allow state tax deductions) and tax-deferred growth.

The beneficiary (person the funds are meant to support) may be changed, but only to the following family members:

- Natural or legally adopted children

- Parents, stepparents, or grandparents

- Siblings or step siblings

- Nieces or nephews

- Aunts or uncles

- Spouse of any of the above

- Spouse of the benficiary

- First cousins

529 plans have contribution limits, but they are significant (for example, California's 529 plan contribution limit is $529,000).

Contributions made to another person's 529 plan is subject to gift taxes (unless the recipient is the spouse). $19,000 is the tax year 2025 annual gift tax exclusion, but the IRS allows a one-time gift of five times that amount ($95,000) to be made while still avoiding gift taxes.

Distributions from a 529 plan must be generally used on higher education costs to be considered qualified (no taxes on growth).

However, up to $10,000 per year may be used for tuition expenses below the college level (K-12).

Coverdell Education Savings Account (ESAs)

Education plans with $2,000 annual contribution limits

Variable Life Insurance

- Considered a security

- Subject to registration

- Subject to securities regulations

When the insured person is young, a smaller portion of the premiums pay for the death benefit. The rest of the premium goes to cash value, which is placed in the policyholder's separate account.

The cash value is invested by the policyholder. Because of market risk, the cash value is not guaranteed to grow (may decline if the investments perform poorly). The policyholder is subject to market risk, not the insurance company.

Straight Preferred Stock (Non-Cumulative)

Does not require the issuer to make up missed dividends

Callable Preferred Stock

Can be forcefully bought back by the issuer at a pre-established price

Participating Preferred Stock

Eligible for additional dividends above the stated dividend rate (the issuer typically pays more when their business attains a certain level of profitability)

STRIPS

Long-term zero coupon bonds, and exposed to a significant amount of interest rate risk

Discount Rate

Represents the rate charged to banks when borrowing funds from the Federal Reserve

The Board of Directors (BOD) Sets the _______ , _______ , and _______ for Dividends

Declaration date, record date, and payable date

Ginnie Mae

Is strictly a government agency and does not have publicly traded stock. G-(overnment)-innie Mae

Class B Shares

Come with contingent deferred sales charges (CDSCs), which are also known as back-end loads. The investor pays no sales charge when purchasing shares, but may pay a sales charge when selling their shares.

The longer the investor holds their shares, the smaller the sales charge. These funds are most suitable for investors with smaller purchases and longer time horizons.

Index Fund

Invest customer assets to "recreate" the index. For example, an S&P 500 index fund would invest customer assets into the 500 stocks comprising the index.

Index funds typically involve lower expense ratios and portfolio turnover. Expenses are lower because the fund manager is not required to perform research or analysis t identify the best investments in the market (they just follow the index).

Portfolio turnover, which measures the number of trades executed within the fund's portfolio, is also lower for the same reason (less trading because it just follows the index).

Actively-Managed (Mutual) Fund

Involves the fund manager and their team performing research and analysis to identify the best investments in the market

Spot Price

Reflects today's exchange rate and is primarily utilized when a currency conversion must occur immediately

Forward Price

An exchange rate agreed upon today, but for a conversion that will occur in the future. For example, a person obtains a specific exchange rate to convert U.S. Dollars to Euros in four months.

Hedge (with Currency)

Investors, businesses and governments utilize forward prices to hedge (protect) themselves against currency risk. If an exchange rate is locked in today via a forward price, fluctuations in the exchange rate that would otherwise negatively impact the converter are no longer a concern.

Federal Reserve Tools to Implement Monetary Policy

- The discount rate

- Open market operations

- Reserve requirements

- Regulation T (margin) requirements

The Fed has no control over tax policy, as it is primarily controlled by Congress.

Additionally, the Fed has no direct control over the prime rate (the rate banks lend to the best customers at), although it does aim to influence this rate.

Sales Proceeds (in the Secondary Market)

Reflects the liquidation (sale) price of a security MINUS any commission or transaction-related fees

FINRA rule on Initial Public Offerings (IPOs)

FINRA rules prohibit the sale of IPOs to FINRA members (firms), their employees, and their immediate families.

Banks are not FINRA members, so their employees can purchase IPOs.

Priority Order During a Corporate Liquidation

- Unpaid wages and taxes

- Secured creditors (secured bonds)

- Unsecured creditors (debentures)

- Junior unsecured creditors (subordinated debentures)

- Preferred stockholders

- Common stockholders

American Depository Receipts (ADRs) Risks

Securities that represent ownership in foreign companies. Domestic financial institutions with foreign branches typically create ADRs by purchasing the foreign shares, placing them in a trust, and slicing up the trust into "receipts." Those receipts are then registered with the SEC and sold to American investors.

Subject to risk including:

- Market risk

- Business risk

- Currency exchange risk (relates to the conversion of dividends from a foreign issuer to U.S. Dollars and if a bad conversion rate occurs, less U.S. Dollars are received)

Business Risk

Occurs when a company loses revenue to competition or due to mismanagement

Warrants

Long-term options to buy stock at a fixed price.

At issuance, they don't have intrinsic value, which means their fixed price is higher than the stock's market price.

However, they are issued with a significant amount of time value (typically expiring after 5 years).

Warrants are typically issued as "sweeteners" with other securities like bonds in order to entice purchases from investors. If a bond sale is not going well, adding free warrants to the bond sale usually make the offering more competitive.

Because warrants provide more shares to a small portion of investors (and not all current stockholders), offerings of warrants are considered dilutive events. Companies must obtain shareholder approval prior to offering warrants, but they are typically approved as they make it easier for the issuer to raise capital.

Federal Reserve Participating in Repurchase Agreements

When the Federal Reserve takes part in a repurchase agreement with a member bank, it is loosening the money supply. Loosening puts more money into the money supply and is typically done to avoid recessions.

Hedge Funds

Hedge funds are only suitable for sophisticated clients that can withstand higher levels of risk.

Additionally, most hedge funds require initial investments of $1 million or more and have lock-up periods. During a lock-up period, the investor may not redeem their shares.

Fingerprints for Registration

Fingerprints gathered from applicants for registration in the securities industry are processed and utilized in background checks performed by which of the following organizations:

The FBI.

Trading Ahead of Research

Occurs when a firm or employee places a trade for a security just prior to issuance of a research report

Frontrunning

Occurs when a representative receives a large customer order, but submits a trade for their own personal account prior to submitting their customer's trade

Backing Away

Occurs when a firm provides a firm quote on a security, but then refuses to execute a customer transaction

Interpositioning

Involves creating an unnecessary middleman

Principal (Dealer) Transactions

Involves financial professionals and their firms performing transactions directly with their clients in return for markups and markdowns.

When a purchase order is submitted by a client, the firm sells the security to the client from their own inventory at a "marked up" price.

When a sale order is submitted by a client, the firm buys the security at a "marked down" price and places it into their inventory.

Agency (Broker) Transactions

Commissions are charged for agency (broker) transactions while sales loads are assessed on mutual fund transactions.

Structuring

When a customer deposits or withdraws any amount $10,000 or over, a currency transaction report (CTR) is filed with the government. To avoid reporting requirements, a customer may make frequent deposits and/or withdrawals right below $10,000. This is known as structuring and a red flag for illegal activities.

Criminal Charges for Insider Trading

Fines up to $5 million and up to 20 years in jail

Securities Considered Marginable

- Exchange-listed stocks

- Federal reserve approved OTC stocks

- Debt securities

- Primary offerings after 30 days of ownership

- LEAPS options with more than 9 months to expiration

- Warrants

Securities NOT Considered Marginable

- OTC stocks not approved by the Federal Reserve

- Primary offerings held less than 30 days

- Any option with 9 months or less to maturity (e.g., regular long calls and long puts)

- Insurance products (annuities and life insurance)

- Rights

FINRA Form U-4

Used to register as financial representatives

Information provided on Form U-4 must be independently verified by the firm through a background check.

Form U-4 is submitted and housed in FINRA's Central Registration Depository (CRD).

FINRA Form U-5

Used to cancel registration

Corporate and Municipal (General Obligation Bond) Accrue Interest on?

Securities accrue interest on a 30/360 basis

U.S. Government Securities Accrue Interest on?

U.S. Government (Treasury note, Treasury bond, TIPS) securities accrue interest on an actual/365 schedule

The North American Securities Administrators Association (NASAA)

Is a collective group of state administrators, that enforce the rules and regulations in the Uniform Securities Act (blue sky; state securities law).

The Federal Telephone Consumer Protection Act (FTCPA)

The FTCPA protect individuals from unwanted communication through phone lines. Nonprofits are exempt from rules in this legislation.

Custodial Account Contributions

Are considered an irrevocable gift to the minor

Rule 144

4-4 -> control and restricted is the way I remember

An affiliate (insider) owning unregistered shares are subject to both control and restricted stock rules instituted by Rule 144.

Control (held by an insider) stock is subject to volume limitation, while unregistered (restricted) shares are subject to a 6-month holding period.

Rule 147

47 is close to 50 states, and this rule refers to intrastate offerings is the way I remember.

Intrastate (all in one state) offerings, also known as Rule 147 offerings, are exempt from SEC registration but are still subject to state registration.

Only residents of the state where the security is offered in are eligible to purchase these securities. Owning property in a state does not necessarily mean a person is a resident of that state.

Account Statements (Excluding Penny Stocks)

Financial firms must generally send account statements at least quarterly to their customers.

Account Statements (w/ Penny Stocks)

If a customer holds penny stocks, monthly statements must be sent.

Bond Counsel

The bond creates a legal opinion before a municipal bond is issued. The bond counsel is a group of specialized lawyers that rules on the legality, validity, and tax status of the municipal bond being issued.

Hedge Fund Managers Pay Structure

Typically paid based on assets under management (AUM) and capital gains. A common setup is "2 in 20." The manager would collect 2% of the AUM and keep 20% of the gains in the portfolio.

Hypothecation Agreement

(1/3 of margin agreement) - Pledges the customer's securities as collateral for the loan.

Loan Consent Form

(1/3 of margin agreement) - Allows the firm to lend out margin securities to other customers.

Credit Agreement

(1/3 of margin agreement) - Details the margin loan structure and how interest is computed.

Tombstone

Only form of legal advertising in the 20-day cooling off period and contains several pieces of information, including the:

- gross (not net) proceeds of the offering

- the type of security

- the number of shares to be sold

It also includes the names of the syndicate members, but NOT their participation amounts.

Correspondence

Any written or electronic communication sent to 25 or fewer retail clients in a 30-day period.

Public communications such as correspondence must be kept on file by the broker-dealer for at least 3 years.

Blanket Recommendation

Involves a registered representative recommending a security to a majority or all their clients

Listed Securities

Trade on national exchanges like the New York Stock Exchange (NYSE), American Stock Exchange (NYSE-MKT), and NASDAQ

First Market (Sub-market of Secondary Market)

Listed stocks trading on exchanges

Second Market (Sub-market of Secondary Market)

Unlisted stocks trading OTC

Third Market (Sub-market of Secondary Market)

Listed stocks trading OTC

Fourth Market (Sub-market of Secondary Market)

Institution-to-institution trading typically using ECNs

Alpha Calculation

(Portfolio (fund) return - Risk-free return) - (Beta x (Market return - risk-free return))

Difference Between Roth IRAs and Roth 401(k)s

Only Roth 401(k)s are considered qualified plans since they are workplace sponsored plans

Regulation S

Allows the issuance of stock outside the United States without being registered with the SEC

Limited Trading Authority

Allows the authorized agent to perform any of the following functions on behalf of the account owner:

- Purchase securities

- Borrow funds on margin

- Sell naked calls

CANNOT distribute (withdraw) funds

Employee Retirement Income Security Act (ERISA)

Written to protect the retirement assets of private company (non-government) employees.

ERISA applies to both small and large private companies and non-profit organizations.

Securities Investor Protection Corporation (SIPC)

Clients must provide SIPC information at or prior to account opening, then every year after.

SIPC protects customers from broker-dealer failure.

Prime Brokerage Accounts

Utilized primarily by hedge funds. They keep all of their assets with one "prime" broker, but their trades are sent to other brokers for trades.

The prime broker consolidates all of the hedge fund's assets, while allowing the fund to obtain high quality trade executions through other brokers.

Cumulative Voting Structure

Each stockholder receives one vote for every share owned, multiplied times the number of board seats open, and can cast those votes for any board seat

Broker-Dealers Must Disclose Their Balance Sheet How Frequently?

Semi-annually.

Both balance sheet and net capital computation to their customers.

Parity Price

To find the parity price of a stock, the conversion ratio must be known.

Conversion ratio is found by dividing par ($1,000) by the conversation price.

The parity price of a stock is found by dividing the bond's market price by the conversion ratio.

Introducing Brokers

Financial firms that maintain a book of business, but hold their customer's assets at another firm known as a clearing broker

Clearing Brokers

Maintain custody, process trades, and act as clearing agent for their own customers and customers of introducing brokers

Transfer Agents

Work on behalf of issuers to keep track of which investors own the issuer's securities

Form 4

Filed when an affiliate's common stock position in the company they are an affiliate of changes.

This form must be filed within 2 business days of the change.

Can be found on the SEC's EDGAR system.

Qualified Plans

Workplace-sponsored and governed by the ERISA.

When meeting ERISA standards and approved by the IRS, a qualified plan provides tax benefits - tax-deductible contributions and tax-deferred growth.

These plans include:

- 401(k) plans

- 403(b) plans

- Keogh (HR-10) plans

- SIMPLE IRAs

- SEP IRAs