SIE Exam: Capital Markets

What score do you need to pass the SIE exam?

70

FINRA lists the SIE as 75 multiple-choice questions in 1 hour 45 minutes with a passing score of 70. You don't need to be associated with a firm to take it, and a passing result is valid for four years. Source: FINRA.

What is a prospectus?

Disclosure document for an offering

A prospectus is the document that describes a securities offering to investors: the issuer, the securities, the risks and how the money will be used. Source: U.S. Code / eCFR.

What does the Securities Act of 1933 mainly govern?

Registering new securities offerings

The Securities Act of 1933 makes it unlawful to sell a security through interstate commerce unless a registration statement is in effect or an exemption applies. It is the primary-market disclosure law. Source: U.S. Code / eCFR.

What did the Securities Exchange Act of 1934 do?

Created the SEC; covers trading

The Securities Exchange Act of 1934 established the Securities and Exchange Commission and governs secondary-market trading, exchanges, broker-dealers and self-regulatory organizations. Source: U.S. Code / eCFR.

What is the bid price?

The highest price a buyer will pay

The bid is the highest price a buyer is currently willing to pay for a security. A market sell order generally executes at or near the bid. Source: FINRA.

What is the ask (offer) price?

The lowest price a seller will take

The ask, also called the offer, is the lowest price a seller is currently willing to accept. A market buy order generally executes at or near the ask. Source: FINRA.

What is the bid-ask spread?

The gap between the bid and the ask

The spread is the difference between the highest bid and the lowest ask. Less liquid securities often have wider spreads. Source: FINRA.

What are blue-sky laws?

State securities laws

Blue-sky laws are state securities laws. On top of federal law, states may require securities to be registered in the state and regulate securities fraud. They predate the federal securities acts. Source: Cornell LII, NASAA.

Under Regulation T, how much can a broker lend on a new margin stock purchase?

Up to 50% of the purchase price

Under Federal Reserve Board Regulation T, a broker can generally lend a customer up to 50 percent of the price of a margin equity security for new purchases. FINRA Rule 4210 adds its own margin requirements. Source: FINRA, U.S. Code / eCFR.

What is a margin account?

Lets you borrow from your broker

A margin account lets an investor borrow money from the brokerage firm to buy securities, using the account as collateral. Losses can exceed the money the investor put in. Source: FINRA.

How much does FDIC insurance cover?

$250K per depositor/bank/category

FDIC deposit insurance covers $250,000 per depositor, per FDIC-insured bank, for each account ownership category. It covers bank deposits, not stocks, bonds or mutual funds. Source: FDIC.

What is a self-regulatory organization (SRO)?

Body that writes and enforces rules

Under the Securities Exchange Act, SROs include national securities exchanges, registered securities associations such as FINRA, and registered clearing agencies. They write and enforce rules for their members under SEC oversight. Source: U.S. Code / eCFR, FINRA.

What is the over-the-counter (OTC) market?

Trading done off an exchange

OTC trading generally refers to any trading that takes place off an exchange, for example between dealers or on alternative trading systems. Source: FINRA.

What is Form U4?

Registration form for industry reps

Form U4 is the registration form for individuals in the securities industry. FINRA, other SROs and state regulators review it as a condition of registration. Source: FINRA.

What is the cooling-off period in a new offering?

From filing until it is effective

After an issuer files a registration statement, the cooling-off period runs until the SEC declares it effective. By statute, a registration statement becomes effective on the 20th day after filing unless the SEC sets an earlier date; in practice the period is often longer because of amendments. Source: U.S. Code / eCFR.

What is a red herring?

Preliminary prospectus before effect

A red herring is a preliminary prospectus used before the registration statement is effective. It carries a legend that the information is not complete and may be changed, and that the securities may not be sold until registration is effective. Source: U.S. Code / eCFR.

What is a tombstone ad?

A limited notice of an offering

A tombstone is a limited announcement of an offering. SEC Rule 134 allows communications limited to specified facts, such as the issuer, the security, the price and where to get a prospectus. Source: U.S. Code / eCFR.

What does the Investment Company Act of 1940 regulate?

Mutual funds and fund companies

The Investment Company Act of 1940 regulates investment companies, including open-end funds (mutual funds) and closed-end funds. Source: U.S. Code / eCFR.