Securities Industry Essentials Exam Articles

Cheat Sheet / Updated 06-10-2024

The Securities Industry Essentials (SIE) exam tests your basic knowledge of the securities industry. This exam is a corequisite exam for people who want to become an investment company representative, a general securities representative, a direct participation programs (DPP) representative, a securities trader, an investment banking representative, a private securities offerings representative, a research analyst, or an operations professional.

Article / Updated 08-30-2023

Because of the number of questions that could be asked, the Securities Industry Essentials (SIE) exam is a beast of a test that poses questions in many different ways. You have to deal with multitiered Roman numeral nightmares, open- and closed-ended sentences, and killers like except and not. Straightforward question types on the SIE Straightforward question types include a group of sentences with the facts followed by a question or incomplete sentence; you then get four answer choices, one of which correctly answers the question or completes the idea. Closed-stem questions You’ll find more closed-stem questions than any other question type on the SIE and co-requisite exams, so you’d better get a handle on answering these babies, for sure. Thankfully, closed-stem questions are fairly run-of-the-mill. They begin with one or more sentences containing information and end with a question (and, appropriately enough, a question mark). The question mark is what makes closed-stem questions different from open-stem questions. Your answer choices, lettered (A) through (D), may be complete or incomplete sentences. Here’s a basic closed-stem question. Mr. Bearishnikoff is a conservative investor. Which of the following investments would you recommend to him? (A) Buying put options (B) Buying long-term income adjustment bonds (C) Buying common stock of an aggressive growth company (D) Buying Treasury notes The right answer is Choice (D). The first sentence tells you that Mr. Bearishnikoff is a conservative investor. This detail is all the information you need to answer the question correctly, because you know that conservative investors aren’t looking to take a lot of investment risks and that U.S. government securities such as Treasury notes (T-notes) are considered the safest of all securities — they’re backed by the fact that the government can always print more money to pay off the securities that it issues. Of course, sometimes the phrasing of the answer choices can help you immediately cut down the number of feasible answer choices. For instance, Mr. Bearishnikoff would probably balk at investing in an aggressive growth company, which certainly doesn’t sound stable or safe. By the way, the you in the question refers to you on your good days, when you’re considerate and rational and have had a sufficient amount of sleep. Mr. Bearishnikoff probably wouldn’t appreciate any rogue-elephant investing, even if you think he should be more daring. The question also assumes normal market conditions, so don’t recommend a different investment because you think the government is going to collapse and T-notes are going to take a dive. Just accept the conditions the problem presents to you. Be careful to focus only on the information you need to answer the question. The securities exam creators have an annoying tendency to include extra details in the question (such as the maturity date, coupon rate, investor’s age, and so on) that you may not need. Open-stem questions An open-stem question poses the problem as an incomplete sentence, and your mission, should you choose to accept it, is to complete the sentence with the correct answer. The following example shows how you can skillfully finish other people’s thoughts. The initial maturity on a standard option is (A) three months (B) six months (C) nine months (D) one year The answer you want is Choice (C). Options give the purchaser the right to buy or sell securities at a fixed price. Options are considered derivatives (securities that derive their value from another security) because they’re linked to an underlying security. Standard options have an initial maturity of nine months. On the other hand, Long-Term Equity AnticiPation Securities (LEAPS) may have initial maturities of one, two, or three years. But this example question asks about a standard option; therefore, you don’t assume that it’s a LEAP. The preceding example is quite easy. Anyone who has been studying for the SIE or Series 7 exam should know the answer. However, what makes securities exams so difficult is that the exams are loaded with so many date-oriented details. Not only do you have to memorize the initial maturities of all the different securities, but unfortunately, you also have to remember a truckload of time frames (for example, accounts are frozen for 90 days, new securities can’t be purchased on margin for 30 days, an options account agreement must be returned within 15 days after the account is approved, and so on). Questions with qualifiers on the SIE exam To answer questions with qualifiers, you have to find the best answer to the question. The qualifier keeps all answer choices from being correct because only one answer rises above the rest. Working with extremes: Most, least, best Recognizing the qualifier in the question stem and carefully reading every single answer choice are very important. Check out the following example. Which of the following companies would be MOST affected by interest rate fluctuations? (A) SKNK Perfume Corp. (B) Bulb Utility Co. (C) Crapco Vitamin Supplements, Inc. (D) LQD Water Bottling Co. The answer is Choice (B). Although all companies may be somewhat affected by interest rate fluctuations, the question uses the word most. If interest rates increase, companies have to issue bonds with higher coupon (interest) rates. This higher rate, in turn, greatly affects the companies’ bottom lines. Therefore, you’re looking for a company that issues a lot of bonds. Utility companies are most affected by interest rate fluctuations because they’re highly leveraged (issue a lot of bonds). Making exceptions: Except or not When a question includes the word except or not, you’re looking for the answer that’s the exception to the rule stated in the stem of the question. In other words, the correct answer is always the false answer. The question can be open (as it is in the next example) or closed. Right off the bat, look for an except or not in the stem of every question on the SIE exam. Many students who really know their material accidentally pick the wrong answer on a few questions because they carelessly miss the except or not. Take a look at the following exception problem. A stockholder owns 800 shares of WHY common stock. WHY stockholders were given cumulative voting rights. If there are three vacancies on the board of directors, stockholders can cast any of the following votes EXCEPT (A) 800 for one candidate (B) 800 for each candidate (C) 2,400 for one candidate (D) 900 for each candidate The answer you’re looking for is Choice (D). Cumulative voting rights give smaller stockholders (not height-wise, but in terms of the number of shares they own) an easier chance to gain representation on the board of directors because a stockholder may combine his total voting rights and vote the cumulative total in any way he wants. Here, the stockholder has a total of 2,400 votes to cast (800 shares × 3 vacancies = 2,400 votes). In this example, you may be tempted to select Choices (A), (B), or (C), any of which would be correct if you were asked for the number of votes this stockholder could cast. For example, the stockholder can use 800 shares to vote for only one candidate (Choice [A]) — he doesn’t have to use all 2,400 votes. Choice (B) is another possible voting arrangement because nobody said the stockholder has to use all his votes for one candidate. Choice (C) is an option because the stockholder has a total of 2,400 votes to cast. In this question, however, you’re looking for the number of votes the stockholder can’t cast because the word except in the question stem requires you to find a false answer. Therefore, Choice (D) is the correct answer because in order to cast 900 votes for each candidate, the stockholder would need a total of 2,700 votes (900 × 3). If you’re one of the unlucky people who gets an “all of the following are false except” question, you have to find the true answer. Don’t forget, two negatives in a sentence make a positive statement. You may want to try rephrasing the question so you know whether you’re looking for a true or false answer. Roman hell: Complex multiple choice on the SIE exam Yes, the SIE exam creators even sneak complex (two-tiered) Roman numeral questions in on you. They can pose the question by asking you to put something in order, or they can ask you to find the best combination in a series of answer choices. To make things even more enjoyable, sometimes they even add except and not to the question. Imposing order: Ranking questions To answer a ranking question, you have to choose the answer that places the information in the correct order — for example, first to last, last to first, highest to lowest, lowest to highest, and so on. Check out the following example. In which order, from first to last, are the following actions taken when opening a new options account? I. Send the customer an ODD. II. Have the ROP approve the account. III. Execute the transaction. IV. Have the customer send in an OAA. (A) I, II, III, IV (B) II, I, IV, III (C) III, I, II, IV (D) I, III, II, IV The correct answer is Choice (A). Wasn’t it nice of me to arrange all the answers in order for you? Because option transactions are so risky, the customer has to receive an options risk disclosure document (ODD) prior to opening the account. Statement I has to come first, so you can immediately eliminate Choices (B) and (C), giving you a 50 percent chance of answering correctly. After the client receives the ODD, the registered options principal (ROP) needs to approve the account before any transactions can be executed; II has to come before III, so you can finish the problem here — the answer is Choice (A). Last but not least, the customer signs and returns an options account agreement (OAA) within 15 days after the account is approved by the ROP. Taking two at a time The Roman numeral format also appears on the SIE with questions that offer two answer choices as the correct response. In these types of questions, you choose the responses that best answer the question. Which TWO of the following are the minimum requirements for an investor to be considered accredited? I. An individual with a net worth of $500,000 II. An individual with a net worth of $1,000,000 III. An individual who earned $200,000 per year in the most recent two years and has a reasonable expectation of reaching that same level in the current year IV. An individual who earned $300,000 per year in the most recent 3 years and has a reasonable expectation of reaching that same level in the current year (A) I and III (B) I and IV (C) II and III (D) II and IV The correct answer is Choice (C). Statements I and II both deal with net worth; III and IV deal with earnings. Therefore, you’re dealing with two questions in one; to be accredited, the answer to at least one of these two questions must be satisfactory: What is the individual’s minimum net worth? What is the individual’s minimum income? To be considered an accredited (sophisticated) investor, the minimum requirement is a net worth of $1,000,000 and/or a yearly income of $200,000 in the most recent two years, with a reasonable expectation of reaching that same level in the current year. If the word minimum were not used in the question, answer IV would also be correct. A little mystery: Dealing with an unknown number of correct statements In the preceding section, the question states that only two responses can be correct. The following question may have one, three, or four correct answers. You can recognize this type of question simply by glancing at your answer choices. To make the problem more difficult (don’t hate me, now), I add an except because I’m feeling really good about you, and I just know you’re up to it. All of the following are true about open-end funds EXCEPT I. they issue common stock II. they issue preferred stock III. they issue debt securities IV. shares can be purchased in the market (A) I only (B) II only (C) II, III, and IV only (D) I, II, III, and IV The correct answer is Choice (C). Open-end funds are mutual funds. Mutual funds are constantly issuing new shares (thus the open-end name). Since mutual funds only issue common stock and can only be purchased directly from the issuer, the only true answer is I. However, since we are looking for the exception(s), answers II, III, and IV are the correct ones. Had the question asked which is true regarding closed-end funds, the answer would’ve been Choice (D). Diagram questions on the SIE exam The SIE exam will not likely give you more than a couple of exhibit questions, if any. However, even if you don’t get an exhibit question on the SIE exam, you can use the following information to help you on one of the companion exams that you’re going to have to take. Exhibit questions may include newspaper clippings, option prices, bond prices, trading patterns, income statements, balance sheets, and so on. Out of the exhibit questions you get, some of them just require you to find the correct information; others require a little calculating. Most of them are quite easy. Take a look at the following problem. When you answer exhibit questions, take care not to miss labels like “in thousands” in headings or scales on a graph that would change your answer. Almost nothing is worse than missing a question that you know because you carelessly overlook something right in front of you.

Cheat Sheet / Updated 07-05-2023

The Securities Industry Essentials (SIE) Exam is your starting point to becoming a registered representative. The SIE must be passed before you can take some of the top-off exams such as the Series 7. The SIE Exam tests your understanding of the basics regarding securities, the market, rules, and such. The SIE Exam is by no means easy and requires a lot of concentration and preparation. Not only do you need a deep understanding of the material covered, but you must also perfect your test-taking skills. The more practice questions you take and review, the better.

Article / Updated 03-24-2021

Although most analysts use some combination of fundamental analysis and technical analysis to make their securities recommendations, for the Securities Industry Essentials Exam purposes, you need to be able to differentiate between the two types. This article discusses fundamental analysis. Fundamental analysts perform an in-depth analysis of companies. They look at the management of a company and its financial condition (balance sheets, income statements, the industry, management, earnings, and so on) and compare it to other companies in the same industry. They can also compare many years of financial statements to help determine whether a company is heading in the right direction. In addition, fundamental analysts even look at the overall economy and industry conditions to determine whether an investment is good to buy. In simplest terms, fundamental analysts decide what to buy. A fundamental analyst’s goal is to determine the value of a particular security and decide whether it’s underpriced or overpriced. If the security is underpriced, a fundamental analyst recommends buying the security; if the security is overpriced, he recommends selling or selling the security short. Balance sheet components The balance sheet provides an image of a company’s financial position at a given point in time. The SIE exam tests your ability to understand the components (see the following figure) and how financial moves that the company makes (buying equipment, issuing stock, issuing bonds, paying off bonds, and so on) affect the balance sheet. In general, understanding how a balance sheet works is more important than being able to name all the components. People call this statement a balance sheet because the assets must always balance out the liabilities plus the stockholders’ equity. Assets are items that a company owns. They include: Current assets: Owned items that are easily converted into cash within the next 12 months; included in current assets are cash, securities, accounts receivable, inventory, and any prepaid expenses (like rent or advertising). Note: Fundamental analysts also look at methods of inventory valuation, such as LIFO (last in first out) or FIFO (first in first out). In addition, they look at the methods of depreciation, which are either straight line (depreciating an equal amount each year) or accelerated (depreciating more in earlier years and less in later years). Fixed assets: Owned items that aren’t easily converted into cash; included are property, plant(s), and equipment. Because fixed assets wear down over time, they can be depreciated. Intangible assets: Owned items that don’t have any physical properties; included are items such as trademarks, patents, formulas, goodwill (a value based on the reputation of a company — for example, the name McDonald’s is probably worth more than Fred’s Sloppy Burgers), and so on. Liabilities are what a company owes. They may be current or long-term: Current liabilities: Debt obligations that are due to be paid within the next 12 months; included in current liabilities are accounts payable (what a company owes in bills), wages, debt securities due to mature, notes payable (the balance due on money borrowed), declared cash dividends, and taxes. Long-term liabilities: Debt obligation due to be paid after 12 months; included in long-term liabilities are mortgages and outstanding corporate bonds. Stockholders’ equity (net worth) is the difference between the assets and the liabilities (basically, what the company is worth). This value includes Par value of the common stock: The arbitrary amount that the company uses for bookkeeping purposes. If a company issues 1 million shares of common stock with a par value of $1, the par value on the stockholders’ equity portion of the balance sheet is $1 million. Par value of the preferred stock: The value that the company uses for bookkeeping purposes (usually $100 per share). If the company issues 10,000 shares of preferred stock, the par value on the stockholders’ equity portion of the balance sheet is $1 million. Paid in capital: The amount over par value that the company receives for issuing stock. For example, if the par value of the common stock is $1 but the company receives $7 per share, the paid in capital is $6 per share. The same theory holds true for the preferred stock. Treasury stock: Stock that was outstanding in the market but was repurchased by the company. Retained earnings: The percentage of net earnings the company holds after paying out dividends (if any) to its shareholders. Income statement components An income statement tells you how profitable a company is right now. Income statements list a corporation’s expenses and revenues for a specific period of time (quarterly, year-to-date, or yearly). When comparing revenues to expenses, you should be able to see the efficiency of the company and how profitable it is. I don’t think you need to actually see a detailed balance sheet from a company, but knowing the components of an income statement is important. Take a look at this figure to see how an income statement is laid out. Most of the items are self-explanatory.

Article / Updated 03-24-2021

Technical analysts look at the market to determine whether the market is bullish or bearish. They look at trendlines, trading volume, market sentiment, market indices (S&P 500, DJIA, and so on), options volatility, market momentum, available funds, index futures, new highs and lows, the advance-decline ratio, odd lot volume, short interest, put-to-call ratio (options trading), and so on. These analysts believe that history tends to repeat itself and that past performance of securities and the market indicate its future performance. Fundamental analysts decide what to buy, and technical analysts decide when to buy (timing). Not only do technical analysts chart the market, but they also chart individual securities. Technical analysts try to identify market patterns and patterns of particular stocks in an attempt to determine the best time to purchase or sell. Even though a stock’s price may vary a lot from one day to another, when plotting out stock prices over a long period of time, the prices tend to head in a particular direction (up, down, or sideways) and create a trendline. Benchmarks and indices If you watch news stations, read the newspaper, listen to the radio, and so on, you can’t help but see or hear about the DJIA (Dow Jones Industrial Average) or the NASDAQ being up or down. Well, those are indices (indexes) or benchmarks. Benchmarks are typically used to evaluate the performance of individual investments or a group of investments. Most investors compare their investments to certain broad-based indices or narrow-based indices: Narrow-based: Narrow-based indices indicate the performance of a particular industry such as the Dow Jones Transportation Index. Broad-based: Broad-based indices are more indicative of the overall market. Broad-based indices measure securities from many different industries. There are certainly more indices than the ones listed, but for the Securities Industry Essentials Exam purposes, you shouldn’t need to memorize them but mainly understand what indices are and that they are often used as benchmarks. Here are examples of some of the broad-based stock indices: Standard & Poor’s 500 Index (S&P 500): Includes 500 large-cap listed common stocks. Wilshire 5000 Total Market Index: The largest of all stock indexes; includes 5,000 listed common stocks. Russell 2000 Index: An index of 2,000 small-cap (smaller-sized) companies. Lipper Indexes: Track the financial performance of different mutual funds based on their investment strategy. Each Lipper Index tracks the performance of only the largest fund in each category (large-cap growth, mid-cap value, international fund, and so on). Dow Jones Composite Average: An index that tracks 65 stocks from some of the most prominent companies. The Dow Jones Composite is broken down into: DJIA: Tracks 30 stocks from the industrial sector. The DJIA is the most commonly used index to indicate the performance of the market in general. Dow Jones Transportation Average: Tracks 20 stocks from the transportation sector. Dow Jones Utility Average: Tracks 15 stocks from the utility sector. Proponents of the Dow Theory believe that major market trends are confirmed if the DJIA and the Down Jones Transportation Average are trending in the same direction (that is, both advancing or both declining). Logic dictates that if industrial companies are producing more goods, then those same goods need to be transported. Most of the indices listed previously are weighted toward the larger companies. This means that price movement of the larger companies has a greater impact on the particular index than a smaller company does. Stages of the business cycle The business cycle is the natural rise and fall of goods and services (Gross Domestic Product, or GDP) that occur over time. The business cycle has four phases that will occur over and over again. Expansion (A in the figure): Expansion is characterized by increasing demand for goods and services. During expansion, the stock market is generally increasing (bullish), property values are increasing, and industrial production is increasing. Expansion also can be characterized as recovery. Peak (B in the figure): The peak occurs at the top of the expansion phase and happens right before the economy starts to contract. Contraction (C in the figure): Contraction is characterized by higher levels of consumer debt, a stock market that is generally decreasing (bearish), a decreasing demand for goods and services, and an increasing number of bond defaults and bankruptcies. Trough (D in the figure): Trough is the lowest part of the contraction phase and happens right before the economy starts to expand (recover) again. If asked to place them in order on the SIE exam, you can put them in order just as they’re given in the preceding list. Bullish versus bearish When thinking of whether the market is bullish or bearish, think of the terms. You can think of bullish as charging ahead. So, if the market is bullish, it is generally increasing in value. If the market is bearish, it is generally hibernating or sleeping. When the market is bearish, it is generally decreasing in value. Individuals can be bullish or bearish on the market, in general, or bullish or bearish on certain securities. Bullish strategies include buying individual stocks, buying mutual funds, buying call options, selling uncovered [naked] put options, and so on. Bearish strategies include selling short individual stocks, buying bearish funds (funds that generally increase in value in a declining market), buying inverse exchange-traded funds, selling uncovered [naked] call options, buying put options, and so on.

Article / Updated 03-24-2021

After all the time, effort, and sacrifice you put into studying, elevating the importance of the Securities Industry Essentials (SIE) exam to an unrealistically high level is easy. Step back for a moment. Keep it in perspective. This situation is not life or death. If you don’t pass the test the first time, the worst thing that happens is that you have to retake it. On the other hand, getting tripped up by some trivial exam traps after you’ve come this far would be a shame. This article lists some common mistakes and gives you some last-minute advice to help you over the last hurdles that stand between you and your first million dollars as a stockbroker. Don't ease up on the studying Perhaps you stop studying because you’re getting good scores on practice exams and your confidence is high. If you’re scoring 80s on exams that you’re seeing for the first time, shoot for 85s. If you’re getting 85s, shoot for 90s. The point is that you should continue to take exams until the day before your scheduled exam day. I firmly believe that every day away from studying ultimately costs you points on your exam that you can’t afford to lose. By the same token, make sure you don’t wait too long before taking the exam. If you have to wait several weeks before you can take the exam, you lose your sense of urgency, and it’s almost impossible to keep up the intense level of preparation needed for many months at a time. If you’re taking a prep course before you schedule your SIE, follow your instructor’s advice as to when you should take the exam. If you’re directing your own course of study, after you’re passing practice exams consistently with 80s or better, take the test as soon as possible. The longer you wait to take the exam, the more likely you are to forget the key points and formulas. If your test date is too far in the future, you also risk falling into the I’ll-study-later trap, where you think you can double your efforts later to make up for any wasted time. Overall, losing your sense of urgency leads to complacency and a lack of motivation, which probably aren’t characteristics broker-dealers are looking for in their employees. Don't assume the question’s intent You glance at the question quickly and incorrectly anticipate what the exam question is really asking you. You pick the wrong answer because you were in such a rush, you didn’t see the word except at the end of the question. What a shame. You don’t want to fail the exam when you really know the material. Read each question carefully and look for tricky words like except, not, and unless. Then read all the answer choices before making your selection. Don't read into the question You’re thinking but what if before you even look at the answer choices. When reviewing questions with students, I constantly get questions like “Yeah, but what if he’s an insider?” or “What if she’s of retirement age?” The bottom line is that you shouldn’t add anything to the question that isn’t there. Don’t be afraid to read the question at face value and select the right answer, even if it occasionally seems too easy. Eliminate answer choices that are too much of a stretch, and remember that when two answer choices are opposites, one of them is most likely correct. Don't become distracted when others finish Now, certainly this won’t come into play if you’re taking the exam at home but there are many other sources of distraction at home. You haven’t even started looking over the questions you marked for review when the woman next to you leaps from her seat, picks up her results (with a little victory dance), and makes a break for the door. Don’t let people who are taking the exam with you psych you out. If others finish ahead of you, perhaps they’re members of Mensa or maybe this is the fifth time they’ve taken the exam — practice makes perfect. They may even be taking a totally different exam. Besides the SIE, the testing centers also offer other securities exams with fewer questions. Keep focused and centered on taking your own exam. The only time you need to be concerned with is your own — whether you’re on track. Dress for comfort You’re trying to calculate the taxable equivalent yield on Mr. Dimwitty’s GO bond, but the pencil keeps slipping out of your sweaty hand. Now, at home, you can certainly set the temperature to your comfort level, however at the test center the temperature may not be ideal. You swear the test center has the heat cranked up to 80 degrees. Hmm. Maybe wearing your warmest wool sweater wasn’t the best idea. Whether taking the test at a testing center or home, dress comfortably. Don’t wear a tie that’s so tight it cuts off the circulation to your brain. You’re under enough stress just taking the exam. If you’re taking the exam at a test center, dress in layers. A T-shirt, a sweatshirt, and a jacket are great insulation against the cold. Another advantage is that you can shed layers of clothing (without ending up sitting in your underwear) if the exam room is too warm. Don't forget to breathe You sit down to take the exam brimming with confidence. All of a sudden, the exam begins and some of the words look like they’re in a foreign language. Your heart starts pounding, and you feel like you’re going to pass out. If stress becomes overwhelming, your breathing can become shallow and ineffective, which only adds to your stress level. Focus yourself before the exam by closing your eyes and taking a few deep breaths. This same process of closing your eyes and breathing deeply is a great way to calm yourself if you become stressed or anxious at any time during the exam. Don't try to work out equations in your head instead of writing them down While taking the exam, your memory starts to cloud and, somehow, the fact that two plus two equals five begins to make sense to you and the only formula you can remember is that there are 12 inches in a foot. Certainly, there aren’t a whole lot of equations you’ll need for the SIE exam (not as much as for the Series 7 exam). However, don’t throw away easy questions — memorize your equations while you’re studying for your SIE exam so you know them cold before you sit down to take the exam. If your nerves are getting the best of you and clouding your memory, jotting down the equations that you want to remember as soon as your exam begins may be helpful (this process is known as a brain dump). When working out the math problems, you have scrap paper to work with (and a basic calculator). Use them. For example, some formulas, such as determining the value of a right (cum rights), require you to find sums and differences before you can divide. Even simple calculations, such as finding averages, can involve quite a few numbers. In problems with multiple parts, it’s easy for you to accidentally skip steps, plug in the wrong numbers from the question, or forget values that you calculated along the way. Writing things out helps you keep things in place without cluttering your short-term memory. Don't spend too much time on one question Although the questions are weighted (a little more points for more difficult questions and less for easy questions), you don’t want to get bogged down on one question. If you spend too much time on one question, you may lose points for many questions you didn’t have time to even look at because you wasted so much time on the one that gave you trouble. If you find yourself taking too long to answer a question, take your best guess, mark it for review, and return to it later. Don't change your answers for the wrong reasons You change an answer just because you already selected that same letter for the preceding three or four questions in a row. Just a touch of paranoia, right? You’ve probably been told from the time you first started primary school not to change your answers. Trust your instincts and go with your original reaction. You have only two good reasons to change your answer: You find that you initially forgot or didn’t see the words not or except and you initially chose the wrong answer because you didn’t see the tricky word. You find that the answer choice you originally selected is not the best answer after all. Don't calculate your final score prematurely You waste valuable time concentrating on the number of questions you think you got wrong instead of focusing on the SIE exam questions you still have to answer. Just read each question carefully, scrutinize the answer choices, and select the best answer. You’ll find out whether you passed right after you complete the exam; it’s not like you need to figure out your possible grade in advance to avoid sleepless nights until you receive your score. If you have additional time, use it to check your answers to the questions you marked for review.

Article / Updated 03-24-2021

For the Securities Industry Essentials (SIE) exam, make sure you have a good handle on bond basics. Review basic bond terminology and some bond characteristics. Remembering bond terminology The SIE exam designers expect you to know general bond terminology. This article reinforces the information you may have already learned from a prep course or study material (or are in the process of learning). This stuff is basic, but the SIE exam does test it: Maturity date: All issued bonds have a stated maturity date (for example, 20 years, 30 years, and so on). The maturity date is the year bondholders get paid back for the loans they made. At maturity, bondholders receive par value (see the next bullet). Because not as many investors are looking to tie up their money for a long period of time, short-term bonds are more liquid (actively traded) than long-term bonds. Par value: Par value is the face value of the bond. Although par value isn’t significant to common stockholders (whose issuers use it solely for bookkeeping purposes), it’s important to bondholders. For SIE exam purposes, you can assume that the par value for each bond is $1,000 unless otherwise stated in the question. Bond prices are quoted as a percentage of par value, often without the percent sign. A bond trading at 100 is trading at 100 percent of $1,000 par. Regardless of whether investors purchase a bond for $850 (85), $1,000 (100), or $1,050 (105), they’ll receive par value plus any interest due at the maturity date of the bond, usually with semi-annual interest payments along the way. Corporate bonds are usually quoted in increments of 1/8 percent (1/8% = 0.00125 or $1.25), so a corporate bond quoted at 99-3/8 (99.375 percent) would be trading at $993.75. Coupon rate: Of course, investors aren’t lending money to issuers for nothing; investors receive interest for providing loans to the issuer. The coupon rate on the bond tells the investors how much annual interest they’ll receive. Although bonds are no longer issued with physical coupons, previously, some bonds required investors to detach dated coupons (bearer bonds and partially registered bonds) from their bonds and turn them in to receive their interest payments. The coupon rate is expressed as a percentage of par value. For example, a bond with a coupon rate of 6 percent would pay annual interest of $60 (6% @@ts $1,000 par value). You can assume that bonds pay interest semiannually unless otherwise stated. So, in this example, the investor would receive $30 every six months. Bondholders receive interest (payment for the use of the money loaned), and stockholders receive dividends. The bond indenture: The indenture (also known as deed of trust or resolution) is the legal agreement between the issuer and its bondholders. It’s printed on or attached to the bond certificate. All indentures contain basic terms: The maturity date The par value The coupon rate (interest rate) and interest payment dates Any collateral securing the bond Any callable or convertible features The bond indenture also includes the name of a trustee. A trustee is an organization that administers a bond issue for an institution. It ensures that the bond issuer meets all the terms and conditions associated with the borrowing. Essentially, the trustee tries to make sure that the issuer does the right thing. Following bond issue and maturity schedules Not only can bond certificates be in different forms, but they can also be scheduled with different types of maturities. Maturity schedules depend on the issuer’s needs. The following list presents an explanation of the types of bond issues and maturity schedules: Term bonds: Term bonds are all issued at the same time and have the same maturity date. For example, if a company issues 20 million dollars’ worth of term bonds, they may all mature in 20 years. Because of the large payment that’s due at maturity, most corporations issuing this type of bond have a sinking fund. Most corporations issue term bonds because they lock in a coupon rate for a long period of time. A corporation creates a sinking fund when it sets aside money over time in order to retire its debt. Investors like to see that a sinking fund is in place because it lowers the likelihood of default (the risk that the issuer can’t pay interest or par value back at maturity). Series bonds: These bonds are issued in successive years but have only one maturity date. Issuers of series bonds pay interest only on the bonds that they’ve issued so far. Construction companies that are building developments in several phases are most likely to issue this type of bond. There are less of these issued than term and serial bonds. Serial bonds: In this type of bond issue, a portion of the outstanding bonds mature at regular intervals (for example, 10 percent of the entire issue matures yearly). Serial bonds are usually issued by corporations and municipalities to fund projects that provide regular income streams. Most municipal (local government) bonds are issued with serial maturity. A serial bond that has more bonds maturing on the final maturity date is called a balloon issue. The SIE exam focuses mainly on term and serial bonds. A typical SIE exam question may ask, “Which of the following types of bonds is most likely to have a sinking fund?” Answer: Term bonds. Secured and unsecured bonds The assets of the issuer may or may not back bonds. For test purposes, assume that bonds backed by collateral (assets that the issuer owns) are considered safer for the investor. Secured bonds, or bonds backed by collateral, involve a pledge from the issuer that a specific asset (for instance, property) will be sold to pay off the outstanding debt in the event of default. Obviously, with all else being equal, secured bonds normally have a lower yield than unsecured bonds. The SIE exam tests your knowledge of several types of secured bonds: Mortgage bonds: These bonds are backed by property that the issuer owns. In the event of default or bankruptcy, the issuer must liquidate the property to pay off the outstanding bonds. Mortgage bonds may be open- or closed-end. With an open-end mortgage bond, the issuer may borrow more money using the same property as collateral. With a closed-end mortgage bond, the issuer cannot borrow more money using the same property as collateral. Equipment trusts: This type of bond is mainly issued by transportation companies and is backed by equipment they own (for instance, airplanes or trucks). If the company defaults on its bonds, it sells the assets backing the bonds to satisfy the debt. Collateral trusts: These bonds are backed by financial assets (stocks and bonds) that the issuer owns. A trustee (a financial institution the issuer hires) holds the assets and sells them to pay off the bonds in the event of default. Guaranteed bonds: Guaranteed bonds are backed by a firm other than the original issuer, usually a parent company. If the issuer defaults, the parent company pays off the bonds. As such, the rating of the bonds is tied to the rating of the guarantor. Unsecured bonds are the opposite of secured bonds: These bonds are not backed by any assets whatsoever, only by the good faith and credit of the issuer. If a reputable company that has been around for a long time issues the bonds, the bonds aren’t considered too risky. If they’re issued by a relatively new company or one with a bad credit rating, hold onto your seat! Again, for SIE exam purposes, assume that unsecured bonds are riskier than secured bonds. Here’s the lineup of unsecured bonds: Debentures: These bonds are backed only by the issuer’s good word and written agreement (the indenture) stating that the issuer will pay the investor interest when due (usually semiannually) and par value at maturity. Income (adjustment) bonds: These bonds are the riskiest of all. The issuer promises to pay par value back at maturity and will make interest payments only if earnings are high enough. Companies in the process of reorganization usually issue these bonds at a deep discount (for example, the bonds sell for $500 and mature at par, or $1,000). For test purposes (and real-world purposes), you shouldn’t recommend these bonds to investors who can’t afford to take a lot of risk. Because secured bonds are considered safer than unsecured bonds, secured bonds normally have lower coupon rates. You can assume that for the SIE, the more risk an investor takes, the more reward he will receive. Remember the saying “more risk equals more reward.” More reward may be in the form of a higher coupon rate or a lower purchase price. Either one — or both — lead to a higher yield for the investor. When comparing short-term versus long-term debt securities, short-term bonds from the same issuer are considered safer because the investor is not tying up his money for as long a period of time. Because of the extra risk long-term bondholders are taking for tying up their money for a longer period of time, long-term bondholders generally (except in rare cases) receive a higher coupon (interest rate) for taking that additional risk.

Article / Updated 04-01-2019

To make sure you don’t walk into the Securities Industry Essentials (SIE) exam testing center, take one look at the computer screen, go into shock, and start drooling on the keyboard, this article covers some of the testing details for the SIE exam. The SIE exam basics The SIE exam is a computerized, closed book (in other words, no book), one-hour and 45-minute exam. The exam consists of 85 multiple-choice questions (although only 75 of them count toward your score — see the next section). You can take bathroom breaks at any time, but the clock continues to tick away, so you may want to reconsider drinking a mega-jumbo iced latte in the morning before you arrive at the exam center. 10 additional trial questions on the SIE exam To ensure that new questions to be introduced in future exams meet acceptable standards prior to inclusion, you answer 10 additional, unidentified questions that don’t count toward your score. In other words, you get 85 questions to answer, but only 75 are scored. Note: If you see a question on the SIE that doesn’t seem even remotely similar to anything that you’ve studied (or even heard about), it may very likely be an experimental question. The SIE computerized format and features Although you don’t need any previous computer experience to do well on the exam, you don’t want your first encounter with a computerized exam to be on the date of the SIE exam. Being familiar with the way the questions and answer choices will appear on the screen is essential. The following figure can help you prepare for exam day. A friendly exam-center employee will give you an introductory lesson to familiarize you with how to operate the computer before the exam session begins. Although the computer randomly selects the specific questions from each category, the operating system tracks the difficulty of each question and controls the selection criteria to ensure that your exam isn’t ridiculously easier or harder than anyone else’s. The following list describes some important computer exam features: Scroll bars for moving the questions on the screen A clock to help you track how much time you have left during each part (if the clock is driving you batty, you can hide it with a click of the mouse) A confirmation box that requires you to approve your answer choice before the computer proceeds to the next question An indication of which question you’re currently on A choice of answering the questions by Typing in the letter for the correct answer on the keyboard Using the mouse to point and click on the correct answer At some test centers, using a computer with a touch screen that lets you select the answer by pressing lightly against the monitor with your fingertip The capability of changing your answers or marking questions that you’re unsure of for later review, which allows you to go back and answer them at any time during that particular part You can mark answers for review or change responses only for the part of the test you’re currently taking. In other words, after you begin the second part, you can’t go back and change answers from the first part. Although you can review and change all your answers at the end of your test, don’t. Your brain is going to feel like it went through a blender by the time you get there. Review only your marked questions and change the answers only if you’re 100 percent sure that you made a mistake. As an instructor, I know that people change a right answer to a wrong one five times more often than they change a wrong one to a right one. Receiving and evaluating your SIE exam score Remember having to wait weeks for a standardized test score, hovering somewhere between eagerness and dread? Those days are gone. At the end of the SIE exam, the system calculates your score and displays a grade result on the computer screen. Although the wait for your grade to pop up may feel like an eternity, it really takes only a few seconds to see your grade. When you sign out, the test center administrator will tackle you (well, approach you) and give you a printed exam report with your grade and the diagnostic score results with your performance in the specific topics tested on your exam. Each question on the SIE exam is worth an average of 11⁄3 points (some are worth more and some are worth less depending on the FINRA’s feeling of how difficult a question is), and candidates need a score of 70 or better to achieve a passing grade. This percentage translates to 53 questions out of 75 that you have to answer correctly. The scores are rounded down, so a grade of 69.33 is scored as 69 on the SIE. When I took the Series 7 exam, back when the passing grade was 70, one of the other students from my class got a 69.6 (which was rounded down to a 69), and he had the NASD (now called the FINRA) review his exam to try and get him the extra point. Needless to say, FINRA ruled against him and he had to take the exam again. You passed! Now what? After you pass the SIE, Series 7, Series 63, and/or Series 66 exam, the FINRA will provide confirmation that you passed. At that point, you can now find a broker-dealer, bank, insurance company, or the like who wants you. Once you’re hired, your employer will let you know which other exams you have to take and schedule them accordingly. To continue working in the securities field, you’ll need to fulfill the FINRA’s continuing education requirements. Within 120 days after your second anniversary, and every three years thereafter, you have to take a computer-based exam covering regulatory elements such as compliance, regulatory, ethical, and sales practice standards at the Prometric exam center. In addition, there is a requirement (called a brokerage firm element) that requires broker-dealers to keep their registered representatives updated on job and product-related topics. How to retake the exam The SIE is a relatively difficult exam, and certainly some people need a do-over. If you fail the SIE, you’ll have to request a new test date and pay to retake the test. You should reapply immediately, though you have to schedule the new test date for at least 30 days after the day you failed (that’s 30 days of prime studying time!). If you fail the exam three times, you’re required to wait six months before you can retake the exam. Use the time between exams to understand what went wrong and fix it. Here are some of the reasons people fail their securities exams and some of the steps you can take to be successful: Lack of preparation: You have to follow, and stick to, a well-constructed plan of study. You have your diagnostic printout after you take the exam, and you can use that to focus on the areas of study where you fell short. Prep courses can help you identify and focus on the most commonly tested topics and provide valuable tips for mastering difficult math problems. Also consider tutoring sessions tailored to accommodate your busy schedule and pinpoint the areas of study where you need the most help. Nerves won out: Some people are just very nervous test takers, and they need to go through the process to get comfortable in unfamiliar situations. Next time around, they know what to expect and pass with flying colors. The people who are the most nervous about taking the exam tend to be the ones who haven’t prepared properly. Make sure that you’re passing practice exams on a consistent basis with grades in at least the high 70s before you attempt to take the real exam. Insufficient practice exams: You need to take enough practice exams before you take the real test. I think getting used to the question formats and figuring out how to work through them is as important as learning the material to begin with.

Article / Updated 04-01-2019

The information in the Securities Industry Essentials (SIE) exam was included in study guides that covered the Series 6, Series 7, Series 22, and so on. The Financial Industry Regulatory Authority’s (FINRA’s) idea was to strip the similar information from these exams and create the SIE exam. Besides stripping the information from these other exams, unfortunately for you and other exam takers, FINRA added a lot more information. What this means is that your Securities Industry Essentials exam study guide is now much longer, and you will have to study a lot of information to answer 75 randomized questions. The SIE exam tests your basic knowledge of the securities industry and is open to anyone age 18 or older. Association with a securities firm is not required — individuals may take the SIE exam prior to or after being hired by a firm. You will need to know certain terminology used in the securities industry, different securities products, how the market is structured, how the market functions, different regulatory agencies and their purposes, as well as regulated and prohibited practices. Since unsponsored individuals are allowed to take the exam, you can take a step toward becoming a securities professional prior to being hired. The exam’s purpose is to protect the investing public by ensuring that the individuals who sell or give information about securities have mastered the skills and general knowledge that competent practicing representatives need to have. The SIE exam itself is a computer-based exam given at Prometric test centers throughout the United States. The 75-question exam, administered by the FINRA, is 105 minutes in duration. A score of 70 percent or better gets candidates a passing grade and puts big smiles on their faces. The SIE Exam-Taker The SIE exam is a co-requisite exam for people who want to become an investment company rep, a general securities rep, a direct participation programs (DPP) rep, a securities trader, an investment banking rep, a private securities offerings rep, a research analyst, or an operations professional. The purpose of the SIE exam was to strip the information that was similar in all the aforementioned exams to make it easier for individuals to add additional licenses to their resume. So, in order to become a securities professional, you need to pass the SIE exam, one of the exams listed in the next section, and typically the North American Securities Administrators Association (NASAA) Series 63 or 66 exam. People who have a long and sordid history of embezzlement, forgery, and fraud are generally disqualified and precluded from taking the exam. Candidates must disclose any prior criminal records, and the FINRA reviews each application on a case-by-case basis. The SIE exam's Co-Requisite Exams The SIE exam is just your starting point. In order for you to become an industry professional, you will have to take one of the co-requisite exams and in most cases, the Series 63 or Series 66 state exams. As far as which co-requisite exam(s) you’ll have to take, that depends on the job you want and/or are hired to do. After you pass the SIE exam, the financial institution that hires you will tell you which exams you need to take and help you schedule them. In addition to taking the SIE exam and one of the co-requisite exams listed below, you’ll likely have to take either the NASAA Series 63 exam or NASAA Series 66 exam. These exams go into state securities laws as compared to federal securities laws, which are focused on in exams like the SIE. The difference between the Series 63 and Series 66 is that the Series 66 allows holders to become investment advisers also. Your employer will let you know which one they want you to take. More and more broker-dealers want their agents to take the Series 66. Don’t worry too much; neither of them is the beast that some of the other listed exams are. Series 6: Investment Company and Variable Products Representative Exam The Series 6 is the license required by most banks and insurance companies. This license allows the holder to sell products such as mutual funds, variable annuities, and variable life insurance (along with having an insurance license). Series 7: General Securities Representative Exam The Series 7 is the license exam that most people will be taking. This is the license required by most broker-dealers. The Series 7 allows you to sell equity securities, mutual funds, bonds, direct participation programs, options, and so on. Series 22: DPP Representative Exam If you’re planning on focusing your career on selling direct participation programs (DPPs), the Series 22 is the one for you. This license allows you to solicit and sell limited partnership interest in DPPs like real estate programs, oil and gas programs, equipment leasing programs, and so on. Series 57: Securities Trader Exam The Series 57 license allows holders to execute trades in securities. Typically a Series 57 licensed individual works in the trading department executing trades for persons or firms. Series 79: Investment Banking Representative Exam The Series 79 Investment Banking Representative exam allows holders to work in the investment banking realm. As such, the holders’ functions would include advising or facilitating equity or debt securities offerings through public offerings, private placements, and mergers and acquisitions. Series 82: Private Securities Offerings Representative Exam If you’re planning on selling securities privately as compared to publicly, the Series 82 is the exam you’ll need to pass. The Series 82 tests you on the knowledge needed to perform functions of a private securities offerings rep, including the solicitation and sale of Regulation D private placement securities as part of a primary offering. Series 7 + Series 86 + Series 87: Research Analyst Exam If you love taking exams, this is the one for you. You not only have to pass the SIE exam but also the Series 7, Series 86, Series 87, and either the Series 63 or Series 66 — yikes! However, if you want to be a research analyst, this is the route you’ll need to go. A research analyst is required to prepare written and/or electronic communications that show an analysis of company securities and industry sectors. Series 99: Operations Professional Exam Persons who have a Series 99 license have proved that they have the knowledge needed to perform the critical functions of an operations professional. As such, their functions include client on-boarding (welcoming new clients, addressing client concerns, making sure clients understand services available to them, and so on), receipt and delivery of securities and funds, account transfers, reinvestment and disbursement of funds, and so on. How to sign up for the SIE exam One of the things I really like about the SIE exam is that you don’t need to be sponsored in order to take the exam (most of the other securities exams require sponsorship by a firm, bank, insurance company, and so on). This allows you to get a leg up on the competition and also shows your future employer that you’re not fooling around. Filling out an application to enroll Although the enrollment process to take the SIE exam has not been hashed out at the time of this writing, by the time this exam goes live, you’ll be able to find information and a link to the application at the FINRA website. You can also contact the test center. It’s a date! Scheduling your exam After you file your application and receive your enrollment notification, you can schedule an appointment to take the exam by contacting the Prometric Testing Center. Locate the test center nearest you by either calling the Prometric center (800-578-6273) during business hours or scheduling online. Like other securities exam enrollment, your SIE exam enrollment is valid for 120 days — you have to take the exam within this time frame. When scheduling your exam appointment, be ready to provide the exam administrators with Your name and Social Security number The name of the securities exam you’re registering to take Your desired test date Getting an appointment usually takes about one to two weeks, depending on the time of year (you may wait longer in the summer than around Christmastime). Prometric will confirm your appointment on the phone or via email. I suggest putting pressure on yourself and scheduling the exam a little sooner than you think you may be ready to take it; you can always move the test date back (there will be a charge if you cancel within ten business days of your test date). You know yourself best, but I think most students study better when they have a target test date. You have a choice of locations to take the exam. If you’re a travelin’ man (or woman), you may want to schedule your exam at a location far away (maybe even in a different state) to get the test date that you want. After you have your test date set, you may find that you’re ready sooner or will be ready later than your scheduled appointment. The exam center administrators are usually pretty accommodating about changing appointments and/or locations as long as you call before noon at least two business days before your test date, but there may be a fee involved. You can get an extension from the 120-day enrollment only if you call within ten days of your enrollment expiration and if no earlier test dates are available. Plan ahead for special accommodations If you require special accommodations when taking your securities exam, you can’t schedule your exam online. You have to contact the FINRA Special Conditions Team at 800-999-6647 or fill out the special-accommodations form. Read on for info on what the test administrators can do if you have a disability or if English isn’t your first language. Depending on your testing center, you may have to receive authorization to bring medical devices and supplies — such as insulin pumps, eyedrops, and inhalers — into the testing room. If you need authorization, call your local Prometric testing center, and a staff member will be able to guide you on the approval process. Test center amenities The test centers are required to comply with FINRA site guidelines; however, some of the older centers may not have the amenities that the newer ones do (such as lockers and earplugs). To protect yourself from a whole variety of unpleasant, unexpected site surprises on exam day, the FINRA website offers general information, including test center security guidelines (including candidate ID requirements, personal items allowed, and provided aids), test center rules of conduct, and so on. For more site-specific questions, like whether a cafeteria, vending machines, or lockers are on site, ask the center’s administrator when you schedule your test date. Americans with Disabilities Act (ADA) candidates If you’re disabled or learning impaired, the FINRA provides testing modifications and aids in compliance with the provisions of the Americans with Disabilities Act (ADA). To qualify for ADA provisions, your disabilities have to permanently limit a major life activity, such as learning, speech, hearing, or vision. To apply for special accommodations, you need to submit documentation from your physician or licensed healthcare professional to the FINRA, requesting the special arrangements. Additionally, you have to submit the FINRA Special Accommodations Eligibility Questionnaire and Special Accommodations Verification Request Form for all special arrangement requests (you can find links to the forms at FINRA's website). You may request the accommodations you want approved; possible aids include Extra time A written exam (pencil and paper) A reader, writer, or recorder A sign language interpreter A large-print exam booklet Wheelchair-accessible locations The FINRA reserves the right to make all final decisions about accommodations on a case-by-case basis. English as a second language (ESL) candidates If English is your second language, you can request additional time to take the exam when you schedule your SIE test date. If the FINRA approves, you receive a little extra time to complete the exam. In general, FINRA gives an extra 30 minutes for exams less than two hours and an extra hour for exams over two hours. To qualify for extra time due to English being your second language (LEP — Limited English Proficiency), fill out the FINRA form. How to cancel your SIE exam appointment If something comes up or if you feel you’re just not ready, you can cancel your appointment to take the SIE exam without penalty if you do so at least ten business days before the exam date. If a holiday falls within the cancellation period, you have to cancel an additional business day earlier. For example, if you’re scheduled to take the exam on a Wednesday, you have to cancel on Tuesday two weeks before your exam date. If a holiday falls between those dates, you have to cancel on Monday two weeks before your exam date. If you cancel after the proscribed deadline, if you don’t show up to take the exam, or if you show up too late to take the exam, you will be charged a cancellation fee equal to the cost of the exam fee paid. Don’t try the old “I forgot” excuse, because not only is it ineffective, but I’m somewhat sure that it’s illegal in all 50 states, Canada, and the U.S. territories.

Article / Updated 04-01-2019

If you've successfully completed the Securities Industry Essentials (SIE) exam, what's the next step? Persons wanting to register as financial professionals with FINRA (like you) must submit a U4 form. What is a U4 form? It's an application that securities industry professionals fill out and includes things like a ten-year employment history and a five-year residential history; if you’re registered with another firm, how you’re registering (Securities Trader, Financial and Operations Principal, General Securities Representative, and a slew more); states you want to be registered in; and so on. In addition, applicants must submit their fingerprints. All U4 forms must be thoroughly reviewed by a principal of the firm. Background checks must be performed, and the applicant’s employers for the previous three years must be called to verify the applicant’s employment history. The calls must be made within 30 days of the firm receiving the U4 form. Special scrutiny of the applicant is required if the applicant has previously worked in the securities industry. Information contained in the U4 form must be complete and not misleading. The U4 form also contains an arbitration disclosure, which states that disputes between the applicant and the member firm will be settled by arbitration. Although there is a lot of information listed here that can disqualify a person, most of the information follows a common theme, which makes sense, and you shouldn’t have to memorize it all. However, you should be aware of the ten-year disqualification rule if an individual has been convicted of a felony or certain misdemeanors. In addition, if a registrant includes misleading information or omits information, her registration will be denied. Note: Non-registered persons may not solicit customers or take orders. In addition, member firms are prohibited from paying commissions, fees, concessions, discounts, and so on to any person who is not registered. The failure of a member firm to register someone who should be registered will likely end in disciplinary action by FINRA. Disqualification from membership from FINRA A person will be statutorily disqualified from membership from FINRA under the following circumstances: If he had a felony criminal conviction or certain misdemeanor convictions within the last ten years. If he has had a temporary or permanent injunction (no matter what his age) issued by a court involving a long list of unlawful investment activities. If he has been expelled, barred, or is currently suspended from membership or participation in another self-regulatory organization. This holds true even if the person has been barred with the right to reapply. If he has been barred or current suspension orders are coming from the SEC (Securities and Exchange Commission), CFTC (Commodity Futures Trading Commission), or any other appropriate authority or regulatory agency. As with the preceding rule, this holds true even if the person has been barred with the right to reapply. If he has been denied or had his registration revoked by the CFTC, SEC, or any other appropriate authority or regulatory agency. If it has been found that a member or person has made certain false statements in his application, in reports, or in proceedings before the SEC, SROs, or any other appropriate regulatory authority or agency. If any final order from a state securities commission (or from any agency or state officer performing similar functions), savings association, credit union, any state authority that examines or supervises banks, state insurance commission (or any office or agency performing similar functions), an appropriate federal banking agency, or the National Credit Union Administration Bars said person from association with an entity (such as a broker-dealer, investment advisory firm, and so on) regulated by such commission, agency, authority, or officer, or from engaging in the business of banking, insurance, securities, savings association activities, or credit union activities Constitutes a final order based on violations of any regulations or laws that prohibit manipulative, fraudulent, or deceptive conduct If the SEC, CFTC, or any SRO finds that a person “Willfully” violated federal securities laws, “willfully” violated commodities laws, or “willfully” violated MSRB (Municipal Securities Rulemaking Board) rules “Willfully” aided, commanded, induced, abetted, counseled, or procured violations as set forth in the preceding rule Failed to supervise another person who committed violations as set forth in rule number one If he has certain associations with disqualified persons. Fingerprints required by FINRA Under SEC Rule 17f-2 (you don’t have to remember the rule number), all employees of a brokerage firm are required to be fingerprinted if they are involved in any of the following activities: Making sales Handling assets (cash and/or certificates) Accessing original books and records Supervising any of the preceding activities Fingerprints are always required when a person is applying for registration. The fingerprints must be submitted as well as the U4 form. If FINRA doesn’t receive the fingerprints within 30 days of the U4 being submitted, the applicant’s registration will be deemed inactive. Your U4 form information is available from BrokerCheck The information you provide and your investment professional history don’t remain in a bubble. The Central Registration Depository’s (CRD’s) BrokerCheck allows investors access to vital information that they may need to help them pick the right firm and the right professional, like you. Don’t worry; it won’t disclose your address, social security number, and the like. However, it will disclose complaints against you and your employer, where you and your employer are registered, exams you passed, if you were convicted or pled guilty to a crime, if you or your broker have been expelled from an SRO, and so on. If a member maintains a website, the site must provide a link to BrokerCheck. Continuing education requirements for securities professionals Yes, even after you’ve passed your securities exams like the SIE, you’re not done. You’re required to take continuing education programs as required by FINRA. There are two different elements to continuing education that are a requirement: the firm element and the regulatory element. Firm element Member firms must have annual meetings covering the services and strategies offered by the firm. In addition, the meeting must cover any recent regulatory developments, if any. The meetings must be interactive and allow people to ask questions. All registered persons who have direct contact with the public must attend the meeting. All firms must have continuing and current education programs for their covered employees. Regulatory element All registered persons are required to take a computer-based training session covering FINRA regulations within 120 days of the registered person’s second anniversary and every three years after that. In the event that the training isn’t taken within the required period, the person’s securities license(s) will be deactivated until it’s completed. If the registered person’s licenses have been deactivated for two years, the individual will be administratively terminated. If administratively terminated, the person must reapply for registration. Resignation and termination If you leave your firm for whatever reason, the member firm you were working for has to file a U5 form with the CRD within 30 days of the date you resigned or were terminated. You will also receive a copy for your records. The U5 form requires the member firm to provide an explanation of why you left or why you were terminated. If you’re moving to a new member firm, your new employer must file a new U4 form and receive a copy of the U5 filed by your former employer. Things sometimes change, so, if something on your U4 or U5 form is or becomes inaccurate, your firm must update the information on the CRD. This could be something as simple as an address change or some sort of violation or felony conviction. Don’t wait too long going from one firm to another. After a U5 form has been filed on your behalf, you have up to two years to get registered with another firm or you’ll have to take your securities exams all over again. You certainly don’t want that to happen. Associated persons exempt from FINRA registration Certain individuals who work for a member firm are exempt from FINRA registration. These include Persons whose functions are solely clerical or ministerial Persons solely affecting transactions on the floor of a national securities exchange and who are registered with that exchange Persons whose function is solely and exclusively involved in transactions of municipal securities Persons whose function is solely and exclusively involved in transactions of commodities Persons whose function is solely and exclusively involved in transactions in securities futures, as long as that person is registered with a registered futures association FINRA reporting requirements Under FINRA Rule 4530, member firms must report specified events, including quarterly statistical and summary information regarding customer complaints, and copies of certain civil and criminal actions. Members must report promptly (no later than 30 days after the member knows or should’ve known about the event) if the member or associated person of the member Has been found to have violated any securities-related or non-securities-related investment laws or standards of conduct by a U.S. or foreign regulatory organization Is the subject of a written customer complaint involving allegations of theft or misappropriation of funds or securities Is the subject of a written customer complaint involving allegations of forgery Has been named as a defendant or respondent in a proceeding brought by a U.S. or foreign regulatory body alleging a violation of rules Has been denied registration, suspended, expelled, or disciplined by a U.S. or foreign regulatory organization Is indicted, convicted of, or pleads guilty to any felony or certain misdemeanors in or outside of the United States The preceding list includes firm reporting requirements under Rule 4530, but firms are required to report certain other events too. These include Outside business activities (covered in the following section). Private securities transactions, which are transactions outside the broker-dealer’s normal business. For argument’s sake, say that an associate of a firm has a client who wants to trade options, but his firm doesn’t trade options because it doesn’t have an options principal. In this case, with permission of his firm, he can accept the order from his client and do the trade through another firm. Political contributions and consequences for exceeding dollar contribution thresholds (see “Avoiding violations” later in the chapter). Felonies, financial-related misdemeanors, liens, bankruptcies. Outside business activities While you’re building your business and getting new clients, you may feel the need to make a few extra bucks working another job. If so, you must notify your brokerage firm in writing. However, you don’t need to receive written permission to work the other job. Your member firm may reject or restrict your outside work if it feels there is a conflict of interest. Accounts at other broker-dealers and financial institutions Although you probably won’t do this, persons associated with a member firm may open an account at another member firm (executing firm) with prior written permission from the employing firm. The associated person must also let the executing firm know that she is working for another member firm. Duplicate confirmations and statements must be sent to the employing firm if requested.