Securities Industry Essentials (SIE) Exam flashcards

The client's ownership stake in a margin account, calculated as the market value of securities minus the debit balance.

• Equity = Market Value - Debit Balance.
• Represents the client's net worth within the margin account.
• Used to determine if the account meets maintenance margin requirements.

Memory trick: Equity is what you 'Own' after you pay your 'Loan'.

An order to sell a security when its price falls to or below a specified stop price, at which point it becomes a market order.

• Used to limit losses on a long position.
• Becomes a market order once triggered.
• Execution price is not guaranteed.

Memory trick: A 'Stop' sign means 'stop and go' to market.

FINRA rules require all customer complaints, written or oral, to be immediately forwarded to a principal/supervisor. Firms must maintain a complaint file and report certain complaints to FINRA.

• All complaints must be reported to a principal.
• Representatives cannot resolve complaints independently.
• Firms must keep a complaint file for record-keeping.
• Certain complaints require reporting to FINRA.

Memory trick: Complaints go 'UP' the chain, never 'DOWN' to the rep.

Registered representatives are expected to act in the best interest of their clients, providing suitable recommendations and executing authorized transactions.

• Provide suitable recommendations.
• Execute authorized orders.
• Maintain ethical conduct.

Memory trick: Always act in client's best, never your own gain unfairly.

Securities professionals must be registered in each state where they conduct business with clients.

• FINRA Series exams qualify for federal registration, but state registration is separate.
• Moving clients or RRs can trigger new state registration requirements.
• Firms have procedures for handling clients who move to new states.

Memory trick: New State, New Rules; tell the Boss to check the Tools.

When a firm receives funds from a new customer before the account has been formally approved by a principal, those funds must be placed into a segregated escrow account to protect the customer and prevent commingling.

• Applies to funds received prior to principal approval.
• Funds must be segregated.
• Escrow account is required.
• Protects customer funds and prevents commingling.

Memory trick: New Account: Form, approve, then fund, or escrow if funds come early.

Permission granted by an account owner to another individual (a 'third party') to place trades in their account. This requires a written Power of Attorney (POA).

• Requires written Power of Attorney (POA).
• Can be full (discretionary) or limited.
• Must be kept on file by the broker-dealer.
• Expires upon death of the account holder.

Memory trick: Third-party: 'T'rust 'P'ower 'A'uthority.

A brokerage account in which all securities transactions must be paid for in full, and no borrowing of funds (margin) is permitted.

• Requires 100% payment for all purchases.
• No interest charged on debit balances because there are none.
• Suitable for conservative investors or those unable to use margin.

Memory trick: Cash is 'Pay Full', Margin is 'Borrow Some'.

Occurs when a client gives a registered representative discretion over only the time and/or price of an order. The asset and action (buy/sell) must be specified by the client. This type of discretion does not require written authorization and is valid only for the day it is granted.

• Client specifies asset and action.
• RR chooses time and/or price.
• No written authorization required.
• Valid for the day only.

Memory trick: Discretion: Who decides What, How Much, When, and Price?

The practice of a brokerage firm retaining a customer's account statements and trade confirmations instead of mailing them.

• Requires written instructions from the customer.
• Generally limited to three months.
• Can be extended beyond three months for a valid reason, with updated written instructions every three months.
• Firm must ensure prompt access to information for the customer.

Memory trick: To 'Hold' mail, you need 'Written' approval, or it 'Expires'.

An order where the registered representative has the authority to decide at least one of the 'three A's': Asset, Action, or Amount. Requires written power of attorney from the client.

• Requires written Power of Attorney (POA).
• Covers 'Asset' (what), 'Action' (buy/sell), 'Amount' (how many).
• Time/price discretion ('not held' orders) are NOT discretionary.
• Must be approved by a principal.

Memory trick: Discretionary: it's the '3 A's' – 'A'sset, 'A'ction, 'A'mount.

Trading ahead of research is a prohibited practice where a broker-dealer or an associated person trades a security for their own account or a proprietary account based on knowledge of an impending research report before that report is publicly disseminated. This violates FINRA rules regarding fair dealing and the use of material non-public information.

• Involves knowledge of an upcoming research report.
• Trading occurs before the report is publicly released.
• Prohibited for both the firm and associated persons.
• A form of misusing non-public information to gain an unfair advantage.

Memory trick: Research ahead: Don't peek, don't buy, don't cheat!

Buying power in a margin account refers to the total dollar amount of marginable securities that an investor can purchase with their available cash and credit. It is typically calculated as 2 times the excess equity, based on the Federal Reserve's Regulation T.

• Calculated as (Excess Equity) / (Regulation T percentage).
• Excess Equity = Current Equity - Initial Margin Requirement (Reg T requirement on current MV).
• Initial Margin Requirement (Reg T) is currently 50% for most securities.
• Represents the additional securities that can be bought on margin.

Memory trick: Buying Power: Double your Excess, then you're blessed!

Preferred stock is a type of equity security that pays a fixed dividend and has a higher claim on a company's assets and earnings than common stock, but typically no voting rights.

• Fixed dividend payments
• Priority in liquidation over common stock
• No voting rights (generally)
• Sensitive to interest rate changes

Memory trick: F.I.X.E.D. for Preferred Stock: Fixed Income, eXit priority, Equity-like, Dividend, Interest rate sensitive, No voting.

The Securities Exchange Act of 1934 governs the secondary market, requiring broker-dealers to register with the SEC, maintain sound financial condition, and establish robust supervisory systems over their operations and personnel.

• Mandates broker-dealer registration with the SEC.
• Requires maintenance of proper books and records.
• Establishes a system of supervision over associated persons.
• Aims to ensure fair and orderly markets and investor protection.

Memory trick: The '34 Act: Secondary Market, Supervision, SEC Oversight

Regulation S provides an exemption from the registration requirements of the Securities Act of 1933 for offers and sales of securities occurring outside the United States.

• Applies to offers and sales made outside the U.S.
• Purchasers must be non-U.S. persons.
• No directed selling efforts into the U.S. are permitted.
• Securities sold under Reg S may have resale restrictions.

Memory trick: S for 'Seas' (overseas) and 'Sales' (outside US)