Securities Industry Essentials (SIE) Exam flashcards
136 free flashcards. Tap a card to flip it.
Equity in Margin Account
Flip cardThe 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'.
Sell Stop Order
Flip cardAn 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.
Customer Complaint Procedures
Flip cardFINRA 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.
Permitted Representative Activities
Flip cardRegistered 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.
State Registration Requirements
Flip cardSecurities 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.
New Account Funds Handling
Flip cardWhen 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.
Third-Party Trading Authority
Flip cardPermission 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.
Cash Account
Flip cardA 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'.
Time and Price Discretion
Flip cardOccurs 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?
Holding Customer Mail
Flip cardThe 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'.
Discretionary Order
Flip cardAn 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
Flip cardTrading 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 (Margin Account)
Flip cardBuying 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 Characteristics
Flip cardPreferred 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.
Securities Exchange Act of 1934 - Broker-Dealer Requirements
Flip cardThe 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
Flip cardRegulation 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)