Stocks, bonds, options, munis = Trade date + 1 business day.
Reg T Payment
4 Business Days
Customer must pay within 4 business days (T+4). Initial margin = 50%.
The Only 3 Formulas You Need
Sales Charge %
(POP - NAV) / POP
Current Yield (Bonds)
Annual Interest / Current Market Price
Dividend Yield (Stocks)
Annual Dividend / Stock Price
1
Options Fundamentals
Options are the #1 most confusing topic on the SIE. The good news: the exam tests
concepts, not calculations. Master the basics below and you'll handle any options question.
High-Yield Concept
Buyers get RIGHTS. Sellers (writers) take OBLIGATIONS. This single concept
drives most options questions.
Core Concepts - Click to Reveal Answers
What does a CALL option give the buyer?
REVEAL
The RIGHT to BUY the underlying asset at the strike price before
expiration. Remember: "Call UP" - you call the stock UP to you.
What does a PUT option give the buyer?
REVEAL
The RIGHT to SELL the underlying asset at the strike price before
expiration. Remember: "Put DOWN" - you put the stock down (away from you).
What is the obligation of a call WRITER (seller)?
REVEAL
The OBLIGATION to SELL the underlying asset at the strike price if
assigned. The writer received the premium upfront and now must deliver if the buyer
exercises.
What is the obligation of a put WRITER (seller)?
REVEAL
The OBLIGATION to BUY the underlying asset at the strike price if assigned.
The writer must purchase shares even if the market price is much lower.
When is a CALL option "in the money"?
REVEAL
When the market price is ABOVE the strike price. The buyer could exercise
and immediately buy below market value. Example: Stock at $55, strike at $50 = $5 in the
money.
When is a PUT option "in the money"?
REVEAL
When the market price is BELOW the strike price. The buyer could exercise
and sell above market value. Example: Stock at $45, strike at $50 = $5 in the money.
What is a "covered" call?
REVEAL
When the call writer owns the underlying shares. If assigned, they can
deliver shares they already own. This limits risk vs. a "naked" (uncovered) call where
they'd need to buy shares at market price.
What is the maximum loss for an option BUYER?
REVEAL
The premium paid. Buyers can only lose what they paid for the option -
nothing more. This is true for both calls and puts.
What organization issues and guarantees all listed options?
REVEAL
The Options Clearing Corporation (OCC). The OCC standardizes contracts and
guarantees performance, eliminating counterparty risk.
What document must be provided before or at account approval for options?
REVEAL
The Options Disclosure Document (ODD), also called "Characteristics and
Risks of Standardized Options." Must be provided AT or BEFORE account approval.
Trap Alert
Questions often try to confuse buyers and writers. Remember: If the question says "long" = buyer
(has rights). If it says "short" or "writer" = seller (has obligations).
2
Bonds & Yields
The inverse relationship between bond prices and yields appears on
virtually every exam. Master the yield ladder and you're set.
The Golden Rule
When interest rates RISE, bond prices FALL. When rates fall, prices rise. They
move in opposite directions. Always.
The Yield Ladder
Premium Bond (Above Par)
LOWEST: YTC
YTM
Current Yield
HIGHEST: Nominal (Coupon)
↔
Order Reverses
Discount Bond (Below Par)
HIGHEST: YTC
YTM
Current Yield
LOWEST: Nominal (Coupon)
Bond Concepts - Click to Reveal
What is nominal yield (coupon rate)?
REVEAL
The fixed interest rate stated on the bond. It never changes after
issuance. A 5% coupon bond always pays 5% of par ($50 per year on a $1,000 bond).
What is current yield?
REVEAL
Annual Interest / Current Market Price. If a $1,000 par bond with 5% coupon
trades at $900: Current Yield = $50 / $900 = 5.56%. It rises when price falls.
What is Yield to Maturity (YTM)?
REVEAL
Total return if held to maturity, including coupon payments AND the
gain/loss from price to par. Most comprehensive yield measure. Accounts for time value of
money.
What is Yield to Call (YTC)?
REVEAL
Yield if the bond is called before maturity. For premium bonds (price >
par), YTC is the LOWEST yield because you lose the premium sooner. Issuers call bonds when
rates fall.
A bond trading at 102 is at a _____? What about 98?
REVEAL
102 = Premium (102% of par = $1,020). 98 = Discount (98%
of par = $980). At 100 = "Par" ($1,000).
What is interest rate risk?
REVEAL
The risk that rising rates will decrease bond prices. Longer maturities
have MORE interest rate risk. A 30-year bond will drop more than a 2-year bond when rates
rise.
What is reinvestment risk?
REVEAL
The risk that falling rates will reduce income from reinvested coupons.
When rates drop, you reinvest interest payments at lower rates. Callable bonds have HIGH
reinvestment risk.
Zero-coupon bonds have what kind of risk?
REVEAL
HIGH interest rate risk, ZERO reinvestment risk. No coupons to reinvest (so
no reinvestment risk), but the price is very sensitive to rate changes.
Trap Alert
Don't confuse interest rate risk with reinvestment risk - they're opposites! Rising rates = bad
for prices (interest rate risk). Falling rates = bad for reinvestment (reinvestment risk).
3
Prohibited Activities
These questions appear as scenarios. You'll read a situation and identify the
violation. Practice pattern recognition below.
Know These Violations
Violation
Definition
Front Running
Trading ahead of a large customer order to profit from the price movement
Churning
Excessive trading to generate commissions (requires control + excessive activity +
intent)
Pump and Dump
Artificially inflating prices through false statements, then selling
Marking the Close
Placing trades at end of day to manipulate closing prices
Insider Trading
Trading on material non-public information (MNPI)
Backing Away
Market maker refusing to honor their quoted bid/ask
Painting the Tape
Creating false appearance of trading activity
Matched Orders
Coordinated buy/sell orders to create false volume
Name That Violation - Scenario Drill
Scenario 1
A broker receives a large order from a pension fund to buy 50,000 shares of XYZ stock. Before
entering the order, the broker buys 1,000 shares for his personal account.
Front Running
The broker traded ahead of a customer order to profit from the anticipated price increase
when the large order hits the market.
Scenario 2
A registered rep with discretionary authority over a retired widow's account makes 47 trades in
one month, generating $12,000 in commissions. The account value is $80,000.
Churning
Excessive trading (47 trades in a month for a retiree) + control (discretionary authority) +
commissions as apparent motivation = churning.
Scenario 3
A group of traders posts false positive news about a small company on social media, buys shares
as the price rises, then sells everything when retail investors pile in.
Pump and Dump
Artificially inflating prices through false/misleading statements, then selling into the
inflated price. Classic market manipulation.
Scenario 4
An executive learns her company will announce a major acquisition tomorrow. She tells her
husband to buy shares that evening. He does.
Insider Trading (both parties)
She tipped material non-public information (MNPI). He traded on it. Both are liable. The
acquisition news is material and non-public.
Scenario 5
A market maker displays a quote of $25.00 bid for ABC stock. When a customer tries to sell at
$25.00, the market maker says "that quote is stale" and refuses to buy.
Backing Away
Market makers must honor their published quotes. Refusing to execute at the quoted price is
"backing away" - a violation of market maker obligations.
Scenario 6
A trader places a series of trades at 3:59 PM to push a stock's closing price higher, then
closes the positions the next morning.
Marking the Close
Deliberately placing trades near market close to manipulate the closing price. Often done to
affect portfolio valuations or trigger options exercises.
AML Quick Hits
When must a Suspicious Activity Report (SAR) be filed?
REVEAL
Within 30 calendar days of detecting suspicious activity involving $5,000
or more. Do NOT tell the customer about the SAR filing.
What triggers a Currency Transaction Report (CTR)?
REVEAL
Cash transactions over $10,000 in a single day. Filed with FinCEN. Breaking
transactions into smaller amounts to avoid reporting = "structuring" (illegal).
What is the OFAC SDN list?
REVEAL
Specially Designated Nationals list maintained by Treasury. Firms must
screen customers against this list. Cannot do business with anyone on it.
4
Order Types & Trading
Order type questions require pure memorization. Master SLoBS and BLiSS and you'll
nail every one.
SLoBS & BLiSS Memory Trick: Sell Limit or Buy Stop =
placed ABOVE current market Buy Limit or Sell Stop =
placed BELOW current market
Order Type Comparison
Order Type
Purpose
Placed
Guarantees
Market Order
Execute immediately
N/A
Execution (not price)
Limit Order
Get specific price or better
Buy below / Sell above
Price (not execution)
Stop Order
Becomes market when triggered
Buy above / Sell below
Neither
Stop-Limit
Becomes limit when triggered
Buy above / Sell below
Price (if executed)
Order Concepts - Click to Reveal
Stock is at $50. Where would you place a buy stop order?
REVEAL
ABOVE $50 (e.g., $55). Buy stops are placed above market. Think: "I want to
buy if it breaks out higher." Uses: protect short positions, buy on breakouts.
Stock is at $50. Where would you place a sell stop order?
REVEAL
BELOW $50 (e.g., $45). Sell stops are placed below market. Think: "I want
to sell if it drops." Uses: protect long positions (stop-loss), sell on breakdowns.
What's the difference between a stop order and a stop-limit order?
REVEAL
A stop order becomes a MARKET order when triggered (guarantees execution).
A stop-limit becomes a LIMIT order when triggered (guarantees price but may
not execute in fast markets).
What does GTC mean?
REVEAL
Good Till Canceled. The order stays active until executed or canceled.
Contrast with "Day order" which expires at end of trading day if not filled.
What does AON (All or None) mean?
REVEAL
Execute the entire order or don't execute at all. No partial fills allowed.
Similar: FOK (Fill or Kill) = AON but must execute immediately or cancel entirely.
Settlement Timeframes
Security Type
Settlement
Stocks, Corporate Bonds, Munis
T+1
Government Securities (T-Bills, T-Notes, T-Bonds)
T+1
Options
T+1
Regulation T (Customer Payment)
T+4 (4 business days)
Trap Alert
Don't confuse settlement (T+1) with Reg T payment deadline (T+4). Settlement is when the trade
officially completes. Reg T is how long customers have to pay.
5
Customer Accounts
Account types, registrations, and suitability rules generate multiple questions. Focus on UTMA/UGMA,
margin mechanics, and retirement accounts.
Account Types - Click to Reveal
Who owns the assets in a UTMA/UGMA account?
REVEAL
The MINOR is the beneficial owner. The custodian manages the account but
assets belong to the child. One minor, one custodian. Irrevocable gift - can't take it back.
Can you trade on margin in a custodial (UTMA/UGMA) account?
REVEAL
NO. No margin, no short selling, no uncovered options. Must be cash account
with conservative investments suitable for a minor.
What is "discretionary authority"?
REVEAL
Written authorization to make trades without prior approval for each trade.
Rep can choose asset, amount, and buy/sell. Requires written power of attorney. Principal
must approve discretionary accounts.
What makes an order "discretionary"?
REVEAL
If the rep chooses
ANY of: which security, how many shares, or buy vs. sell. Time and price
are NOT discretionary - you can decide when/at what price without written authority.
What is the initial margin requirement under Reg T?
REVEAL
50%. To buy $10,000 of stock on margin, you deposit $5,000. The
broker-dealer lends you the other $5,000 (the "debit balance").
What is the minimum maintenance margin for long positions?
REVEAL
25% (set by FINRA, but most firms require higher). If equity falls below
this, you get a maintenance call - must deposit more or positions are liquidated.
Traditional IRA vs. Roth IRA - which has tax-deductible contributions?
REVEAL
Traditional IRA = tax-deductible contributions (taxed on withdrawal). Roth IRA = after-tax contributions (tax-free withdrawal). "Pay now or pay
later."
At what age do Required Minimum Distributions (RMDs) begin?
REVEAL
Age 73 for Traditional IRAs and 401(k)s. Roth IRAs have NO RMDs during
owner's lifetime - big advantage for estate planning.
What is the penalty for early IRA withdrawals?
REVEAL
10% penalty plus ordinary income tax if withdrawn before age 59½.
Exceptions include: first home purchase ($10K max), disability, death, education expenses.
Suitability Requirements
The Three Suitability Obligations
Obligation
What It Means
Reasonable Basis
Rep must understand the product before recommending it to anyone
Customer-Specific
Recommendation must fit this specific customer's profile
Quantitative
Total number of transactions must be suitable (anti-churning)
Know Your Customer (KYC)
Before making recommendations, gather: investment objectives, risk tolerance, time horizon,
liquidity needs, tax status, financial situation, other investments. This info drives
suitability analysis.
6
Regulatory Speed Round
Quick hits on the key acts, agencies, and registration requirements. These appear throughout the
exam woven into other questions.
Memory trick: '33 = new securities (primary). '34 = existing securities
(secondary). Both 1940 acts = "investments" (companies and advisers).
Regulatory Entities
What is the SEC?
REVEAL
Securities and Exchange Commission. Federal agency created by 1934 Act.
Oversees securities markets, enforces federal securities laws, regulates SROs. Has civil
(not criminal) enforcement authority.
What is FINRA?
REVEAL
Financial Industry Regulatory Authority. Self-regulatory organization (SRO)
for broker-dealers. Writes and enforces rules, administers licensing exams (like the SIE),
operates dispute resolution.
What is MSRB?
REVEAL
Municipal Securities Rulemaking Board. Writes rules for municipal
securities dealers. Does NOT enforce - FINRA and SEC enforce MSRB rules. EMMA system
provides muni disclosure.
What is SIPC?
REVEAL
Securities Investor Protection Corporation. Protects customers if
broker-dealer fails. Covers up to $500,000 total per customer (max $250,000
cash). Does NOT protect against market losses.
What does the Federal Reserve (FRB) regulate?
REVEAL
Credit/margin requirements through Regulations T, U, and X. Sets initial
margin at 50%. Also: monetary policy, interest rates, bank regulation.
Registration Quick Hits
Who must register with FINRA?
REVEAL
Broker-dealers and their associated persons who sell securities or
supervise those who do. Must pass qualification exams (SIE + top-off like Series 7).
What is Form U4?
REVEAL
Uniform Application for Securities Registration. Filed when joining a firm.
Must disclose: criminal history, regulatory actions, customer complaints, bankruptcies,
judgments. Update within 30 days of changes.
What is Form U5?
REVEAL
Uniform Termination Notice. Filed when leaving a firm. Must be filed within
30 days of termination. Contains reason for departure and any disclosure events.
7
Exam Day Checklist
Final review items and test-taking strategies from actual test-takers.
Take the FINRA Practice Exam
Test-takers report seeing IDENTICAL questions from the free FINRA practice exam. Take it 1-2
days before your test.
EXCEPT/NOT questions: Read carefully - they flip the logic. Which is TRUE/FALSE: Don't assume - verify the correct framing. Best/Most appropriate: Multiple answers may be "correct" - pick the BEST
one. Long scenarios: Identify the key issue - ignore filler details.
Test-Taker Insights
Fewer calculations than expected. Focus on concepts over math. More conceptual than detailed. High-level understanding matters more than
minutiae. Regulation feels like 40% of the exam even though it's officially 9%. Questions are wordier than practice exams - take your time reading.
Exam Day Logistics
Bring two forms of ID (one government-issued with photo)
Arrive 30 minutes early
You get 1 hour 45 minutes for 75 scored questions (+ 10 unscored)
Passing score: 70% (about 53 of 75)
Flag difficult questions and return - don't get stuck
You'll know your result immediately after finishing