FINRA SIE Exam (pdf) | 2026/2027 | Qualification Q&A | Securities
**1. A company is issuing securities to the public for the first time. In which
market does this transaction occur?**
A) Secondary market
B) Primary market
C) Third market
D) Fourth market
**Correct Answer: B**
**Rationale:** The primary market is where new securities are issued and
sold to investors for the first time. This includes initial public offerings (IPOs)
and other new issues. The secondary market is where existing securities are
traded between investors.
**2. Which of the following best describes the role of the primary market?**
A) Trading of existing securities between investors
B) Issuance of new securities to raise capital
C) Trading of securities on an exchange
D) Trading of securities in the over-the-counter market
**Correct Answer: B**
**Rationale:** The primary market is where new securities are created and
sold to investors, allowing companies to raise capital. The secondary market
involves trading existing securities between investors.
,**3. Which market is used for trading securities that are not listed on a
national exchange?**
A) Primary market
B) Secondary market
C) Over-the-counter (OTC) market
D) Third market
**Correct Answer: C**
**Rationale:** The over-the-counter (OTC) market is a decentralized market
where securities not listed on exchanges are traded directly between parties,
often through a dealer network. The OTC market is regulated by FINRA.
**4. Which of the following is a self-regulatory organization (SRO) that
oversees broker-dealers in the United States?**
A) Securities and Exchange Commission (SEC)
B) Financial Industry Regulatory Authority (FINRA)
C) Federal Reserve Board
D) Municipal Securities Rulemaking Board (MSRB)
**Correct Answer: B**
**Rationale:** FINRA is a self-regulatory organization (SRO) that oversees
broker-dealers and their registered representatives. The SEC is a government
regulatory agency, not an SRO. The MSRB regulates municipal securities
dealers.
,**5. What is the primary function of the Securities and Exchange Commission
(SEC)?**
A) To regulate the banking industry
B) To enforce federal securities laws and protect investors
C) To set monetary policy
D) To insure bank deposits
**Correct Answer: B**
**Rationale:** The SEC is the primary federal regulatory agency responsible
for enforcing securities laws, protecting investors, and maintaining fair and
efficient markets. It oversees securities exchanges, broker-dealers, and
investment advisers.
**6. A broker-dealer is registered with the SEC but is also a member of FINRA.
Which entity has primary responsibility for regulating the firm's day-to-day
activities?**
A) The SEC
B) FINRA
C) The Federal Reserve
D) The Department of Treasury
**Correct Answer: B**
**Rationale:** FINRA, as a self-regulatory organization, has primary
responsibility for the day-to-day regulation of its member broker-dealers,
including conducting examinations and enforcing compliance with its rules.
The SEC oversees FINRA and has broader regulatory authority.
, **7. Which of the following describes an initial public offering (IPO)?**
A) The sale of additional shares by an already public company
B) The first sale of a company's stock to the public
C) The purchase of a company's stock by institutional investors
D) The sale of a company's bonds to the public
**Correct Answer: B**
**Rationale:** An initial public offering (IPO) is the first time a company offers
its shares to the public. This allows the company to raise capital and
transition from private to public ownership.
**8. In a secondary market transaction, who receives the proceeds from the
sale?**
A) The issuing company
B) The selling investor
C) The underwriter
D) The exchange
**Correct Answer: B**
**Rationale:** In a secondary market transaction, the proceeds go to the
selling investor, not the issuing company. The company received its capital
when the securities were originally issued in the primary market.
**1. A company is issuing securities to the public for the first time. In which
market does this transaction occur?**
A) Secondary market
B) Primary market
C) Third market
D) Fourth market
**Correct Answer: B**
**Rationale:** The primary market is where new securities are issued and
sold to investors for the first time. This includes initial public offerings (IPOs)
and other new issues. The secondary market is where existing securities are
traded between investors.
**2. Which of the following best describes the role of the primary market?**
A) Trading of existing securities between investors
B) Issuance of new securities to raise capital
C) Trading of securities on an exchange
D) Trading of securities in the over-the-counter market
**Correct Answer: B**
**Rationale:** The primary market is where new securities are created and
sold to investors, allowing companies to raise capital. The secondary market
involves trading existing securities between investors.
,**3. Which market is used for trading securities that are not listed on a
national exchange?**
A) Primary market
B) Secondary market
C) Over-the-counter (OTC) market
D) Third market
**Correct Answer: C**
**Rationale:** The over-the-counter (OTC) market is a decentralized market
where securities not listed on exchanges are traded directly between parties,
often through a dealer network. The OTC market is regulated by FINRA.
**4. Which of the following is a self-regulatory organization (SRO) that
oversees broker-dealers in the United States?**
A) Securities and Exchange Commission (SEC)
B) Financial Industry Regulatory Authority (FINRA)
C) Federal Reserve Board
D) Municipal Securities Rulemaking Board (MSRB)
**Correct Answer: B**
**Rationale:** FINRA is a self-regulatory organization (SRO) that oversees
broker-dealers and their registered representatives. The SEC is a government
regulatory agency, not an SRO. The MSRB regulates municipal securities
dealers.
,**5. What is the primary function of the Securities and Exchange Commission
(SEC)?**
A) To regulate the banking industry
B) To enforce federal securities laws and protect investors
C) To set monetary policy
D) To insure bank deposits
**Correct Answer: B**
**Rationale:** The SEC is the primary federal regulatory agency responsible
for enforcing securities laws, protecting investors, and maintaining fair and
efficient markets. It oversees securities exchanges, broker-dealers, and
investment advisers.
**6. A broker-dealer is registered with the SEC but is also a member of FINRA.
Which entity has primary responsibility for regulating the firm's day-to-day
activities?**
A) The SEC
B) FINRA
C) The Federal Reserve
D) The Department of Treasury
**Correct Answer: B**
**Rationale:** FINRA, as a self-regulatory organization, has primary
responsibility for the day-to-day regulation of its member broker-dealers,
including conducting examinations and enforcing compliance with its rules.
The SEC oversees FINRA and has broader regulatory authority.
, **7. Which of the following describes an initial public offering (IPO)?**
A) The sale of additional shares by an already public company
B) The first sale of a company's stock to the public
C) The purchase of a company's stock by institutional investors
D) The sale of a company's bonds to the public
**Correct Answer: B**
**Rationale:** An initial public offering (IPO) is the first time a company offers
its shares to the public. This allows the company to raise capital and
transition from private to public ownership.
**8. In a secondary market transaction, who receives the proceeds from the
sale?**
A) The issuing company
B) The selling investor
C) The underwriter
D) The exchange
**Correct Answer: B**
**Rationale:** In a secondary market transaction, the proceeds go to the
selling investor, not the issuing company. The company received its capital
when the securities were originally issued in the primary market.
