SIE Exam Questions With 100% Correct A
n n n n n n
nswers 2023 n
purposenof nsecuritiesnindustryn-nCorrectnAnswer-
matchingninvestorsnwith nmoneyntonissuersnthatnneednthatnmoneyntonfinance
issuern-nCorrectnAnswer-
legal nentitynthatnsellsnsecuritiesninnorderntonfinancenitsnoperationsn(business,ngovernments)n
ie.nusntreasury,nusngovnagencies,nforeignngovernments,nstatenandnlocal ngovernments,ncorp
s,nbanks
methodsnissuersnusentonraisencapital n-nCorrectnAnswer-
1)nissuendebtnsecuritiesn(bonds)nandn2)nissuesnequitynsecuritiesn(stocks)
debtnsecuritiesn-nCorrectnAnswer-
publicallyntradednloansn=nbonds,nnotes,norndebtninstruments.nThenpersonnloaningnmoney/b
uyingnanbondnisnconsiderednancreditorntonthenissuernandnthenamountntheynpaidnfornisnthenprin
cipal nthatnthenissuernowesnthemnandnalsonmakesninterestnpaymentsnthroughoutnthenduratio
n nof nthenloan
-can nbenissuednbynbanks,ncorps,netc
equitynsecuritiesn(common nvsnpreferred)n-nCorrectnAnswer-
raisencapital nbynissuingnstockn(equity),nthisntimenwhennyounbuynthis,nyounhavenownershipninn
thencompanynandnifnthencompanynisnprofitablenthennyounmaynbenentitledntonanportion nof nthen
profitsn(thisnisnreceivednthroughndividendndistribution).ndiffersnfromnbondsnbcn1)ntypicallynnon
maturityndatenandn2)ndividendnpaymentsnarenoptional
-
onlynbanks/corporationsnsellnthesenandncanndonsonpublicallynornprivatelyntonspecificngroupno
f ninvestors
preferred=paidnanpredeterminedndividendn(usuallynreceivednfirstnandnhighernthan nthosenof n
common nholders,nbutndon'tngetnanvotenin ncompanynmatters)
common=paidnandividendnbasednon ncompanynfortunes
brokerndealern=nbrokeragenfirmn(2ncapacities)n-nCorrectnAnswer-2ncapacitiesn
1)nbroker=n(ABC n-
nagency,nbroker,ncommission)engages ninnagencyntransactionsninnsecuritynaccountsnof noth
ers.ntheynmatch nupnbuysnandnsellsnandnearnnancommissionnforntheirnworkn(likenanreal nestaten
broker,nactingnon nbehalfnofncustomersntonmakencommission).nnonriskntonfirm,ntheynfindnparty
nwilling ntontakenothernsidenof ntrade
,2)ndealer=n(PDMn-
nprincipal,ndealer,nmarkup/markdown)nfirmsnbuyingnandnsellingnsecuritiesnfornitsnownnaccou
nts.nbuynsecuritiesnfromnclientsnandnholdnthemninninventorynandnallow nclientsntonbuynfromnth
em.nlikenancarndealer...nbuysnfornitsninventorynandnsellsnfromnitsninventorynandncan nmarknupn
andndown naccordingly.nactsnasnprincipal nandncanntakenothernsidenofnthentrade,nMARKnUPnO
RnMARKnDOWN
-riskn&nInventory
broker-dealerndepartments/structurenof nfirmsn(5)n-nCorrectnAnswer-1)ninvestmentnbanking
2)nresearch
3)nsales/privatenclient
4)ntradingn
5)noperations
brokerndealern-nInvestmentnbankingn-nCorrectnAnswer-
referredntonasnunderwritersnof nsecurities...ntheynprovidenadvisentonissuersninnwhonarenlookin
gntonissuenstocks,nbonds,nornancombon(structure/arrangensecuritynofferings)
alsoncan nassistnwith nM&Anornrestructuringnfornbankruptcy
brokerndealern-nresearch n-nCorrectnAnswer-
analysts!!nstudynmarketnandnissuersntonmakenreccomendationsn(buy,nsell,nhold)
brokerndealern-
nsalesn(stocknornbondnbrokersnakanregistered nrepresentatives nRRnorninvestmentnadvisornre
presentativesnIAR)n-nCorrectnAnswer-
financial nprofessionalsnwhonmarketnbonds,nstocks,nbutnalsonpackagednproductsnsuchnasnm
utual nfundsntonpeoplenandninstitutions
brokerndealern-ntradingn-nCorrectnAnswer-
executentradesnfornthenfirmnandnthenfirm'snclientsnandnoccurninnelectronicnmarketnplacesnNA
SDAQnornhybridnonesnsuch nasnNYSE
brokerndealern-noperationsn-nCorrectnAnswer-
makensurenthingsnarenupntonstandardn(paperwork,ntrades,netc)nalsongeneratenstatements,ne
tc
infonbarriersn-nCorrectnAnswer-
barriernwhereninfonshouldn'tnbensharednwith nothernside/otherndepartmentsn(investmentnban
kingnon nonensidenandnresearch,nsales/privatenclient,ntrading,nopsnon nthenother)
marketnmakern-nCorrectnAnswer-**appliesntonequitynnotnbonds**
when nbrokerndealerndecidesntondisplaynquotesnonnantradingnsystemnindicatingntheynwantnton
buynandnsell natnspecificnprices...nrequiredntondonsonon nanREGULAR nbasis.nstandsnreadynton
buynandnsell natnanyngiven ntime
-maintain ninventory
,-
thesenmarketnmakersnarentwonsided...nindicatingnanpricentheynarenwillingntonsell natn(ASK/OF
FER)nandnbuynatn(BID)
-usuallynanmin nof n100nsharesnatnthosenprices=ROUND nLOT
oddnlot=anythingnbutngroupsnof n100nshares
spreadn(ask,nbid,netc)n-nCorrectnAnswer-
spread=differencenbetweennasknandnbidnprice=profitabilitynof nmarketnmaker,nlargernthenspr
ead=morenMMnmakes
bid=whatnfirmnwillnbuynat/whatnclientnsellsnat
ask=whatnfirmnwillnsell nat/whatnclientnbuysnat
-morenactivelyntradednsecuritiesntendntonhavenmorennarrow nspreads
**markupn(sell nprice/ask)/markdown n(buynprice/bid)nisnin naddition ntonthenspread
compnfornbrokerndealer,ninvestmentnadvisor,n-nCorrectnAnswer-
1)nbrokerndealernreceivesn$nbcnof ntransactionnbasedncompensationn(brokernreceivesncomm
ission)
2)ninvestmentnadvisornchargesnfeesnfornmanagingnportfolio,nusuallynbasednonnassetsnunder
nmanagement
tradersn-->nproprietaryntradingn-nCorrectnAnswer-
tradenfornthenfirmnwithoutnsettingnpricenmarkersnlikenanmarketnmakern=nnonquotesnentered.ns
implynexecutentradesnon nthenquotesnmadenfromnanmarketnmaker
investmentnadvisornvsnbrokerndealern-nCorrectnAnswer-broker-
dealersnearn ncommissionnfornexecutingntradesnwhileninvestmentnadvisorsnchargenfeesnforn
providingnadvisentontheirnclientsn(basednonn%nofnassetsnundernmanagementnAUM)nandnaren
chargednwhetherntradesnarenexecutednornnot
municipal nadvisorsn-nCorrectnAnswer--
providesnadvicentonornon nbehalfnofnmunicipalitiesn(state,ncity,ncouncil)nusuallynthenissuer.nus
uallynrelatedntonmunicipal nfinancenoffering
-
municipal nadvisornisnannentitynthatnadvicesnmunicipalitiesnonnbondnofferingsn(middlenman nb
etween nmunicipalitynitself nandnbrokernfirmn(underwriternpotentially)
typesnof ninvestorsn(4)n-nCorrectnAnswer-retail,naccredited,ninstitutional,nQIB
retail ninvestorsn-nCorrectnAnswer-
(anyninvestornthatnisnnotnanninst.nadvisor)nregularnindividualsnwithnregularnaccountsnbuyingn
stocknandnbondsnfromnbroker-dealersnwith nlimitednassets/income
accreditedninvestorsn(whatnarenthenqualifications)n-nCorrectnAnswer-
thesenarenpeoplenwithnmorenassets/incomenandncannassumenmorenrisk.nThesenincludesndir
ectors,nexecnofficers,nfirms,nandnindividualsnwithnassets/netnworth novern1nmiln(notnincludingn
, prim.nresidence),nornthosenwhonmaken200kn(orn300knwith nspouse)neachnyearnandnhavenfornt
henlsatntwonandnexpectntoncontinuenmakingnthatnmuch
-can nbenindividualsnandninst.
institutional ninvestorsn-nCorrectnAnswer-
largeninvestorsnthatnpoolnmoneyntonpurchasensecuritiesn(banks,ninsurancencompanies,npen
sion nplans,nendownments,nhedgenfundsnwhichnarenreferredntonasnqualifiedninstitutional nbuy
ersn(QIBS)
-definednbynvaluenof nassetsninvested,nusuallynnotnindividuals
QIBn(3nqualifiications)n-nCorrectnAnswer-QIBS=qualifiedninstitutional nbuyers
criteria
--
QIB=qualifiedninst.nbuyer=entitynthatnmustnown/investn$100nmillionnof nsecuritiesn&nCANNO
Tnbenannatural nperson
1)ncertain ntypesnof ninvestorsnqualifyn(NEVER nWILLnBEnANnINDIVIDUAL):ninsurancencomp
anies,nregisteredninvestmentnadvisorsnorncompanies,nsmall nbusinessndevelopmentncompa
nies,nprivate/pension nplans,ncertain nbankntrustnfunds,ncorps,nsomennon-profit,netc
2)nmustnmanagenovern100nmilnof nsecuritiesnunrelatedntonthem
3)nmustnbenpurchasingnforntheirnown naccountnornaccountnof nanothernQIB
primarynmarketn-nCorrectnAnswer-
wherensecuritiesnarenissued,nnewncompanynissuingnstocknfornex.nbeginningnofnansharesnexi
stencen=nprimaryndistribution nof nissuersnshares.nfundsnarendirectedntonthenissuer
secondarynmarketn-nCorrectnAnswer-
wherensecuritiesnarentraded:nthosenwhonboughtnthoseninnthenprimarynmarketnwillnwantntonsel
lnthemnandnthisnisnwherenthensecondarynmarketncomesnintonplay.nfundsnarennonlongerndirect
edntonthenissuer,nandninsteadnpassnbetween ninvestors
-sellsnsecuritiesnwith nhelpnof nunderwriter
-issuern(needsncapital)--
>nunderwritern(facilitatesndistribution/buysnfromnissuer/resell ntoninvestor)-->ninvestor
IPO/follow-on n-nCorrectnAnswer-
IPO=initial npublicnoffering,nprimarynmarket,nsellnsomen%nofnthenco.nandnsafensomentonsellnlat
ernon nusually
follow-on=existingncompanynsellsnequitiesn@nanlaterndate=subsequentnoffering
marketsnwithin nthensecondarynmarketn(2)n-nCorrectnAnswer-exchangenmarket,ndealer-to-
dealernmarket
1)nexchangenmarket=nelectonricnof nphsysical n(NYSE-
nhasnonenDMM)ncentralized ntrading nvenuenthatnfunctionsnasnannauction,nauctioneernwhonco
ntrolsntradingnin nangiven nstocknisnDMMn(designatednmarketnmaker)
2)ndealerntondealernmarket=nwhen nstocksndon'tnqualitynfornphysical nornelectronicnmarketsnth
eyntradenovernthencountern(OTC,nusuallynlow npriced/thinlyntraded,ndonenbetweenntwonpartie
snwithoutnthensupervisorynrolenofnannexchange)npeoplenconnectnovernphonesnorncomputers
n n n n n n
nswers 2023 n
purposenof nsecuritiesnindustryn-nCorrectnAnswer-
matchingninvestorsnwith nmoneyntonissuersnthatnneednthatnmoneyntonfinance
issuern-nCorrectnAnswer-
legal nentitynthatnsellsnsecuritiesninnorderntonfinancenitsnoperationsn(business,ngovernments)n
ie.nusntreasury,nusngovnagencies,nforeignngovernments,nstatenandnlocal ngovernments,ncorp
s,nbanks
methodsnissuersnusentonraisencapital n-nCorrectnAnswer-
1)nissuendebtnsecuritiesn(bonds)nandn2)nissuesnequitynsecuritiesn(stocks)
debtnsecuritiesn-nCorrectnAnswer-
publicallyntradednloansn=nbonds,nnotes,norndebtninstruments.nThenpersonnloaningnmoney/b
uyingnanbondnisnconsiderednancreditorntonthenissuernandnthenamountntheynpaidnfornisnthenprin
cipal nthatnthenissuernowesnthemnandnalsonmakesninterestnpaymentsnthroughoutnthenduratio
n nof nthenloan
-can nbenissuednbynbanks,ncorps,netc
equitynsecuritiesn(common nvsnpreferred)n-nCorrectnAnswer-
raisencapital nbynissuingnstockn(equity),nthisntimenwhennyounbuynthis,nyounhavenownershipninn
thencompanynandnifnthencompanynisnprofitablenthennyounmaynbenentitledntonanportion nof nthen
profitsn(thisnisnreceivednthroughndividendndistribution).ndiffersnfromnbondsnbcn1)ntypicallynnon
maturityndatenandn2)ndividendnpaymentsnarenoptional
-
onlynbanks/corporationsnsellnthesenandncanndonsonpublicallynornprivatelyntonspecificngroupno
f ninvestors
preferred=paidnanpredeterminedndividendn(usuallynreceivednfirstnandnhighernthan nthosenof n
common nholders,nbutndon'tngetnanvotenin ncompanynmatters)
common=paidnandividendnbasednon ncompanynfortunes
brokerndealern=nbrokeragenfirmn(2ncapacities)n-nCorrectnAnswer-2ncapacitiesn
1)nbroker=n(ABC n-
nagency,nbroker,ncommission)engages ninnagencyntransactionsninnsecuritynaccountsnof noth
ers.ntheynmatch nupnbuysnandnsellsnandnearnnancommissionnforntheirnworkn(likenanreal nestaten
broker,nactingnon nbehalfnofncustomersntonmakencommission).nnonriskntonfirm,ntheynfindnparty
nwilling ntontakenothernsidenof ntrade
,2)ndealer=n(PDMn-
nprincipal,ndealer,nmarkup/markdown)nfirmsnbuyingnandnsellingnsecuritiesnfornitsnownnaccou
nts.nbuynsecuritiesnfromnclientsnandnholdnthemninninventorynandnallow nclientsntonbuynfromnth
em.nlikenancarndealer...nbuysnfornitsninventorynandnsellsnfromnitsninventorynandncan nmarknupn
andndown naccordingly.nactsnasnprincipal nandncanntakenothernsidenofnthentrade,nMARKnUPnO
RnMARKnDOWN
-riskn&nInventory
broker-dealerndepartments/structurenof nfirmsn(5)n-nCorrectnAnswer-1)ninvestmentnbanking
2)nresearch
3)nsales/privatenclient
4)ntradingn
5)noperations
brokerndealern-nInvestmentnbankingn-nCorrectnAnswer-
referredntonasnunderwritersnof nsecurities...ntheynprovidenadvisentonissuersninnwhonarenlookin
gntonissuenstocks,nbonds,nornancombon(structure/arrangensecuritynofferings)
alsoncan nassistnwith nM&Anornrestructuringnfornbankruptcy
brokerndealern-nresearch n-nCorrectnAnswer-
analysts!!nstudynmarketnandnissuersntonmakenreccomendationsn(buy,nsell,nhold)
brokerndealern-
nsalesn(stocknornbondnbrokersnakanregistered nrepresentatives nRRnorninvestmentnadvisornre
presentativesnIAR)n-nCorrectnAnswer-
financial nprofessionalsnwhonmarketnbonds,nstocks,nbutnalsonpackagednproductsnsuchnasnm
utual nfundsntonpeoplenandninstitutions
brokerndealern-ntradingn-nCorrectnAnswer-
executentradesnfornthenfirmnandnthenfirm'snclientsnandnoccurninnelectronicnmarketnplacesnNA
SDAQnornhybridnonesnsuch nasnNYSE
brokerndealern-noperationsn-nCorrectnAnswer-
makensurenthingsnarenupntonstandardn(paperwork,ntrades,netc)nalsongeneratenstatements,ne
tc
infonbarriersn-nCorrectnAnswer-
barriernwhereninfonshouldn'tnbensharednwith nothernside/otherndepartmentsn(investmentnban
kingnon nonensidenandnresearch,nsales/privatenclient,ntrading,nopsnon nthenother)
marketnmakern-nCorrectnAnswer-**appliesntonequitynnotnbonds**
when nbrokerndealerndecidesntondisplaynquotesnonnantradingnsystemnindicatingntheynwantnton
buynandnsell natnspecificnprices...nrequiredntondonsonon nanREGULAR nbasis.nstandsnreadynton
buynandnsell natnanyngiven ntime
-maintain ninventory
,-
thesenmarketnmakersnarentwonsided...nindicatingnanpricentheynarenwillingntonsell natn(ASK/OF
FER)nandnbuynatn(BID)
-usuallynanmin nof n100nsharesnatnthosenprices=ROUND nLOT
oddnlot=anythingnbutngroupsnof n100nshares
spreadn(ask,nbid,netc)n-nCorrectnAnswer-
spread=differencenbetweennasknandnbidnprice=profitabilitynof nmarketnmaker,nlargernthenspr
ead=morenMMnmakes
bid=whatnfirmnwillnbuynat/whatnclientnsellsnat
ask=whatnfirmnwillnsell nat/whatnclientnbuysnat
-morenactivelyntradednsecuritiesntendntonhavenmorennarrow nspreads
**markupn(sell nprice/ask)/markdown n(buynprice/bid)nisnin naddition ntonthenspread
compnfornbrokerndealer,ninvestmentnadvisor,n-nCorrectnAnswer-
1)nbrokerndealernreceivesn$nbcnof ntransactionnbasedncompensationn(brokernreceivesncomm
ission)
2)ninvestmentnadvisornchargesnfeesnfornmanagingnportfolio,nusuallynbasednonnassetsnunder
nmanagement
tradersn-->nproprietaryntradingn-nCorrectnAnswer-
tradenfornthenfirmnwithoutnsettingnpricenmarkersnlikenanmarketnmakern=nnonquotesnentered.ns
implynexecutentradesnon nthenquotesnmadenfromnanmarketnmaker
investmentnadvisornvsnbrokerndealern-nCorrectnAnswer-broker-
dealersnearn ncommissionnfornexecutingntradesnwhileninvestmentnadvisorsnchargenfeesnforn
providingnadvisentontheirnclientsn(basednonn%nofnassetsnundernmanagementnAUM)nandnaren
chargednwhetherntradesnarenexecutednornnot
municipal nadvisorsn-nCorrectnAnswer--
providesnadvicentonornon nbehalfnofnmunicipalitiesn(state,ncity,ncouncil)nusuallynthenissuer.nus
uallynrelatedntonmunicipal nfinancenoffering
-
municipal nadvisornisnannentitynthatnadvicesnmunicipalitiesnonnbondnofferingsn(middlenman nb
etween nmunicipalitynitself nandnbrokernfirmn(underwriternpotentially)
typesnof ninvestorsn(4)n-nCorrectnAnswer-retail,naccredited,ninstitutional,nQIB
retail ninvestorsn-nCorrectnAnswer-
(anyninvestornthatnisnnotnanninst.nadvisor)nregularnindividualsnwithnregularnaccountsnbuyingn
stocknandnbondsnfromnbroker-dealersnwith nlimitednassets/income
accreditedninvestorsn(whatnarenthenqualifications)n-nCorrectnAnswer-
thesenarenpeoplenwithnmorenassets/incomenandncannassumenmorenrisk.nThesenincludesndir
ectors,nexecnofficers,nfirms,nandnindividualsnwithnassets/netnworth novern1nmiln(notnincludingn
, prim.nresidence),nornthosenwhonmaken200kn(orn300knwith nspouse)neachnyearnandnhavenfornt
henlsatntwonandnexpectntoncontinuenmakingnthatnmuch
-can nbenindividualsnandninst.
institutional ninvestorsn-nCorrectnAnswer-
largeninvestorsnthatnpoolnmoneyntonpurchasensecuritiesn(banks,ninsurancencompanies,npen
sion nplans,nendownments,nhedgenfundsnwhichnarenreferredntonasnqualifiedninstitutional nbuy
ersn(QIBS)
-definednbynvaluenof nassetsninvested,nusuallynnotnindividuals
QIBn(3nqualifiications)n-nCorrectnAnswer-QIBS=qualifiedninstitutional nbuyers
criteria
--
QIB=qualifiedninst.nbuyer=entitynthatnmustnown/investn$100nmillionnof nsecuritiesn&nCANNO
Tnbenannatural nperson
1)ncertain ntypesnof ninvestorsnqualifyn(NEVER nWILLnBEnANnINDIVIDUAL):ninsurancencomp
anies,nregisteredninvestmentnadvisorsnorncompanies,nsmall nbusinessndevelopmentncompa
nies,nprivate/pension nplans,ncertain nbankntrustnfunds,ncorps,nsomennon-profit,netc
2)nmustnmanagenovern100nmilnof nsecuritiesnunrelatedntonthem
3)nmustnbenpurchasingnforntheirnown naccountnornaccountnof nanothernQIB
primarynmarketn-nCorrectnAnswer-
wherensecuritiesnarenissued,nnewncompanynissuingnstocknfornex.nbeginningnofnansharesnexi
stencen=nprimaryndistribution nof nissuersnshares.nfundsnarendirectedntonthenissuer
secondarynmarketn-nCorrectnAnswer-
wherensecuritiesnarentraded:nthosenwhonboughtnthoseninnthenprimarynmarketnwillnwantntonsel
lnthemnandnthisnisnwherenthensecondarynmarketncomesnintonplay.nfundsnarennonlongerndirect
edntonthenissuer,nandninsteadnpassnbetween ninvestors
-sellsnsecuritiesnwith nhelpnof nunderwriter
-issuern(needsncapital)--
>nunderwritern(facilitatesndistribution/buysnfromnissuer/resell ntoninvestor)-->ninvestor
IPO/follow-on n-nCorrectnAnswer-
IPO=initial npublicnoffering,nprimarynmarket,nsellnsomen%nofnthenco.nandnsafensomentonsellnlat
ernon nusually
follow-on=existingncompanynsellsnequitiesn@nanlaterndate=subsequentnoffering
marketsnwithin nthensecondarynmarketn(2)n-nCorrectnAnswer-exchangenmarket,ndealer-to-
dealernmarket
1)nexchangenmarket=nelectonricnof nphsysical n(NYSE-
nhasnonenDMM)ncentralized ntrading nvenuenthatnfunctionsnasnannauction,nauctioneernwhonco
ntrolsntradingnin nangiven nstocknisnDMMn(designatednmarketnmaker)
2)ndealerntondealernmarket=nwhen nstocksndon'tnqualitynfornphysical nornelectronicnmarketsnth
eyntradenovernthencountern(OTC,nusuallynlow npriced/thinlyntraded,ndonenbetweenntwonpartie
snwithoutnthensupervisorynrolenofnannexchange)npeoplenconnectnovernphonesnorncomputers
