Free SIE Practice Questions with Answers

Correct answer: C. An SEC-registered broker-dealer or an SEC-registered funding portal that is a FINRA member

Regulation Crowdfunding offerings must be conducted through an SEC-registered broker-dealer or a funding portal registered with the SEC and a member of FINRA. The intermediary provides investor education and limits, and the offering is still subject to SEC filing and disclosure.

• A. An issuer cannot sell directly under Regulation Crowdfunding; an intermediary is required.
• B. Investment advisers are not authorized intermediaries for these offerings, even if they hold investor funds.
• C. Correct: only registered broker-dealers or FINRA-member funding portals may host these offerings.
• D. Crowdfunding offerings are not listed on a national securities exchange.

• Source: Securities Act Section 4 (15 U.S.C. 77d, Exempted Transactions)

Correct answer: D. The next computed NAV after the order is accepted in good order, with any applicable load

Open-end fund shares are forward priced: orders received after the close get the next calculated NAV, plus any applicable sales load.

• A. Open-end funds are priced at each day's NAV, not at a launch price reset quarterly.
• B. Fund prices are based on NAV of the fund's holdings, not an index intraday low.
• C. Open-end fund shares are not bought at an exchange bid; they are bought from the fund at NAV.
• D. Forward pricing uses the next computed NAV, with any sales load added.

Correct answer: D. Voluntarily complete continuing education during the lapse, for up to five years, to maintain her qualifications without re-examination

FINRA's Maintaining Qualifications Program allows formerly registered individuals to elect to complete continuing education (both Regulatory and Firm Element content made available through the program) during a period of up to five years following termination, preserving their qualification so they need not retake exams if they re-register within that window.

• A. The Maintaining Qualifications Program specifically exists to let a person avoid retaking exams after a lapse by voluntarily completing CE, so this overstates the retesting requirement.
• B. The MQP is not a waiver; it requires ongoing CE participation and is capped at up to five years of lapsed registration, not ten.
• C. There is no SEC reinstatement fee that substitutes for completing continuing education under the MQP.
• D. Correct. Under the MQP, a person may voluntarily complete Regulatory Element CE during a lapse of up to five years to preserve her qualifications without needing to retake exams upon re-registration.

Correct answer: A. Immediate-or-cancel, which fills what it can at once and cancels the unfilled remainder

An immediate-or-cancel (IOC) order executes whatever quantity is available immediately and cancels the rest, so partial fills are accepted. A fill-or-kill order differs because it requires the entire quantity to execute at once or not at all.

• A. Correct: IOC allows a partial execution and cancels the unfilled balance immediately.
• B. Fill-or-kill rejects partial fills; the customer said a partial fill is acceptable.
• C. Good-til-cancelled leaves the order working over time instead of cancelling the unfilled portion right away.
• D. A day order rests on the book until the session ends rather than cancelling the remainder immediately.

Correct answer: D. Distributing a preliminary prospectus (red herring) to gauge investor interest

During the cooling-off period, underwriters may distribute a preliminary prospectus and gather indications of interest, but they cannot accept orders, confirm sales, or collect payment until the registration is effective.

• A. Accepting firm orders isn't allowed during the cooling-off period — only indications of interest may be solicited, not binding orders.
• B. The final prospectus and completed sales can only occur after the registration statement is effective, not during the 20-day cooling-off period.
• C. Confirming sales and collecting payment is prohibited until the registration statement becomes effective, not during the cooling-off period.
• D. Correct. A preliminary prospectus (red herring) may be distributed during the cooling-off period to gauge investor interest, though no sales can be finalized.

• Source: Securities Act Section 5 (15 U.S.C. 77e)

Correct answer: B. Receiving dividend payments

Preferred stock's defining feature is priority in the payment of dividends: preferred shareholders must receive their stated dividend before any dividend can be paid to common shareholders. This priority is a trade-off for typically giving up voting rights, which preferred shareholders generally do not have.

• A. Preferred stock is typically nonvoting; voting rights are a common stockholder feature, not a preferred priority.
• B. Correct. Preferred dividends must be paid before any common dividend is declared, reflecting preferred stockholders' priority claim on distributions.
• C. Electing the board of directors is a right generally held by common, not preferred, stockholders.
• D. Preemptive rights (to maintain proportional ownership on new issuances) are a common stock feature, not a preferred dividend priority.

Correct answer: B. The loss of securities and cash held by the firm, up to specified limits, due to the firm's failure

SIPC protects customers of a failed SIPC-member broker-dealer against the loss of cash and securities that were held in custody by that firm, up to specified limits (currently $500,000 total per customer, including a $250,000 sublimit on cash), when the firm cannot return client assets. SIPC does not protect against market losses, poor investment advice, or fraud unconnected to a member firm's custody of customer assets.

• A. Incorrect — market risk (a decline in security values) is never covered by SIPC.
• B. Correct — this is exactly what SIPC coverage is designed to address.
• C. Incorrect — suitability disputes are handled through FINRA arbitration/enforcement, not SIPC.
• D. Incorrect — SIPC coverage applies only when a SIPC-member firm fails; unrelated fraud schemes outside a member firm are not covered.

• Source: SIPA Section 78lll (Definitions)

Correct answer: C. Automatically transfer to the surviving spouse

JTWROS accounts include a right of survivorship, meaning the deceased owner's interest passes automatically to the surviving joint tenant(s), bypassing probate and the will for that asset.

• A. JTWROS accounts pass directly to the surviving joint owner and bypass the estate/probate process entirely, so this doesn't apply.
• B. There is no split with the estate — the entire account transfers to the survivor under the right of survivorship feature.
• C. Correct. Under joint tenants with rights of survivorship, the deceased owner's interest automatically passes to the surviving joint owner, avoiding probate.
• D. JTWROS accounts transfer automatically upon death, precisely to avoid being frozen or delayed by probate.

Correct answer: C. The 1933 Act governs registration and disclosure for new issues, and the 1934 Act governs secondary trading and created the SEC.

The Securities Act of 1933 requires registration and prospectus disclosure when securities are first sold. The 1934 Act regulates secondary markets, broker-dealers and exchanges, and created the SEC.

• A. This reverses the two acts. The 1934 Act created the SEC and regulates trading after issuance.
• B. Exchanges and broker-dealers fall under the 1934 Act, and investment advisers are covered by a separate 1940 statute.
• C. Right: the 1933 Act regulates the primary market and the 1934 Act regulates secondary trading, exchanges and broker-dealers.
• D. The acts divide by market: new issues versus secondary trading, not by security type.

Correct answer: A. 4%

With a schedule starting at 7% in year 1 and decreasing by 1 percentage point each year, the charges run 7% (year 1), 6% (year 2), 5% (year 3), and 4% (year 4). Surrender charges compensate the insurance company for upfront costs and decline over time to encourage long-term holding, eventually reaching 0% once the surrender period ends.

• A. Correct. Starting at 7% in year 1 and declining by 1 point each year (7%, 6%, 5%, 4%...), year 4 lands at 4%.
• B. Incorrect. 7% is the year 1 charge, before any of the scheduled step-downs have applied.
• C. Incorrect. 5% corresponds to year 3, one year too early in the declining schedule.
• D. Incorrect. 0% would only apply once the schedule fully phases out, which happens well after year 4 given a 1-point-per-year decline from 7%.

Correct answer: D. Register an individual with FINRA, applicable SROs, and/or states, and disclose relevant background information

Form U4 (Uniform Application for Securities Industry Registration or Transfer) is filed to register an individual and disclose required background and disciplinary information. Termination is handled by Form U5, and firm-level filings use different forms (e.g., Form BD, financial reports).

• A. Terminating a representative's registration is done via Form U5, not Form U4.
• B. Registering a broker-dealer's office location is handled through Form BD and related branch filings, not Form U4, which is an individual registration form.
• C. Reporting a broker-dealer's annual audited financials is done through filings like the FOCUS report, not Form U4.
• D. Correct. Form U4 is used to register an individual with FINRA, applicable SROs, and/or states, and to disclose relevant background and disciplinary information.

Correct answer: B. selling away, a private securities transaction conducted without the firm's written notice and approval.

Selling away is participating in a securities transaction outside the firm's knowledge and approval. A representative must give the firm written notice before a private securities transaction, whether or not the securities are registered.

• A. Outside activity rules do not excuse a securities sale. A private securities transaction needs notice before it occurs.
• B. Right: private securities transactions require prior written notice to the firm, and the rep's compensation makes the firm's approval essential.
• C. Whether the issuer's offering is registered does not remove the firm's duty to supervise its representatives.
• D. The firm was not told and did not process the transaction, so it was not part of the firm's ordinary business.

Correct answer: C. Up to 15% more than the base offering

A green shoe lets the underwriters sell up to 15% more than the base offering, covering overallotments by exercising the option with the issuer within 30 days. It also helps stabilize the price after the offering.

• A. Five percent is below the standard overallotment size.
• B. Ten percent is not the standard percentage for a green shoe.
• C. Correct: the standard green shoe is 15% of the base offering.
• D. Twenty-five percent exceeds the permitted overallotment.

Correct answer: C. Anyone with earned income may contribute up to the annual limit, but the tax deductibility of the contribution may be limited based on income and coverage by an employer-sponsored retirement plan

Contribution eligibility for a Traditional IRA requires only earned income and is separate from deductibility. Deductibility phases out based on modified adjusted gross income when the contributor (or spouse) is also an active participant in an employer-sponsored retirement plan. Early withdrawals before 59½ are generally subject to a 10% penalty (absent an exception), regardless of how long the account has been open.

• A. Contributions with earned income are still allowed even while taking distributions (the old age-70½ contribution ban was repealed); the account does not convert to a payout-only status.
• B. Deductibility is not automatic — it phases out based on income when the contributor (or spouse) is covered by an employer-sponsored retirement plan.
• C. Correct. Anyone with earned income can contribute up to the annual limit, but the deduction can be limited or eliminated based on income and active participation in a workplace plan.
• D. This confuses Roth IRA qualified-distribution rules with Traditional IRA rules; traditional pre-59½ withdrawals are generally taxable and penalized absent a specific exception, regardless of how long the account has been open.

Correct answer: D. Firm supervision, record retention and fair, balanced communication duties can apply online

Recommendations made on social media are communications subject to FINRA rules. They must be fair and balanced, supervised by the firm, and retained, and business use of unapproved accounts raises supervision and recordkeeping problems.

• A. Duties depend on the content and business use, not on whether a commission was earned.
• B. Business-related posts on personal accounts can still fall under communications and supervision rules.
• C. Electronic communications are subject to the same fair-and-balanced and supervision standards as paper.
• D. Supervision, retention and fair-and-balanced standards can apply to online recommendations.

• Source: FINRA Rule 2210 (Communications with the Public)
• Source: FINRA Rule 3110 (Supervision)

Correct answer: D. One business day after the trade date (T+1)

As of May 2024, the standard regular-way settlement cycle for most U.S. equity securities transactions is T+1, meaning settlement occurs one business day after the trade date. This shortened the previous T+2 standard, which itself had replaced an even older T+3 standard.

• A. Incorrect — same-day settlement describes cash settlement, not the regular-way standard.
• B. Incorrect — T+5 has never been the standard equity settlement cycle.
• C. Incorrect — T+3 was the settlement standard used before 2017 and is now outdated.
• D. Correct — T+1 is the current standard settlement cycle.

• Source: SEC Rule 15c6-1 (Settlement Cycle)

Correct answer: C. Third market, where exchange-listed securities trade over the counter

The third market refers to trading of exchange-listed securities in the over-the-counter market through broker-dealers. The fourth market refers to institutions trading directly with each other, bypassing broker-dealers.

• A. Fourth market trades take place directly between institutions, without a broker-dealer.
• B. The primary market is for new issues, not trading of existing listed shares.
• C. Correct: listed securities traded OTC are the third market.
• D. The money market deals with short-term debt, not equities.

Correct answer: D. distribution and marketing costs and shareholder services, as part of annual operating expenses.

A 12b-1 fee is an annual charge deducted from fund assets to pay for distribution, marketing and shareholder services. It is part of the expense ratio and is not a one-time load.

• A. That describes a front-end sales load, a separate charge.
• B. A 12b-1 fee is not tied to performance.
• C. Trading costs are separate from 12b-1 fees and are not part of the expense ratio.
• D. Right: a 12b-1 fee is an ongoing charge for promotion and distribution and for services to shareholders.

Correct answer: C. 30 days

Material disclosure events such as felony charges generally require a Form U4 amendment within 30 days of the firm learning of the event, keeping the representative's regulatory record current.

• A. Ten days is too short for the standard U4 amendment window for this type of disclosure event.
• B. Fifteen days is not the standard timeframe firms are given to amend the U4 for a felony charge.
• C. Correct. Firms are generally required to amend Form U4 within 30 days of learning of a reportable event such as a felony charge.
• D. Ninety days is too long and doesn't match the standard U4 amendment deadline for disclosable events.

Correct answer: A. The stock trading at or below $30

A sell stop order is triggered when the market price falls to or through the stop price, converting it into a market order to sell. The stock needs to trade at or below $30, not simply move to any price above the current level.

• A. Correct. A sell stop order at $30 is triggered when the stock trades at or falls below $30, at which point it becomes a market order to sell.
• B. The stock trading at or above $35 has no bearing on a sell stop set at $30, which is a downside trigger.
• C. A price of $32.50 is above the $30 stop level and would not trigger the order.
• D. A stop order is triggered whenever the stock trades at or through the stop price during the session, not only at the market open.

Correct answer: A. Sells securities to a counterparty with an agreement to repurchase them later at a higher price, effectively borrowing cash short-term

In a repurchase agreement, a dealer sells securities (often Treasuries) to a counterparty and agrees to buy them back at a slightly higher price at a later date — the price difference represents implied interest. This is effectively a short-term collateralized loan for the dealer (borrowing cash). The counterparty, who is lending cash and holding the securities as collateral, is doing a reverse repo.

• A. Correct — this describes the repo from the dealer's (borrower's) side.
• B. Incorrect — this describes a reverse repo, the counterparty's side of the transaction.
• C. Incorrect — repos are short-term financing tools with a repurchase obligation, not permanent sales.
• D. Incorrect — this describes securities lending, a related but separate transaction from a repo.

Correct answer: C. $7

Maximum gain on a covered call equals the appreciation to the strike price plus the premium received: ($45 − $40) + $2 = $7 per share. Gain is capped at the strike because shares would be called away above that price.

• A. Two dollars is only the premium received; it ignores the additional capital appreciation the investor captures as the stock rises from $40 to the $45 strike.
• B. Five dollars captures the stock's appreciation to the strike price (45-40) but leaves out the $2 premium collected for writing the call.
• C. Correct. Maximum gain on a covered call equals the appreciation to the strike ($45-$40=$5) plus the premium received ($2), for a total of $7 per share.
• D. The gain isn't unlimited — writing the call caps the investor's upside because the stock will likely be called away at $45 once it rises above that level.

Correct answer: A. Office of the Comptroller of the Currency (OCC)

The OCC, a bureau of the U.S. Treasury, charters, regulates, and supervises all national banks and federal savings associations. It is a banking regulator, distinct from securities SROs like FINRA and the MSRB.

• A. Correct. The Office of the Comptroller of the Currency (OCC) is the primary federal regulator and supervisor of nationally chartered banks.
• B. The MSRB regulates municipal securities dealers, not bank chartering or supervision.
• C. FINRA regulates broker-dealers and their registered representatives, not national banks.
• D. The CBOE is an options exchange, unrelated to bank supervision.

Correct answer: C. They fall on the same business day.

The ex-dividend date is set so that a buyer purchasing on that day settles after the record date and misses the dividend. With T+1 settlement the ex-date and the record date are the same business day.

• A. That was the convention under T+2. Shortening the cycle to one day moved the ex-date to the record date.
• B. No settlement-based rule produces a two-day gap under T+1.
• C. Right: with a one-business-day settlement cycle, a buyer on the record date can no longer settle in time, so the ex-date and record date coincide.
• D. The ex-date can never follow the record date. Buyers on or after the ex-date do not receive the dividend.