STC SIE Exam Prep Flashcards

Questions and Answers

A registered representative is permitted to contact a person whose name is on the national Do Not Call List:

Under no circumstances

If the person has a brokerage account with another broker-dealer

If the person is an accredited investor

If the person has provided prior written consent to be contacted (correct)

On Wednesday, March 11, a customer purchases 1,000 shares of an OTC equity security in a cash account. The transaction will settle:

On March 13 (correct)

On March 12

By the close of business on March 11

Immediately

A brokerage account for which a trusted person's name is required applies to which of the following?

A margin account

An options account

A minor

Senior investor (correct)

The maximum civil penalty for insider trading violations is:

Three times the amount gained or loss avoided Signup and view all the answers

If a FINRA-registered person does not fulfill the continuing education requirements by the appropriate date:

He may stay employed, but is not permitted to function in a registered capacity Signup and view all the answers

The primary concern for investors who use a buy-and-hold strategy to maintain their portfolios is:

The allocation of assets Signup and view all the answers

Although all of the following are reportable events on Form U4, which one results in statutory disqualification?

Conviction of a felony charge for driving under the influence (DUI) Signup and view all the answers

A client has sold short XYZ stock. Which of the following actions may be taken to offset the risk of the short position?

Buy calls Signup and view all the answers

Which of the following activities is an unregistered employee of a brokerage firm allowed to perform?

Send a prospective client an account opening form Signup and view all the answers

A customer contacts her registered representative to buy an OTC stock. Rather than buying the shares directly from a market maker, the broker-dealer contacts another broker-dealer. This creates two levels of transaction fees and is referred to as:

Interpositioning Signup and view all the answers

Which of the following choices has the LEAST amount of interest-rate risk?

A BB-rated corporate debenture maturing in two years Signup and view all the answers

The maximum political contribution from a municipal finance professional (MFP) to a candidate for whom she may not vote is:

$0 Signup and view all the answers

Which of the following organizations enforces municipal securities regulations for broker-dealers?

FINRA Signup and view all the answers

When a bond is called, the bondholder receives the:

Call price plus accrued interest Signup and view all the answers

Which of the following statements is TRUE concerning electronic communication networks (ECNs)?

They can be used by investors who want to trade anonymously. Signup and view all the answers

The federal securities regulation that provides rules for the secondary market is:

The Securities Exchange Act of 1934 Signup and view all the answers

State securities laws are also referred to as:

The Blue Sky laws Signup and view all the answers

An issuer includes warrants with a bond offering that it's conducting. This is done to:

Decrease the coupon rate on the bonds Signup and view all the answers

If an investor wants to build a bond portfolio that maintains a stable value, she should purchase bonds with:

Short maturities Signup and view all the answers

Which of the following sources of revenue is NOT used to pay the debt service on general obligation bonds?

Tolls collected at a tunnel located in the municipality Signup and view all the answers

Which term is used for a member of a stock exchange that's responsible for providing liquidity by buying and selling throughout the trading day?

Market maker Signup and view all the answers

Which of the following choices does NOT hold customer cash or securities?

The Depository Trust Company Signup and view all the answers

A type of bond in which the amount of interest paid to the investor may change is referred to as a:

Variable rate bond Signup and view all the answers

Although most bonds are traded according to their maturity dates, which of the following investments are traded according to their average life?

Asset-backed securities Signup and view all the answers

A financial services firm that charges customers based on a percentage of the assets under management is BEST defined as:

An investment adviser Signup and view all the answers

Interest on U.S. Treasury securities is:

Subject to federal income tax, but exempt from state income tax Signup and view all the answers

What type of bond would MOST likely be secured by an excise tax, cigarette tax, or gasoline tax?

Special tax bond Signup and view all the answers

A customer purchased a premium bond which gives the issuer the ability to redeem the entire issue prior to maturity. Which yield is MOST relevant?

Current yield Signup and view all the answers

An annuitant is receiving payments from a variable annuity and, at the time of his death, his beneficiary receives a lump-sum payment. The annuity payout option is:

Unit refund life annuity Signup and view all the answers

If a stock is sold before the ex-dividend date, but delivered after the record date, it must be accompanied by:

A due bill Signup and view all the answers

A REIT will receive preferential tax treatment if it distributes at least what percentage of its income to shareholders?

90% Signup and view all the answers

A fund which invests in companies that pay high dividends is:

An equity income fund Signup and view all the answers

If an options contract is exercised, which of the following statements is TRUE?

The seller of a put will be required to buy stock Signup and view all the answers

While saving for her retirement, a variable annuity owner investing $1,000 per month will buy a:

Varying number of accumulation units Signup and view all the answers

All of the following statements are TRUE of 529 plans, EXCEPT:

Contributions are unlimited. Signup and view all the answers

A hedge fund would NOT be a suitable investment for an investor seeking to:

Access her funds Signup and view all the answers

If an investor expects a sharp increase in a stock's price, which of the following will be the most profitable?

Exercise rights Signup and view all the answers

Two years ago, an investor bought mutual fund shares. Today, if the investor intends to purchase additional shares, she can obtain a reduced sales charge by using:

Rights of accumulation Signup and view all the answers

Which of the following terms is NOT associated with a variable annuity?

Commission Signup and view all the answers

The Bond Buyer Index is based on which of the following securities?

Municipal bonds Signup and view all the answers

Which of the following choices best describes the price that a mutual fund investor receives when she redeems her shares?

The next computed bid price on the day that the shares are redeemed Signup and view all the answers

A hedge fund is:

A private investment fund designed for wealthy, sophisticated investors Signup and view all the answers

All of the following are considered a qualified institutional buyer (QIB), EXCEPT:

The CEO of a financial institution which has $150 million of securities Signup and view all the answers

In an equity offering, what's the function of a syndicate desk?

To create an order book and allocate the stock to investors Signup and view all the answers

An individual may roll over a lump-sum distribution from a corporate pension plan to an IRA without tax consequences if it is done within:

60 days Signup and view all the answers

Which of the following statements is TRUE regarding contributions to a 401(k) plan?

Employee participants should be aware of the risk of investing too much in their employer's stock. Signup and view all the answers

An individual owns 100 shares of GHI stock. If GHI announces a 3-for-1 stock split, the individual:

Must return his old stock certificate and will be issued a new certificate for 400 shares Signup and view all the answers

Which of the following items is NOT found on a sell order ticket?

The customer's original purchase price for the stock Signup and view all the answers

Immediately prior to the effective date of an underwriting, an adverse event occurs that causes a sharp decline in the price of the stock. Which of the following clauses permits the underwriter to withdraw without a penalty?

Market-out Signup and view all the answers

The most detailed financial information regarding a municipal securities issuer is found in the:

Official statement Signup and view all the answers

A customer sells short 100 shares of XYZ at 34. The customer wishes to protect herself against a loss. Which of the following orders will prevent a loss on the short position?

The customer will be exposed to the possibility of loss no matter which of these additional positions or orders is used Signup and view all the answers

How many shares may an individual sell under Rule 144 if there are 3,500,000 shares outstanding and average weekly trading volumes are provided?

38,500 Signup and view all the answers

A customer enters a sell stop-limit order for 100 shares at 18.50. The last round-lot sale that took place before the order was entered was 18.88. Round-lot sales that took place after the order was entered were at 18.60, 18.25, 18.38, 18.50, and 18.63. The execution price is:

18.50 Signup and view all the answers

Who keeps track of the shareholders of a mutual fund?

The transfer agent Signup and view all the answers

Which of the following choices would NOT be subject to the holding period restriction under Rule 144?

Control stock acquired through an open-market purchase Signup and view all the answers

The investments that tend to perform the WORST during periods of inflation are:

Bonds Signup and view all the answers

If a customer exceeds SIPC limits:

The customer is a general creditor Signup and view all the answers

When discussing the purchase of a variable annuity with a client, the RR is not required to disclose:

Probate fees Signup and view all the answers

Jamie inherited 500 shares of an investment company. What kind of investment company does she own if it makes no provision for future purchases or redemptions?

A closed-end fund Signup and view all the answers

Which of the following is TRUE if a mutual fund investor chooses to implement a systematic withdrawal plan from the fund?

The withdrawals result in a reduction of capital. Signup and view all the answers

A husband and wife have combined earnings of greater than $300,000 in each of the last two years. The couple is considered:

An accredited investor Signup and view all the answers

All of the following persons are permitted to be named as a trusted contact person for a senior investor, EXCEPT:

A law firm Signup and view all the answers

Which of the following risks does not apply to both foreign and domestic debt instruments?

Exchange Signup and view all the answers

A Treasury bond is quoted 105.04 - 105.24. The purchase price that a customer would expect to pay would be:

$1,057.50 Signup and view all the answers

An equity inverse exchange-traded fund (ETF) is most similar to:

Selling stock short Signup and view all the answers

When a broker-dealer sells a security to a client and charges a commission on the transaction, it is acting as the client's:

Agent Signup and view all the answers

A corporation will be paying a cash dividend to its shareholders. On what date will the market price of the stock be reduced?

Ex-date Signup and view all the answers

Which types of investments have historically shown a great deal of sensitivity to regulatory risk?

Limited partnerships Signup and view all the answers

A firm is the managing underwriter of a follow-on offering of a security that's listed on the NYSE. The aftermarket prospectus delivery rule:

Does not require the firm to deliver a prospectus Signup and view all the answers

An investor shifted the allocation of corporate bonds in his portfolio to American Depository Receipts (ADRs). As a result, he will be more exposed to:

Political risk Signup and view all the answers

Which bonds are considered the most liquid?

Treasury bonds Signup and view all the answers

Which of the following securities trades in fractional units of 1/32 of a point?

Treasury bonds Signup and view all the answers

A brokerage firm purchases 600 shares of stock from a customer and places the securities into its inventory. In this case, the firm likely acted as a(n):

Dealer Signup and view all the answers

A previously registered person was convicted of a felony 14 years ago. If he's now seeking employment as a registered representative, he should be informed that:

He may be hired as a registered representative Signup and view all the answers

Which of the following securities would be subject to federal securities registration requirements?

Mutual fund shares Signup and view all the answers

All of the following statements concerning hedge funds are TRUE, EXCEPT the funds:

Must register under the Investment Company Act of 1940 if offered to U.S. residents Signup and view all the answers

All of the following characteristics would be associated with a growth company, EXCEPT that it has a:

High dividend payout ratio Signup and view all the answers

What's a general obligation (GO) bond?

A bond that's backed by taxes imposed by a local municipality Signup and view all the answers

Study Notes

Mutual Fund Shareholders

The transfer agent is responsible for tracking shareholders of a mutual fund.

Rule 144 Holding Period

Control stock from open-market purchases is exempt from the six-month holding period required for restricted stock.

Investment Performance During Inflation

Bonds are the investments that typically perform the worst in inflationary periods.

SIPC Limit Exceedance

If SIPC limits are exceeded, the customer is considered a general creditor and does not have a claim to excess amounts.

Variable Annuity Disclosure

Probation fees are not required to be disclosed when discussing variable annuities, unlike surrender, mortality, and administrative fees.

Inherited Shares of Investment Company

A closed-end fund does not allow for future purchases or redemptions once shares are inherited.

Systematic Withdrawal Plan

Withdrawals from a mutual fund under a systematic withdrawal plan lead to a reduction of capital since shares must be redeemed.

Accredited Investor Definition

Couples earning over $300,000 annually for two consecutive years qualify as accredited investors.

Trusted Contact for Senior Investors

Only natural persons (not law firms) can be trusted contacts for senior investors.

Debt Instrument Risks

Exchange rate risk applies only to foreign debt instruments; domestic debt is not subject to this risk.

Treasury Bond Pricing

Treasury bonds are quoted in 32nds; a quote of 105.24 equates to a purchase price of $1,057.50.

Equity Inverse ETFs

Equity inverse ETFs are similar to selling stock short, designed to perform inversely to an index.

Broker-Dealer Transactions

When a broker-dealer acts as an agent, they charge a commission rather than taking on risk.

Tender Offers

A company will not buy shares if the tendered amount does not meet the minimum requirement.

Government-Sponsored Enterprise Securities

Not all government-sponsored enterprise securities are guaranteed by the government.

Investment Risk Exposure

Investing in ADRs increases exposure to political risk.

Information Barriers

There must be information barriers between investment banking and trading departments in brokerage firms.

Regulatory Risk Sensitivity

Limited partnerships are highly sensitive to regulatory risks compared to other investment vehicles.

529 Prepaid Tuition Plans

The main drawback of 529 Prepaid Tuition Plans is financial loss if the beneficiary does not attend a public college in that state.

Selling Away Definition

Selling away involves transacting securities privately without the consent of the broker-dealer.

Entertainment Expenses with Clients

Under FINRA rules, the giving of a ticket valued at $85 to a client is permissible, while giving both is not.

Aftermarket Prospectus Delivery Rule

A firm does not need to deliver an aftermarket prospectus when it manages a follow-on offering.

Variable Annuity Tax Consequences

In the event of the holder's death during the accumulation period, the excess proceeds are taxed as ordinary income.

Employment After Felony Conviction

A person convicted of a felony can become a registered representative after ten years, provided they have served their sentence.

Stock Ex-Dividend Date

The ex-date is when a stock's price is reduced by the dividend amount.

Municipal Bond Offering Responsibility

The issuer is responsible for creating the official statement for a municipal bond offering.

Short-Term Trading Vehicles

Leveraged ETFs are considered short-term trading vehicles due to their volatility.

Market Maker Quotes

A market maker with a quote of 50.00 - 50.05 indicates a willingness to buy at $50.00 and sell at $50.05.

Asset Allocation Funds

Asset allocation funds adjust investment percentages across assets based on market conditions.

Deflation Impact

Persistent deflation generally leads to lower interest rates.

Securities Registration Requirements

Mutual fund shares are subject to both state and federal securities registration requirements.

Hedge Fund Registration

Hedge funds do not have to register under the Investment Company Act of 1940 when offered to U.S. residents.

Characteristics of Growth Companies

A growth company typically has a high price/earnings ratio but not a high dividend payout ratio.

General Obligation Bonds

GO bonds are backed by taxes imposed by local municipalities.

Liquidity of Treasury Bonds

Treasury bonds are regarded as the most liquid due to high trading volumes.

Fractional Trading Units

Treasury bonds trade in fractional units of 1/32 of a point.

Brokerage Firm's Role

A firm that purchases stocks for its inventory acts as a dealer.

Aggressive Growth Investments

Common stock is best suited for investors seeking aggressive growth potential.

Regulatory Enforcement for Municipal Securities

FINRA enforces regulations related to municipal securities for broker-dealers.

Bond Call Price

Upon a bond call, the bondholder receives the call price along with any accrued interest.

Electronic Communication Networks (ECNs)

ECNs allow investors to trade anonymously, catering to various types of investors.

Federal Securities Regulation

The Securities Exchange Act of 1934 sets rules for secondary market activities.

State Securities Laws

State securities laws are commonly referred to as the Blue Sky laws.

Purpose of Issuing Warrants with Bonds

Issuing warrants with bonds is intended to enhance the bonds' appeal and value.### Bonds and Interest Rates
Lowering the coupon rate on bonds can significantly reduce the issuer’s interest cost.
Short-term bonds are less affected by interest rate changes, making them a safer option for stability in portfolios.

General Obligation Bonds

Revenue sources for debt service include income taxes, property taxes, and licensing fees.
Tolls collected at municipal tunnels are not used to pay general obligation bond debt.

Market Mechanics

Market makers provide liquidity on stock exchanges by standing ready to buy and sell at any time.
The Depository Trust Company does not hold customer cash or securities.

Bond Types

Variable rate bonds have interest payments that can change over time.
Asset-backed securities are traded based on their average life rather than maturity.

Financial Services

Investment advisers charge fees based on assets under management (AUM) rather than commissions.
The interest from U.S. Treasury securities is taxed federally but exempt from state taxes.

Special Tax Bonds and Annuities

Special tax bonds are typically secured by revenue from specific taxes like excise or cigarettes.
The current yield is most relevant for premium bonds that can be redeemed before maturity.

Account Management and Securities

529 plans allow tax-free withdrawals for educational expenses but have specific contribution limits set by states.
The rights of accumulation offer reduced sales charges for purchasing additional mutual fund shares.

Hedge Funds and Qualified Buyers

Hedge funds are private investment funds designed for affluent and sophisticated investors, not suitable for those needing immediate access to funds.
Qualified institutional buyers are defined by specific asset thresholds, with certain exceptions.

Trading Mechanics

Market-out clauses allow underwriters to withdraw from agreements due to adverse events.
The execution price for sell stop-limit orders is determined by the price at which the order becomes active.

Insider Trading and Education Compliance

Maximum civil penalties for insider trading violations can be three times the amount gained or lost avoided.
FINRA-registered individuals who do not meet continuing education requirements may remain employed but cannot serve in a registered capacity.

Investment Strategies

A buy-and-hold strategy focuses on proper asset allocation to manage risks effectively.

Stock Splits and Market Orders

In a stock split, the total value of the investment remains unchanged despite an increase in the number of shares.
Specific protocols must be followed for orders such as due bills when stock ownership changes.

Compliance in Brokerage Accounts

Special protocols exist for brokerage accounts opened for senior investors, requiring the designation of a trusted person.### DUI Conviction and Disqualification
Conviction of a felony charge for driving under the influence (DUI) leads to disqualification only if the conviction is for a felony.

Risk Mitigation for Short Selling

To offset risk from a short position in XYZ stock, purchasing calls is advisable. This allows the investor to buy the stock if its value increases.

Unregistered Employee Responsibilities

Unregistered employees can send prospective clients account opening forms.
They are prohibited from accepting orders or discussing investment objectives, as well as explaining financial products.

Interpositioning in Brokerage Transactions

Interpositioning refers to the practice where a broker-dealer uses another broker-dealer to execute a customer's order, resulting in additional transaction fees.
This practice is generally prohibited unless it secures a better price for the customer.

Interest-Rate Risk Analysis

A BB-rated corporate debenture maturing in two years carries the least interest-rate risk due to its short maturity.
Interest-rate risk increases with the bond’s maturity; hence, longer-term bonds face greater risk.

Political Contributions by Municipal Finance Professionals

Municipal finance professionals (MFPs) are not allowed to make any political contributions to candidates for whom they cannot vote.
Any contribution could result in a two-year ban on municipal securities business with the candidate’s issuer.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

Prepare for the Securities Industry Essentials (SIE) Exam with these flashcards covering critical topics. Each card includes questions related to mutual funds, rules, and stock ownership, ideal for efficient study. Test your knowledge and boost your confidence for the exam.