SIE Securities Industry Essentials practice questions with answers

Answer: C) Through auctions, with bids placed directly or via a broker or bank

New Treasury securities are sold in the primary market through Treasury auctions, not through underwriting syndicates or registered offerings. After issuance they trade in the secondary market.

• AIncorrect. Syndicate underwriting is common for corporate and many municipal offerings, but the Treasury does not use underwriting syndicates to distribute new Treasuries.
• BIncorrect. U.S. government securities are exempt from SEC registration, so new Treasuries are not sold through registered offerings with a prospectus.
• CCorrect. New Treasury securities are sold at auction. Investors can bid directly with the government or through a brokerage firm or commercial bank.
• DIncorrect. Trading after issuance happens in the secondary market, which for Treasuries is mostly over the counter. New issues are first sold at auction in the primary market.

Answer: B) Over $200,000 individually, or over $300,000 jointly with a spouse or partner

A natural person is accredited on income if they earned over $200,000 individually, or over $300,000 with a spouse or partner, in each of the prior two years and reasonably expect the same this year. A separate test allows net worth over $1 million, excluding the primary residence.

• AIncorrect. These amounts are below the Regulation D income thresholds of $200,000 individually or $300,000 jointly.
• BCorrect. The SEC's income test requires income over $200,000 individually, or over $300,000 with a spouse or partner, in each of the prior two years, with a reasonable expectation of the same in the current year. A separate test allows net worth over $1 million, excluding the primary residence.
• CIncorrect. These amounts are higher than the rule requires. The thresholds are $200,000 individually and $300,000 jointly.
• DIncorrect. $300,000 is the joint threshold, not the individual one. The individual threshold is $200,000.

Answer: C) $25

• AIncorrect. Recheck the math.
• BIncorrect. That's the annual amount.
• CCorrect. $50 a year paid in two installments.
• DIncorrect. Recheck the math.

Answer: D) Extra dividends

• AIncorrect. Nothing is guaranteed.
• BIncorrect. It is equity.
• CIncorrect. It pays dividends.
• DCorrect. Holders may share in profits beyond the stated rate.

Answer: A) $47

• ACorrect. Purchase price minus premium.
• BIncorrect. That adds the premium.
• CIncorrect. That ignores the premium.
• DIncorrect. That's the premium.

Answer: D) 38

• AIncorrect. That's the premium.
• BIncorrect. That would be a call's breakeven.
• CIncorrect. The premium must be recovered.
• DCorrect. Put breakeven is strike minus premium.

Answer: B) The number of shares doubles and the strike price halves

• AIncorrect. Contracts are adjusted.
• BCorrect. The total value stays the same.
• CIncorrect. That's backward.
• DIncorrect. Expirations don't change.

Answer: D) Moody's

• AIncorrect. The DTC is a depository.
• BIncorrect. FINRA is a regulator.
• CIncorrect. The SEC is a regulator.
• DCorrect. Moody's, S&P and Fitch are major rating agencies.

Answer: C) Accumulation units

• AIncorrect. They hold units.
• BIncorrect. Those are used at payout.
• CCorrect. They convert to annuity units at payout.
• DIncorrect. They hold units.

Answer: D) Transferring customer accounts between broker-dealers

ACATS is the automated system for transferring customer accounts from one broker-dealer to another. FINRA Rule 11870 sets the transfer timeframes.

• AIncorrect. The SEC reviews registration statements, not ACATS. Even then, a registration statement only becomes effective; the SEC does not approve or endorse the securities.
• BIncorrect. That is the role of the Options Clearing Corporation (OCC), not ACATS.
• CIncorrect. Firms report suspicious activity by filing a Suspicious Activity Report (SAR) with FinCEN, not through ACATS.
• DCorrect. ACATS is the NSCC's Automated Customer Account Transfer Service. Under FINRA Rule 11870, eligible firms use it to move customer accounts on set timeframes: the carrying firm validates or takes exception to the transfer instruction within one business day, then completes the transfer within three business days.

Answer: A) Passes assets directly to a named beneficiary at death

• ACorrect. It avoids probate.
• BIncorrect. It applies at death.
• CIncorrect. It avoids probate.
• DIncorrect. That isn't TOD.

Answer: B) The lesser of the IRS annual dollar limit or the individual's taxable compensation

A traditional IRA contribution is limited to the lesser of the IRS annual dollar limit (plus catch-up at 50 or older) or the person's taxable compensation for the year.

• AIncorrect. The rule uses the lesser of the two amounts, not the greater. Someone with high earnings is still capped at the annual dollar limit.
• BCorrect. The IRS caps contributions at the annual dollar limit (with a higher catch-up limit at age 50 and older) or, if less, the person's taxable compensation for the year.
• CIncorrect. Contributions also can't exceed taxable compensation. Someone who earned less than the annual limit can contribute only up to their earnings.
• DIncorrect. IRA contribution limits don't depend on the account balance. They're set by the IRS dollar limit and the person's compensation.

Answer: B) Their share goes to their estate

• AIncorrect. That's JTWROS.
• BCorrect. Owners can hold unequal shares.
• CIncorrect. It's settled through the estate.
• DIncorrect. That isn't the rule.

Answer: B) The minor

• AIncorrect. The minor is the owner.
• BCorrect. The custodian manages them.
• CIncorrect. The minor owns them.
• DIncorrect. The minor owns them.

Answer: B) The SEC

• AIncorrect. The Fed oversees banks.
• BCorrect. The SEC approves FINRA rules and oversees it.
• CIncorrect. The FDIC insures deposits.
• DIncorrect. The IRS collects taxes.