©PREP4EXAMS@2024 [REAL-EXAM-DUMPS] Wednesday, July 31, 2024 9:10 AM
SIE Exam Practice Questions and Answers (100% Pass)
purpose of securities industry - ✔️✔️matching investors with money to issuers that need
that money to finance
issuer - ✔️✔️legal entity that sells securities in order to finance its operations (business,
governments) ie. us treasury, us gov agencies, foreign governments, state and local
governments, corps, banks
methods issuers use to raise capital - ✔️✔️1) issue debt securities (bonds) and 2) issues
equity securities (stocks)
debt securities - ✔️✔️publically traded loans = bonds, notes, or debt instruments. The
person loaning money/buying a bond is considered a creditor to the issuer and the
amount they paid for is the principal that the issuer owes them and also makes interest
payments throughout the duration of the loan
-can be issued by banks, corps, etc
equity securities (common vs preferred) - ✔️✔️raise capital by issuing stock (equity), this
time when you buy this, you have ownership in the company and if the company is
profitable then you may be entitled to a portion of the profits (this is received through
dividend distribution). differs from bonds bc 1) typically no maturity date and 2) dividend
payments are optional
-only banks/corporations sell these and can do so publically or privately to specific
group of investors
preferred=paid a predetermined dividend (usually received first and higher than those of
common holders, but don't get a vote in company matters)
1
,©PREP4EXAMS@2024 [REAL-EXAM-DUMPS] Wednesday, July 31, 2024 9:10 AM
common=paid a dividend based on company fortunes
broker dealer = brokerage firm (2 capacities) - ✔️✔️2 capacities
1) broker= (ABC - agency, broker, commission)engages in agency transactions in
security accounts of others. they match up buys and sells and earn a commission for
their work (like a real estate broker, acting on behalf of customers to make commission).
no risk to firm, they find party willing to take other side of trade
2) dealer= (PDM - principal, dealer, markup/markdown) firms buying and selling
securities for its own accounts. buy securities from clients and hold them in inventory
and allow clients to buy from them. like a car dealer... buys for its inventory and sells
from its inventory and can mark up and down accordingly. acts as principal and can take
other side of the trade, MARK UP OR MARK DOWN
-risk & Inventory
broker-dealer departments/structure of firms (5) - ✔️✔️1) investment banking
2) research
3) sales/private client
4) trading
5) operations
broker dealer - Investment banking - ✔️✔️referred to as underwriters of securities... they
provide advise to issuers in who are looking to issue stocks, bonds, or a combo
(structure/arrange security offerings)
also can assist with M&A or restructuring for bankruptcy
broker dealer - research - ✔️✔️analysts!! study market and issuers to make
reccomendations (buy, sell, hold)
2
,©PREP4EXAMS@2024 [REAL-EXAM-DUMPS] Wednesday, July 31, 2024 9:10 AM
broker dealer - sales (stock or bond brokers aka registered representatives RR or
investment advisor representatives IAR) - ✔️✔️financial professionals who market bonds,
stocks, but also packaged products such as mutual funds to people and institutions
broker dealer - trading - ✔️✔️execute trades for the firm and the firm's clients and occur
in electronic market places NASDAQ or hybrid ones such as NYSE
broker dealer - operations - ✔️✔️make sure things are up to standard (paperwork, trades,
etc) also generate statements, etc
info barriers - ✔️✔️barrier where info shouldn't be shared with other side/other
departments (investment banking on one side and research, sales/private client,
trading, ops on the other)
market maker - ✔️✔️**applies to equity not bonds**
when broker dealer decides to display quotes on a trading system indicating they want
to buy and sell at specific prices... required to do so on a REGULAR basis. stands ready
to buy and sell at any given time
-maintain inventory
-these market makers are two sided... indicating a price they are willing to sell at
(ASK/OFFER) and buy at (BID)
-usually a min of 100 shares at those prices=ROUND LOT
odd lot=anything but groups of 100 shares
spread (ask, bid, etc) - ✔️✔️spread=difference between ask and bid price=profitability of
market maker, larger the spread=more MM makes
bid=what firm will buy at/what client sells at
ask=what firm will sell at/what client buys at
-more actively traded securities tend to have more narrow spreads
**markup (sell price/ask)/markdown (buy price/bid) is in addition to the spread
3
, ©PREP4EXAMS@2024 [REAL-EXAM-DUMPS] Wednesday, July 31, 2024 9:10 AM
comp for broker dealer, investment advisor, - ✔️✔️1) broker dealer receives $ bc of
transaction based compensation (broker receives commission)
2) investment advisor charges fees for managing portfolio, usually based on assets
under management
traders --> proprietary trading - ✔️✔️trade for the firm without setting price markers like a
market maker = no quotes entered. simply execute trades on the quotes made from a
market maker
investment advisor vs broker dealer - ✔️✔️broker-dealers earn commission for executing
trades while investment advisors charge fees for providing advise to their clients (based
on % of assets under management AUM) and are charged whether trades are executed
or not
municipal advisors - ✔️✔️-provides advice to or on behalf of municipalities (state, city,
council) usually the issuer. usually related to municipal finance offering
-municipal advisor is an entity that advices municipalities on bond offerings (middle man
between municipality itself and broker firm (underwriter potentially)
types of investors (4) - ✔️✔️retail, accredited, institutional, QIB
retail investors - ✔️✔️(any investor that is not an inst. advisor) regular individuals with
regular accounts buying stock and bonds from broker-dealers with limited
assets/income
accredited investors (what are the qualifications) - ✔️✔️these are people with more
assets/income and can assume more risk. These includes directors, exec officers, firms,
and individuals with assets/net worth over 1 mil (not including prim. residence), or those
who make 200k (or 300k with spouse) each year and have for the lsat two and expect to
continue making that much
-can be individuals and inst.
4
SIE Exam Practice Questions and Answers (100% Pass)
purpose of securities industry - ✔️✔️matching investors with money to issuers that need
that money to finance
issuer - ✔️✔️legal entity that sells securities in order to finance its operations (business,
governments) ie. us treasury, us gov agencies, foreign governments, state and local
governments, corps, banks
methods issuers use to raise capital - ✔️✔️1) issue debt securities (bonds) and 2) issues
equity securities (stocks)
debt securities - ✔️✔️publically traded loans = bonds, notes, or debt instruments. The
person loaning money/buying a bond is considered a creditor to the issuer and the
amount they paid for is the principal that the issuer owes them and also makes interest
payments throughout the duration of the loan
-can be issued by banks, corps, etc
equity securities (common vs preferred) - ✔️✔️raise capital by issuing stock (equity), this
time when you buy this, you have ownership in the company and if the company is
profitable then you may be entitled to a portion of the profits (this is received through
dividend distribution). differs from bonds bc 1) typically no maturity date and 2) dividend
payments are optional
-only banks/corporations sell these and can do so publically or privately to specific
group of investors
preferred=paid a predetermined dividend (usually received first and higher than those of
common holders, but don't get a vote in company matters)
1
,©PREP4EXAMS@2024 [REAL-EXAM-DUMPS] Wednesday, July 31, 2024 9:10 AM
common=paid a dividend based on company fortunes
broker dealer = brokerage firm (2 capacities) - ✔️✔️2 capacities
1) broker= (ABC - agency, broker, commission)engages in agency transactions in
security accounts of others. they match up buys and sells and earn a commission for
their work (like a real estate broker, acting on behalf of customers to make commission).
no risk to firm, they find party willing to take other side of trade
2) dealer= (PDM - principal, dealer, markup/markdown) firms buying and selling
securities for its own accounts. buy securities from clients and hold them in inventory
and allow clients to buy from them. like a car dealer... buys for its inventory and sells
from its inventory and can mark up and down accordingly. acts as principal and can take
other side of the trade, MARK UP OR MARK DOWN
-risk & Inventory
broker-dealer departments/structure of firms (5) - ✔️✔️1) investment banking
2) research
3) sales/private client
4) trading
5) operations
broker dealer - Investment banking - ✔️✔️referred to as underwriters of securities... they
provide advise to issuers in who are looking to issue stocks, bonds, or a combo
(structure/arrange security offerings)
also can assist with M&A or restructuring for bankruptcy
broker dealer - research - ✔️✔️analysts!! study market and issuers to make
reccomendations (buy, sell, hold)
2
,©PREP4EXAMS@2024 [REAL-EXAM-DUMPS] Wednesday, July 31, 2024 9:10 AM
broker dealer - sales (stock or bond brokers aka registered representatives RR or
investment advisor representatives IAR) - ✔️✔️financial professionals who market bonds,
stocks, but also packaged products such as mutual funds to people and institutions
broker dealer - trading - ✔️✔️execute trades for the firm and the firm's clients and occur
in electronic market places NASDAQ or hybrid ones such as NYSE
broker dealer - operations - ✔️✔️make sure things are up to standard (paperwork, trades,
etc) also generate statements, etc
info barriers - ✔️✔️barrier where info shouldn't be shared with other side/other
departments (investment banking on one side and research, sales/private client,
trading, ops on the other)
market maker - ✔️✔️**applies to equity not bonds**
when broker dealer decides to display quotes on a trading system indicating they want
to buy and sell at specific prices... required to do so on a REGULAR basis. stands ready
to buy and sell at any given time
-maintain inventory
-these market makers are two sided... indicating a price they are willing to sell at
(ASK/OFFER) and buy at (BID)
-usually a min of 100 shares at those prices=ROUND LOT
odd lot=anything but groups of 100 shares
spread (ask, bid, etc) - ✔️✔️spread=difference between ask and bid price=profitability of
market maker, larger the spread=more MM makes
bid=what firm will buy at/what client sells at
ask=what firm will sell at/what client buys at
-more actively traded securities tend to have more narrow spreads
**markup (sell price/ask)/markdown (buy price/bid) is in addition to the spread
3
, ©PREP4EXAMS@2024 [REAL-EXAM-DUMPS] Wednesday, July 31, 2024 9:10 AM
comp for broker dealer, investment advisor, - ✔️✔️1) broker dealer receives $ bc of
transaction based compensation (broker receives commission)
2) investment advisor charges fees for managing portfolio, usually based on assets
under management
traders --> proprietary trading - ✔️✔️trade for the firm without setting price markers like a
market maker = no quotes entered. simply execute trades on the quotes made from a
market maker
investment advisor vs broker dealer - ✔️✔️broker-dealers earn commission for executing
trades while investment advisors charge fees for providing advise to their clients (based
on % of assets under management AUM) and are charged whether trades are executed
or not
municipal advisors - ✔️✔️-provides advice to or on behalf of municipalities (state, city,
council) usually the issuer. usually related to municipal finance offering
-municipal advisor is an entity that advices municipalities on bond offerings (middle man
between municipality itself and broker firm (underwriter potentially)
types of investors (4) - ✔️✔️retail, accredited, institutional, QIB
retail investors - ✔️✔️(any investor that is not an inst. advisor) regular individuals with
regular accounts buying stock and bonds from broker-dealers with limited
assets/income
accredited investors (what are the qualifications) - ✔️✔️these are people with more
assets/income and can assume more risk. These includes directors, exec officers, firms,
and individuals with assets/net worth over 1 mil (not including prim. residence), or those
who make 200k (or 300k with spouse) each year and have for the lsat two and expect to
continue making that much
-can be individuals and inst.
4
