STUDY FOR THE SECURITIES INDUSTRY ESSENTIALS EXAM (SIE) EXAM

FINRA has strict rules when it comes to communicating with customers. These rules encompass what you must say, what you must not say, and the requirement to keep and maintain records. FINRA's Content Outline for the Securities Industry Essentials exam lists Communications with Customers as an important item in Section 3.2.5. Bob Eder devotes a whole chapter in his Study for the Securities Industry Essentials (SIE) Exam to the rules on communicating with customers. Here is a sample from Bob Eder's book on "retail communications": "Principal Must Approve (3.2.5) Before a registered person may use any retail communication with the public, a registered principal must approve it in writing. The principal must give approval for retail communications before the earlier of either using the material or filing it with FINRA’s Advertising Regulation Department. Given that institutional investors are sophisticated investors, FINRA does not require that a principal give pr...

The SEC has rules regarding the requirement that registered reps maintain confidentiality about the financial positions of their customers. This is called Regulation S-P. FINRA's Content Outline for the Securities Industry Essentials Exam (SIE) includes privacy regulations in Section 3.2.4. This means that an SIE candidate should expect to see questions on privacy requirements on the SIE exam. Bob Eder has detailed information about Regulation S-P in his  Study for the Securities Industry Essentials (SIE) Exam . Here is a sample of Bob Eder's discussion on maintaining  privacy of financial information of  customers : "Regulation S-P                                                             ...

When you go to sit for the Securities Industry Essentials (SIE) exam, be prepared for questions on interest-rate risk. FINRA publishes a Content Outline for the SIE exam, and includes Investment Risks that you should know under Section 2.2. One of those required-to-know risks is investment-rate risk. Bob Eder has full coverage of investment risks in his Study for the Securities Industry Essentials Exam on pages 145-151. Here is a sample of Bob Eder's discussion of interest-rate risk: Interest Rate Risk                                          (2.2) This is the risk that interest rates will go up and cause bond prices to go down. If interest rates go up, the prices of bonds will go down. This happens because a bond that pays four percent will lose value if other bonds pay a higher rate, say, five perce...

Don't go to sit for the Securities Industry Essentials exam without being familiar with strategies designed to reduce or mitigate investment risks. These strategies include hedging, diversifying, and rebalancing one's portfolio. FINRA specifically includes these mitigation strategies in its SIE Content Outline under Section 2.2. This indicates that the SIE contains questions asking about these strategies. Bob Eder discusses these mitigation strategies in his book Study for the Securities Industry Essentials (SIE) Exam on page 151. Here is a sample of Bob Eder's treatment: "Hedging (2.2)" "How to protect a stock portfolio against unexpected declines? Options are the way many traders protect their stock positions, either long or short. For greatest protection of long stock positions, purchase puts either on stocks or on stock indices. For greatest protection of short stock position, consider purchase of calls." Here is the link to FINRA's Content Ou...

If you plan to sit for the Securities Industry Essentials exam, be aware that there are questions on exchange-traded funds (ETFs) and exchanged-traded notes (ETNs), including the differences between the two. FINRA's  specifies Exchange Traded Products (ETPs) in Section 2.1.9 of its SIE Content Outline. Here's an example of what Bob Eder says in his SIE study manual, Study for the Securities Industry Essentials Exam , on pages 131-137: "ETF's Are Not Mutual Funds While most ETF's are considered open-end investment companies and must register under the Investment Company Act as such, the SEC does not consider them to be "mutual funds." Consequently, the rules regarding ETF's are different from those regulating mutual funds. For example, an investor can buy or sell shares of an ETF anytime during the trading day, i.e., during exchange hours of trading. Shares of a mutual fund, by contrast, can be purchased or sold only once daily as of the closing of e...

Before you go and sit for the Securities Industry Essentials (SIE) exam, make sure you know about different risk types. Be able to define and identify each of these types. FINRA publishes a Content Outline on its web site for the SIE exam, and in section 2.2 specifically mentions 10 different investment risks. Thus, FINRA is telling SIE candidates that they need to know these and be able to define and identify them. Bob Eder has a detailed analysis of each risk in his Study for the Securities Industry Exam on pages 145-151. Here is an example from Bob Eder's book: Management Risk (2.2) This is the risk of the uncertainty of the quality and ability of management overseeing the investment. A corporate management team may make good or bad decisions that will affect profits and stock prices. Although everyone knows that future happenings are related only tenuously to past history, the track record of management in the past often indicates improved chance of success in the future. H...

Plan on taking the Securities Industry Essentials (SIE) exam? If so, be able to distinguish the differences between exchange-traded funds (ETFs) and exchange-traded notes (ETNs). FINRA's Content Outline for the SIE exam lists both ETNs and ETFs in Section 2.1.9. Bob Eder presents a detailed description of ETFs and ETNs in his book Study for the Securities Industry Essentials Exam on pages 131-137, including differentiating characteristics of the two types of exchange-traded products (ETPs). Here is a sample paragraph from Bob Eder's book on the complexity of ETNs: "Complexity (2.1.9) Do not suggest or recommend an ETN to an investor who does not understand or cannot understand how an ETN works, or to a person who is not able to realistically gauge the risk of an ETN. You must first make a determination that the customer can understand the product, and you must document your determination by putting it in writing, giving the reasons and basis for your determination. Thes...

Hedge funds formerly were unregulated and not subject to reporting and filing disclosures with the SEC. Those times don't exist any more. Now, hedge funds must register with the SEC as investment advisers, their employees must register with individual states and take and pass the investment adviser representative exam, and hedge funds must file periodic reports and disclosures with the SEC.  Applicants going to sit for the Securities Industry Essentials (SIE) exam  should be ready to answer questions about hedge funds. FINRA's SIE Content Outline lists hedge funds as important in Section 2.1.8. Bob Eder has a full description of hedge funds in his Study for the Securities Industry Essentials (SIE) Exam . Here is an example of what Bob Eder says about hedge funds: Hedge Funds (2.1.8) These funds are private pools of managed money that largely in the past escaped SEC registration as "investment companies." However, today, hedge funds are far from being unregulated pri...

Are you planning on sitting for the Securities Industry Essentials (SIE) exam? If the answer is yes, then study up on the types and workings of real estate investment trusts, or REITs. FINRA's Content Outline clearly lists real estate investment trusts as included in the SIE exam under Section 2.1.7. Bob Eder covers REITs in detail on pages 129-131 of his Study for the Securities Industry Essentials (SIE) Exam . For example, here is Bob Eder's definition of an REIT: "Real Estate Investment Trusts (2.1.7) These REIT’S are pooled investments that purchase real estate and real estate mortgages. Many REIT’s are traded on exchanges, such as the NYSE. Thus, these exchange-listed REIT's are very liquid. An investor can purchase or sell shares anytime during the trading day. However, not all REIT's are listed on an exchange or on Nasdaq, and not all REIT's have the same high liquidity." Here is the link to FINRA's Content Outline for the SIE exam.   See the...

Must you be prepared for questions on the Securities Industry Essentials exam about Direct Participation Programs (DPP)? Yes, the SIE exam has questions about DPPs. First of all, what is a direct participation program? It is an investment or asset in which the partners or investors share in the profits and losses of the enterprise, without a middleman, such as a corporation, intervening between investor and investment. A good example is a limited partnership. In such partnership, the partners share in any profits as well as losses, if there are any. This is an advantage. There is no double taxation. All gains and losses pass through directly to the partners. As to disadvantages, an investment in a limited partnership is by and large illiquid. This means that there is no ready or liquid market to sell a limited partnership once a person has purchased it. FINRA's Content Outline includes direct participation programs and limited partnerships in Section 2.1.6. Here is the link to FINR...

How many candidates walking in to take the Securities Industry Essentials exam have never heard about municipal fund securities? I bet a lot. Why? Because many SIE study guides make no mention of them. FINRA's Content Outline clearly indicates that FINRA considers knowledge of municipal fund securities to be required for the SIE exam. See 2.1.5 of FINRA's Content Outline. For example, what are the three types of municipal fund securities? Answer: the three types are local government investment pools, 529 programs, and Able accounts. Question: what is the purpose of Able accounts? Bob Eder has a full description of municipal fund securities, including Able accounts, on pages 119 to 124 in his Study for the Securities Industry Essentials Exam . Here is Bob Eder's description of Able accounts: "ABLE Programs (2.1.5) "Can states or their agencies establish tax-advantaged programs to help disabled individuals maintain their health and independence? Yes! Monies put in...

When studying for the Securities Industry Essentials (SIE) exam, don't overlook the various share classes for open-end investment companies or mutual funds. Take a look at FINRA's Content Outline for the SIE exam, specifically 2.1.4. It addresses Packaged Products and Investment Companies. Then it specifies Required Knowledge of loads and share classes. This tells the SIE candidate that he/she must be prepared for questions on these topics. Bob Eder has full treatment of share classes in his Study for the Securities Industry Essentials Exam on pages 111-113, including real-life examples. Here is the link to FINRA's Content Outline for the SIE exam.   See the references to mutual fund sales charges and fund share classes in FINRA's Content Outline, section 2.1.4. Study for the Securities Industry Essentials (SIE) Exam  is available from Amazon in both paperback and Kindle e-book versions.  Here is the link to Bob Eder's book on Amazon . See   Bob Eder's Author P...

The Securities Industry Essentials (SIE) exam covers anti-money laundering, and the topic is found in FINRA's Content Outline in Section 3.2.3. Please take a look at this Content Outline because it lists all the subtopics under Anti-Money Laundering (AML) that you should study. For example, the Content Outline lists the stages of AML: structuring, layering and placement. You should know the meaning of each of these stages, and have examples in mind. Bob Eder's SIE manual, Study for the Securities Industry Exam, has full treatment of AML on pages 258-259.  Here is Bob Eder's definition of layering, one of the three AML stages: Layering "In this stage criminals try to transfer monies from one legitimate account to another, so as to make tracing difficult. Examples are the purchase of financial assets, like stocks and bonds; moving monies from one account to another; moving monies from one company to another, where the companies are under common control." Here is t...

Never heard of municipal fund securities? Then be forewarned, the Securities Industry Essentials exam covers these securities and expects you to know what they are, how they are defined, and what they include. Many SIE study manuals skip them altogether. Make sure that your study manual discusses and explains them.  Bob Eder devotes six whole pages to Municipal Fund Securities on pages 119 through 124 in his Study for the Securities Industry Essentials Exam, including practice questions testing the reader on his/her understanding and grasp of the text. Here is a Bob Eder paragraph on one type of municipal fund securities, local government investment pools, taken from Bob Eder's book: "Local Government Investment Pools (LGIP's) (2.1.5) Who creates local government investment pools? Answer: A state or local government creates these LGIP's as trusts for the benefit of participating local governments within the state. These LGIP's are considered to be municipal secur...

  The Securities Industry Essentials (SIE) exam covers lots of nuts and bolts that hold the securities industry together and alive. One of the most important nuts and bolts is the Depository Trust and Clearing Corporation that assists in the back office of every brokerage firm.  The Depository Trust (DTCC) provides clearing and transfer services to the brokerage industry in the U.S. and throughout the world. FINRA's SIE Content Outline includes knowledge of the DTCC in section 1.1.4.  With volume of securities trades approaching millions on a daily basis, imagine brokerage operations without a centralized entity that could match buys with sells, and keep brokerage firm back offices running smoothly and efficiently! What chaos without an organization like the DTCC! What does the DTCC do? DTCC automates the recording of each trade and gives an exact report to each participating exchange. It also reports customers' positions in each of their securities to each brokerage firm...