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SIE Exam questions with 100% correct answers
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SIE Exam questions with 100% correct answers
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SIE Exam questions with 100% correctanswers
purpose of securities industry - correct answer ✔✔matching investors with money to issuers that need
that money to finance
issuer - correct answer ✔✔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 - correct answer ✔✔1) issue debt securities (bonds) and 2) issues
equity securities (stocks)
debt securities - correct answer ✔✔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) - correct answer ✔✔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)
common=paid a dividend based on company fortunes
broker dealer = brokerage firm (2 capacities) - correct answer ✔✔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) - correct answer ✔✔1) investment banking
2) research
3) sales/private client
4) trading
5) operations
broker dealer - Investment banking - correct answer ✔✔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 - correct answer ✔✔analysts!! study market and issuers to make
reccomendations (buy, sell, hold)
broker dealer - sales (stock or bond brokers aka registered representatives RR or investment advisor
representatives IAR) - correct answer ✔✔financial professionals who market bonds, stocks, but also
packaged products such as mutual funds to people and institutions
broker dealer - trading - correct answer ✔✔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 - correct answer ✔✔make sure things are up to standard (paperwork, trades,
etc) also generate statements, etc
info barriers - correct answer ✔✔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 - correct answer ✔✔**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) - correct answer ✔✔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
comp for broker dealer, investment advisor, - correct answer ✔✔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 - correct answer ✔✔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 - correct answer ✔✔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 - correct answer ✔✔-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) - correct answer ✔✔retail, accredited, institutional, QIB
retail investors - correct answer ✔✔(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) - correct answer ✔✔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.
institutional investors - correct answer ✔✔large investors that pool money to purchase securities (banks,
insurance companies, pension plans, endownments, hedge funds which are referred to as qualified
institutional buyers (QIBS)
-defined by value of assets invested, usually not individuals
QIB (3 qualifiications) - correct answer ✔✔QIBS=qualified institutional buyers
criteria
--QIB=qualified inst. buyer=entity that must own/invest $100 million of securities & CANNOT be a natural
person
1) certain types of investors qualify (NEVER WILL BE AN INDIVIDUAL): insurance companies, registered
investment advisors or companies, small business development companies, private/pension plans,
certain bank trust funds, corps, some non-profit, etc
2) must manage over 100 mil of securities unrelated to them
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