FINRA Series 7 / SIE Exams Securities Industry Essentials (SIE): Regulatory Framework & Market Structure Syllabus

Securities Industry Essentials (SIE): Regulatory Framework & Market Structure syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Securities Industry Essentials (SIE): Regulatory Framework & Market Structure in FINRA Series 7 / SIE Exams, not a summary of it.

1. 1

   Regulatory Bodies, Agencies, and Market Participants

   3 topics

   • Federal and Self-Regulatory Oversight
     • Securities and Exchange Commission (SEC) authority and registration of securities
     • FINRA as a self-regulatory organization (SRO) and its jurisdiction
     • Municipal Securities Rulemaking Board (MSRB) and CBOE/exchange SROs
     • Federal Reserve Board and Regulation T credit oversight
   • Market Participants and Their Roles
     • Broker-dealers, investment advisers, and the distinction between them
     • Issuers, underwriters, and municipal advisors
     • Traders, market makers, and registered representatives
     • Custodians, transfer agents, and clearing firms
   • Investor Protection Mechanisms
     • Securities Investor Protection Corporation (SIPC) coverage and limits
     • FDIC versus SIPC distinctions
     • Department of the Treasury and IRS roles in securities taxation
2. 2

   Market Structure and Trading Venues

   3 topics

   • Primary versus Secondary Markets
     • Capital formation in the primary market
     • Exchange and over-the-counter (OTC) secondary markets
   • Types of Markets and Quotations
     • First, second, third, and fourth markets
     • Bid, ask, and the role of the spread
     • Alternative trading systems (ATS) and dark pools
   • Order Types and Execution
     • Market, limit, stop, and stop-limit orders
     • Time and duration qualifiers (day, GTC, FOK, IOC, AON)
     • Best execution and order routing obligations
3. 3

   Economic Factors and the Business Cycle

   4 topics

   • Macroeconomic Indicators
     • GDP, CPI, and unemployment as economic measures
     • Leading, lagging, and coincident indicators
   • Business Cycle Phases
     • Expansion, peak, contraction, and trough
     • Recession and depression definitions
   • Monetary and Fiscal Policy
     • Federal Reserve tools: open market operations, discount rate, reserve requirement
     • Fiscal policy through taxation and government spending
     • Interest rate impact on bond and equity prices
   • International Economic Factors
     • Currency exchange rates and balance of payments
     • Inflation, deflation, and stagflation

Securities Industry Essentials (SIE): Regulatory Framework & Market Structure flashcards for FINRA Series 7 / SIE Exams

21 of 51 cards from the Securities Industry Essentials (SIE): Regulatory Framework & Market Structure deck — real questions with worked answers.

1. What is the primary mission of the SEC (Securities and Exchange Commission)?

   To protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. Created by the Securities Exchange Act of 1934, it is the federal agency overseeing the U.S. securities industry.

2. What is FINRA and what is its regulatory status?

   The Financial Industry Regulatory Authority is the largest self-regulatory organization (SRO). It is a non-governmental body that writes and enforces rules for broker-dealers and registered reps, operating under SEC oversight.

3. What is the difference between a federal regulator and a self-regulatory organization (SRO)?

   A federal regulator (e.g., the SEC) is a government agency with statutory authority. An SRO (e.g., FINRA, MSRB, exchanges) is a member-funded industry body that creates and enforces its own rules subject to SEC approval and supervision.

4. Which act created the SEC, and which act governs the issuance of new securities?

   The Securities Exchange Act of 1934 created the SEC and regulates secondary trading. The Securities Act of 1933 governs the issuance/registration of new securities (primary market) and requires full disclosure.

5. What does the MSRB regulate, and what is its key limitation?

   The Municipal Securities Rulemaking Board writes rules for the municipal securities market. Its limitation: it has no enforcement authority—rules are enforced by FINRA, the SEC, and bank regulators.

6. What is the role of the Federal Reserve Board (FRB) in securities regulation?

   The FRB regulates credit extension in the securities markets, primarily through Regulation T (margin requirements for broker-dealers) and Regulation U (bank loans for purchasing securities).

7. What does Regulation T govern, and what is the current initial margin requirement?

   Regulation T, set by the Federal Reserve Board, governs the credit broker-dealers can extend to customers. The current initial (Reg T) margin requirement is 50% of the purchase price of marginable securities.

8. What is the function of a broker versus a dealer?

   A broker acts as an agent, executing trades on behalf of customers for a commission. A dealer acts as a principal, buying and selling from its own inventory and earning a markup/markdown. A broker-dealer can do both.

9. What is a market maker?

   A dealer that maintains a firm two-sided quote (bid and ask) in a security and stands ready to buy or sell from its own inventory, providing liquidity. It profits from the spread between bid and ask.

10. What is the role of a transfer agent?

    A transfer agent (often a bank or trust company) maintains records of securities ownership, issues and cancels certificates, handles name/ownership changes, and distributes dividends and interest to holders of record.

11. What is the role of a registrar in securities issuance?

    The registrar audits the transfer agent, ensuring the number of shares outstanding does not exceed the number authorized, preventing over-issuance.

12. What is a custodian (custodian bank) in the securities industry?

    A financial institution that holds customers' securities and cash for safekeeping to minimize the risk of theft or loss, and may provide settlement, dividend collection, and reporting services.

13. What is a clearing firm versus an introducing firm?

    A clearing (carrying) firm holds customer funds/securities and handles trade settlement and clearance. An introducing firm accepts customer orders but passes them to a clearing firm for execution and custody.

14. What does the SIPC protect investors against, and what are the coverage limits?

    The Securities Investor Protection Corporation protects customers if a brokerage firm fails (becomes insolvent). Coverage is up to $500,000 total per customer, of which a maximum of $250,000 may be cash. It does NOT protect against market losses.

15. Does SIPC protect against losses from a decline in the market value of securities?

    No. SIPC only protects against the loss of cash and securities held by a failed/insolvent broker-dealer. It provides no protection against investment losses due to market fluctuations.

16. What is the FDIC and how does it differ from SIPC?

    The Federal Deposit Insurance Corporation insures bank deposits (up to $250,000 per depositor, per bank). SIPC covers securities/cash held at a failed broker-dealer. Securities themselves are never FDIC-insured.

17. What is the purpose of the Securities Investor Protection Act of 1970?

    It established SIPC to protect customers of failed broker-dealers and to promote investor confidence by ensuring the return of customer cash and securities when a firm becomes insolvent.

18. What is the primary market?

    The market where securities are issued and sold for the first time, with proceeds going to the issuer. It includes IPOs and additional offerings; transactions are governed by the Securities Act of 1933.

19. What is the secondary market?

    The market where previously issued securities trade among investors. Proceeds go to selling investors (not the issuer). It provides liquidity and price discovery; regulated under the Securities Exchange Act of 1934.

20. What is an IPO (initial public offering)?

    The first sale of a company's stock to the public, a primary-market transaction in which the issuer raises capital by selling new shares for the first time.

21. What is the difference between a primary offering and a secondary offering of stock?

    In a primary offering, the issuer sells newly created shares and keeps the proceeds. In a secondary offering, existing shareholders sell their shares and receive the proceeds—the issuer raises no new capital.

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