FINRA Series 7 / SIE Exams SIE: Securities Products and Their Characteristics Syllabus

SIE: Securities Products and Their Characteristics syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for SIE: Securities Products and Their Characteristics in FINRA Series 7 / SIE Exams, not a summary of it.

1. 1

   Equity Securities

   3 topics

   • Common Stock
     • Voting rights, dividends, and residual claims
     • Authorized, issued, outstanding, and treasury shares
     • Preemptive rights and stock splits
   • Preferred Stock
     • Fixed dividend and priority over common
     • Cumulative, participating, convertible, and callable features
   • Equity-Linked Instruments
     • Rights and warrants
     • American Depositary Receipts (ADRs)
     • Restricted and control stock under Rule 144
2. 2

   Debt Securities

   4 topics

   • Corporate Bonds
     • Secured versus unsecured (debentures) debt
     • Coupon, maturity, par value, and yield relationships
     • Bond ratings and credit risk
   • U.S. Government and Agency Securities
     • T-bills, T-notes, T-bonds, and TIPS
     • Agency securities (GNMA, FNMA, FHLMC)
   • Municipal Securities
     • General obligation versus revenue bonds
     • Tax-exempt interest and the taxable-equivalent yield
   • Money Market Instruments
     • Commercial paper, banker's acceptances, and CDs
     • Repurchase agreements
3. 3

   Pooled Investment Vehicles

   3 topics

   • Investment Company Types
     • Open-end funds (mutual funds) versus closed-end funds
     • Unit investment trusts (UITs)
     • Net asset value (NAV) calculation and pricing
   • Mutual Fund Share Classes and Costs
     • Class A, B, and C shares and load structures
     • Breakpoints, letters of intent, and rights of accumulation
     • Expense ratios and 12b-1 fees
   • Exchange-Traded and Specialized Products
     • Exchange-traded funds (ETFs) and exchange-traded notes (ETNs)
     • Real estate investment trusts (REITs)
     • Hedge funds and direct participation programs (DPPs)
4. 4

   Options and Derivatives

   3 topics

   • Options Fundamentals
     • Calls and puts: rights and obligations
     • Strike price, premium, expiration, and contract size
     • In-, at-, and out-of-the-money
   • Basic Options Strategies
     • Buying and writing calls and puts
     • Covered versus uncovered (naked) positions
   • Other Derivative Concepts
     • Forwards and futures overview
     • Risk and leverage characteristics

SIE: Securities Products and Their Characteristics flashcards for FINRA Series 7 / SIE Exams

20 of 54 cards from the SIE: Securities Products and Their Characteristics deck — real questions with worked answers.

1. What basic ownership rights does common stock confer on a holder?

   Common stock represents residual ownership (equity) in a corporation, giving holders the right to vote on major matters, receive declared dividends, inspect corporate books, maintain proportional ownership via preemptive rights, and claim residual assets in liquidation (last in line, after creditors and preferred stockholders).

2. In a corporate liquidation, list the priority order of claims from first to last.

   1) Secured creditors, 2) unsecured creditors (including general creditors and bondholders/debentures), 3) subordinated debt holders, 4) preferred stockholders, 5) common stockholders last.

3. What is the difference between statutory and cumulative voting for common stock?

   Statutory voting allocates one vote per share per board seat, which favors large/majority holders. Cumulative voting lets a shareholder pool all votes (shares x seats) and cast them for one or more candidates, which favors small/minority holders.

4. What is the difference between authorized, issued, outstanding, and treasury stock?

   Authorized = max shares the charter permits. Issued = shares actually sold to the public. Outstanding = issued shares still held by investors (issued minus treasury). Treasury = shares the company repurchased; they have no voting rights and receive no dividends.

5. Define an American Depositary Receipt (ADR) and name two risks unique to it.

   An ADR is a negotiable receipt, issued by a U.S. bank, representing shares of a foreign company that trades in U.S. markets in U.S. dollars. Unique risks: currency (exchange-rate) risk and political/sovereign risk; ADR holders generally have no voting rights and may face foreign tax withholding on dividends.

6. What are the key features of preferred stock?

   Preferred stock is an equity security paying a fixed, stated dividend (as a percentage of par, usually $100), with priority over common for dividends and in liquidation, but typically no voting rights and no preemptive rights. Its price is sensitive to interest rates.

7. What does 'cumulative' preferred stock guarantee that 'straight' (noncumulative) preferred does not?

   Cumulative preferred accrues any skipped (passed) dividends as arrears that must be paid in full before common shareholders receive any dividend. Straight/noncumulative preferred loses any skipped dividend permanently.

8. How does participating preferred stock differ from regular preferred?

   Participating preferred can receive its stated dividend plus an additional dividend (sharing in profits with common shareholders) up to a stated maximum, whereas regular preferred is limited to only its fixed stated rate.

9. What is callable (redeemable) preferred stock, and why is it usually issued at a higher dividend rate?

   Callable preferred can be redeemed by the issuer at a set call price (often at a premium to par) after a call-protection period. Because the call benefits the issuer (it can refinance when rates fall), investors demand a higher dividend rate as compensation for call risk.

10. What is convertible preferred stock and how is the conversion ratio calculated?

    Convertible preferred can be exchanged for a fixed number of common shares. Conversion ratio = par value / conversion price. Example: $100 par with a $20 conversion price converts into 5 common shares.

11. How do you calculate the parity price of common stock from a convertible preferred share?

    Parity price of common = market price of the convertible / conversion ratio. (To find parity price of the convertible: market price of common x conversion ratio.)

12. What is a stock right (subscription right) and what is its purpose?

    A right is a short-term (typically weeks) privilege given to existing shareholders to buy new shares at a subscription price below the current market price, before the public, preserving their proportional ownership (preemptive right). One right is issued per share owned.

13. What is a warrant and how does it differ from a right?

    A warrant is a long-term (often years) instrument giving the holder the right to buy stock at a fixed price that is set ABOVE the market price at issuance. Unlike rights, warrants are long-lived, are often attached to bonds/preferred as a 'sweetener,' and have no intrinsic value when issued.

14. What are the key characteristics of a corporate bond?

    A corporate bond is a debt security: the issuer borrows at a fixed (usually) coupon, pays semiannual interest, has a par value of $1,000, a stated maturity, and is a senior claim to equity. Interest is fully taxable at federal, state, and local levels.

15. Distinguish a secured bond from a debenture.

    A secured bond is backed by specific collateral (e.g., mortgage bonds backed by real property, equipment trust certificates backed by equipment, collateral trust bonds backed by other securities). A debenture is unsecured, backed only by the issuer's full faith, credit, and earning power.

16. How is the current yield of a bond calculated?

    Current yield = annual coupon interest / current market price. Example: a 6% bond ($60 annual) trading at $800 has a current yield of $60/$800 = 7.5%.

17. State the inverse relationship between bond prices and yields, and how nominal yield, current yield, and YTM rank for a discount bond.

    Bond prices and interest rates/yields move inversely. For a discount bond (price below par): nominal yield < current yield < yield to maturity < yield to call. For a premium bond the order reverses: nominal > current > YTM > YTC.

18. What is a zero-coupon bond and what is its main tax disadvantage?

    A zero-coupon bond pays no periodic interest; it is bought at a deep discount and matures at par. The disadvantage is 'phantom income': the annual accreted interest is taxable each year as ordinary income even though no cash is received (unless held in a tax-advantaged account or it is a tax-free muni).

19. What is a convertible bond, and what are two advantages to the investor?

    A convertible bond can be exchanged for a fixed number of the issuer's common shares. Advantages: (1) it pays a (usually lower) fixed interest with downside protection as debt, and (2) it offers upside equity participation if the stock price rises. Conversion ratio = par/conversion price.

20. What does a bond's rating signify, and where is the line between investment grade and high yield?

    Ratings (Moody's, S&P, Fitch) measure default/credit risk. Investment grade is S&P BBB- and above (Moody's Baa3 and above). Below that (BB+/Ba1 and lower) is non-investment grade, 'high-yield,' or 'junk,' carrying higher default risk and higher yields.

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