FINRA Series 7 / SIE Exams SIE: Trading, Customer Accounts, and Prohibited Practices Syllabus

SIE: Trading, Customer Accounts, and Prohibited Practices syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for SIE: Trading, Customer Accounts, and Prohibited Practices in FINRA Series 7 / SIE Exams, not a summary of it.

1. 1

   Account Types and Registration

   3 topics

   • Individual and Joint Accounts
     • Joint tenants with rights of survivorship (JTWROS)
     • Tenants in common (TIC)
   • Specialized Account Registrations
     • Custodial accounts (UGMA/UTMA)
     • Trust, estate, and guardian accounts
     • Corporate, partnership, and TOD accounts
   • Cash versus Margin Accounts
     • Regulation T and initial margin
     • Discretionary versus non-discretionary authority
2. 2

   Settlement, Clearing, and Corporate Actions

   3 topics

   • Trade Settlement
     • Trade date, settlement date, and T+1 cycle
     • Regular-way versus cash settlement
     • Good delivery and DK (don't know) procedures
   • Dividend Dates
     • Declaration, ex-dividend, record, and payable dates
     • Effect of ex-date on stock price
   • Corporate Actions
     • Mergers, acquisitions, and tender offers
     • Stock splits, reverse splits, and spin-offs
3. 3

   Prohibited Activities and Conduct

   3 topics

   • Market Manipulation
     • Front running, painting the tape, and marking the close
     • Pump-and-dump and capping/pegging
   • Insider Trading
     • Material nonpublic information (MNPI)
     • Insider Trading and Securities Fraud Enforcement Act penalties
   • Account and Sales Abuses
     • Churning and unauthorized trading
     • Commingling, misappropriation, and unsuitable recommendations
4. 4

   Regulatory Reporting and AML

   3 topics

   • Anti-Money Laundering (AML)
     • Bank Secrecy Act and the USA PATRIOT Act
     • Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs)
     • Customer Identification Program (CIP) and OFAC screening
   • Customer Communications and Disclosures
     • Retail communications, correspondence, and institutional communications
     • Principal approval and recordkeeping requirements
   • Books, Records, and Reporting
     • Form U4 and U5 reporting
     • Registration, continuing education, and outside business activities

SIE: Trading, Customer Accounts, and Prohibited Practices flashcards for FINRA Series 7 / SIE Exams

22 of 50 cards from the SIE: Trading, Customer Accounts, and Prohibited Practices deck — real questions with worked answers.

1. In a Joint Tenants with Rights of Survivorship (JTWROS) account, what happens to the assets when one owner dies?

   The deceased owner's interest passes automatically to the surviving owner(s), bypassing probate. Each tenant is considered to own an undivided equal interest in the whole account.

2. How does a Tenants in Common (TIC) account differ from JTWROS when one owner dies?

   In TIC, a deceased owner's fractional share passes to that owner's estate/heirs (not to the surviving co-owner), and owners may hold unequal percentages of the account.

3. In any joint account, who may enter orders and to whom may checks/distributions be made out?

   Any owner may enter orders for the account, but any money or securities distributed (checks/withdrawals) must be issued in the names of ALL owners on the account.

4. What is required to open an individual cash account versus a joint account in terms of control?

   An individual account is owned and controlled by one person only; a joint account has two or more co-owners who all have authority to trade, but distributions require all names.

5. Who is the legal owner of securities in an UGMA/UTMA custodial account, and who controls it?

   The minor is the beneficial owner (account is under the minor's Social Security number), but a custodian controls and manages it until the minor reaches the age of majority. Only one custodian and one minor per account; no margin allowed.

6. What document must a corporation provide to open a corporate margin account?

   A corporate resolution authorizing the account, and the corporate charter/bylaws must specifically permit margin trading and the named officers' authority to trade.

7. What document is required to open a partnership account at a broker-dealer?

   A partnership agreement specifying which partners are authorized to trade and whether margin and other activities are permitted.

8. In a fiduciary/trust account, by what standard must the fiduciary manage the assets?

   The fiduciary (trustee, executor, guardian) must follow the trust/legal document and the 'prudent investor' standard, acting in the best interest of the beneficiary; speculative or unauthorized trading is prohibited.

9. What must a registered representative obtain before exercising discretion (deciding security, amount, or buy/sell) in a customer's account?

   Prior written authorization (a written discretionary trading authorization/power of attorney) from the customer AND written acceptance/approval by a principal of the firm. Each discretionary order must also be reviewed promptly by a principal.

10. In a cash account, how must the customer pay for securities purchased?

    In full, in cash, by the settlement date. No borrowing from the broker-dealer is permitted; under Reg T payment is generally due within two business days after settlement.

11. What regulation governs the extension of credit by broker-dealers to customers in margin accounts, and who issues it?

    Regulation T, issued by the Federal Reserve Board (FRB).

12. What is the current Regulation T initial margin requirement for purchasing marginable equity securities?

    50% of the purchase price must be deposited by the customer; the broker-dealer may lend the remaining 50%.

13. What three agreements are typically part of a margin account, and which is mandatory?

    The credit agreement (terms/interest, mandatory) and the hypothecation agreement (pledges securities as collateral, mandatory). The loan consent agreement (allows the firm to lend the customer's securities to others) is optional.

14. As of the May 2024 change, what is the regular-way settlement cycle for most securities (stocks, corporate/municipal bonds)?

    T+1 — one business day after the trade date.

15. What is 'cash settlement' (same-day settlement) for a securities trade?

    Settlement occurs on the same day as the trade (trade date), with delivery and payment due that day; it must be agreed upon by both parties at the time of the trade.

16. What does it mean when a firm sends a 'DK' (Don't Know) notice?

    It signals an uncompared/unmatched trade — the contra broker-dealer does not recognize or agree with the terms of the reported transaction, indicating a discrepancy that must be resolved.

17. For settlement, what constitutes 'good delivery' of a stock certificate?

    Securities delivered in proper form: correctly endorsed/assigned, in good physical condition, and in deliverable units (round lots of 100 or denominations that combine into them) so the certificate can be transferred to the new owner.

18. On the declaration date of a dividend, what occurs?

    The company's board of directors announces (declares) the dividend, setting the dividend amount, the record date, and the payable date.

19. With T+1 settlement, on what day is the ex-dividend date relative to the record date for a regular-way trade?

    The ex-dividend date is the same business day as the record date. To receive the dividend, a buyer must purchase before the ex-date; buyers on or after the ex-date do not receive the dividend.

20. What is the 'record date' for a dividend?

    The date set by the issuer's board on which an investor must be the owner of record on the company's books to be entitled to receive the declared dividend.

21. What is the 'payable date' for a dividend?

    The date the dividend is actually paid/distributed by the company to shareholders of record.

22. What happens to the number of shares and the price per share in a forward (e.g., 2-for-1) stock split?

    Shares outstanding increase and the price per share decreases proportionally, leaving the total market value (and total cost basis) unchanged. In a 2-for-1, shares double and price is halved.

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