60 SIE Exam Concepts You Need to Know Before Test Day

The SEC administers the federal securities laws, but its philosophy is disclosure, not approval. It forces issuers to give investors the information needed to make decisions, and it polices fraud, manipulation, and insider trading through enforcement actions, civil penalties, and criminal referrals. It also oversees the SROs, approving their rules and disciplining their failures. What it never does is guarantee that any investment is safe or profitable, and no SEC registration ever implies endorsement of an offering's merits. When a question says a security is 'SEC approved,' that phrase itself is the trap.

Memory hook:SEC = disclosure cop, not quality judge; 'approved by the SEC' is always false.

Self-regulatory organizations are quasi-governmental bodies that write and enforce industry rules, register and test personnel, and discipline members, all under SEC oversight. FINRA regulates broker-dealers and their associated persons. The MSRB sets rules for municipal securities dealers and municipal advisors. CBOE regulates its own exchange. The nuance candidates miss: the MSRB has rulemaking authority but no examination or enforcement arm of its own. FINRA examines and enforces MSRB rules for broker-dealers, and the SEC does so for municipal advisors. A question about who disciplines a muni dealer usually points to FINRA, not the MSRB.

Memory hook:MSRB writes the playbook; FINRA and the SEC blow the whistle.

Each non-SEC regulator owns a distinct lane. The Federal Reserve steers monetary policy and sets initial margin requirements through Regulation T, controlling how much credit broker-dealers may extend. The Treasury issues federal debt and enforces finance laws; the IRS collects taxes. State regulators, coordinated through NASAA, administer blue-sky laws and register agents, broker-dealers, and investment advisers doing business with their residents, and they can bar individuals from the industry. The FDIC insures bank deposits. Sorting these lanes matters because exam questions love pairing a regulator with the wrong function, especially swapping the Fed's margin authority with state registration duties.

Memory hook:Fed sets margin, states register agents, FDIC guards banks, NASAA coordinates the states.

SIPC membership is mandatory for registered broker-dealers, and its protection kicks in when a firm fails or customer assets go missing: it works to replace missing securities and cash up to statutory limits, including a cap on cash claims. It does nothing for market losses, poor advice, or an investment that simply declined. The FDIC, by contrast, insures bank deposits against bank failure. Candidates conflate the two because both sound like insurance. The exam distinction is the source of the loss: custody failure is SIPC territory; market movement is nobody's territory, and no answer choice should promise reimbursement for it.

Memory hook:SIPC returns what the broker lost track of, not what the market took.

An introducing broker-dealer carries the customer relationship but contracts with a carrying or clearing firm that holds funds, processes trades, and sends statements. Prime brokers bundle custody, financing, and stock loan for institutional clients. Transfer agents maintain ownership records, cancel and reissue certificates, and distribute dividends. Custodians and trustees hold assets for the benefit of owners. At the infrastructure level, DTCC provides centralized book-entry settlement for securities, while the OCC issues and guarantees every listed option contract, standing between buyers and writers so neither faces counterparty risk. Knowing who holds, who records, and who guarantees separates the roles the exam tests.

Memory hook:Introducing firms know the client; clearing firms hold the money; OCC backs every listed option.

In the primary market, securities are sold by the issuer and the issuer receives the proceeds. In the secondary market, investors trade among themselves and the issuer gets nothing. The third market sounds obscure but has a precise meaning: exchange-listed securities trading over-the-counter, away from the exchange floor. The fourth market is institutions trading directly with each other, bypassing brokers and exchanges entirely through electronic networks. The exam tests whether you track where the money goes and who is involved. Only the primary market enriches the issuer, and only the fourth market eliminates the intermediary completely.

Memory hook:Primary pays the issuer; third trades listed off-exchange; fourth skips brokers entirely.

Monetary policy belongs to the Fed; fiscal policy, meaning taxes and government spending, belongs to Congress and the Treasury. The Fed's main tool is open market operations: buying government securities injects reserves and pushes interest rates down, while selling drains reserves and pushes rates up. Two rates get confused constantly. The discount rate is what the Fed charges banks that borrow directly from it. The fed funds rate is what banks charge each other for overnight loans, and it is the rate the Fed targets. When a question asks which lever the Fed pulls to stimulate the economy, the answer is buying securities, not cutting taxes.

Memory hook:Fed buys bonds, rates drop; discount is the Fed's window, fed funds is the banks' window.

The cycle runs contraction, trough, expansion, peak, and back again. Leading indicators, such as building permits, new orders, and stock prices, turn before the economy does. Coincident indicators like GDP and industrial production move with it, while lagging indicators like unemployment turn after. Equities respond differently depending on type: cyclical stocks, such as autos, airlines, and housing, rise and fall with economic activity, while defensive stocks, such as utilities, food, and healthcare, hold up during contractions because demand stays steady. Growth stocks tend to shine in expansions. The exam pairs a stock with a cycle phase and asks which thrives or survives.

Memory hook:Defensives feed and power you through winter; leading indicators ring the bell before the cycle turns.

The balance sheet is a snapshot of one moment: assets equal liabilities plus net worth, and it reveals leverage, liquidity, and book value. The income statement covers a period of time: revenue minus expenses yields net income, and it reveals profitability and operating trends. Analysts use them together, because a firm can be profitable on the income statement while drowning in debt on the balance sheet. The exam's favorite distinction is temporal. If a question asks which statement shows a company's financial position at a specific date, it wants the balance sheet; if it asks about performance over a quarter or year, it wants the income statement.

Memory hook:Balance sheet photographs; income statement films.

An IPO is the first public sale of an issuer's stock. A follow-on or secondary offering by an already-public issuer raises new money in the primary market; sales by insiders are secondary-market transactions. The underwriting method defines who bears the risk. In a firm commitment, the syndicate buys the entire issue from the issuer at a discount and owns the resale risk. In best efforts, the underwriter merely tries to sell, with no obligation to purchase anything unsold. Munis are often sold through competitive bidding where the issuer awards the bond to the bidder offering the best terms, while corporate deals are negotiated.

Memory hook:Firm commitment buys the whole pie; best efforts just tries to sell it.

The Securities Act of 1933 requires public offerings to be registered unless exempt. Regulation D covers private placements sold mainly to accredited investors, defined by rule using income and net worth tests. Rule 144 governs how restricted securities and affiliate holdings get resold into the market, with holding periods and volume limits. Rule 144A permits resales of unregistered securities to qualified institutional buyers. A shelf registration lets an issuer register now and sell pieces later as capital is needed. States layer blue-sky registration on top, and public offerings require prospectus delivery to buyers. Each exemption solves a different problem, so match the mechanism to the scenario.

Memory hook:Reg D sells privately, 144 resells restricted, 144A trades to QIBs, shelf registers now to sell later.

Common shareholders own the residual claim: they profit after everyone else is paid and absorb losses first among equity holders. In liquidation, bondholders are paid first, then preferred shareholders, then common, and limited liability caps a common holder's loss at the amount invested. Voting is the key right, and the method matters. Under statutory voting, a shareholder gets one vote per share per director, favoring large holders. Cumulative voting lets a shareholder concentrate all votes on one director, giving smaller holders a realistic chance at board representation. Preemptive rights protect proportionate ownership by letting existing shareholders buy new issues first.

Memory hook:Common eats last at the liquidation table; cumulative voting lets the little guy stack votes.

Preferred stock pays a fixed dividend ahead of common, usually carries no voting right, and stands between bonds and common in liquidation priority. It trades like a bond: sensitive to interest rates, less volatile than common, and priced on its dividend yield. Two features drive most questions. Cumulative preferred means missed dividends accumulate as arrears and must be paid before common holders receive anything. Callable preferred lets the issuer redeem the shares, typically when rates fall, which benefits the issuer and caps the investor's upside. A question about who gets paid first, or what happens after a skipped dividend, turns on these features.

Memory hook:Preferred is a bond in stock clothing; cumulative catches up before common gets a dime.

Convertibility lets a preferred shareholder or bondholder swap the security for a fixed number of common shares. The conversion ratio equals par divided by the conversion price, and it is the number that unlocks every related calculation. To decide whether converting makes sense, multiply the ratio by the market price of the common to get conversion value, then compare it with the convertible's own market price. On risk, convertible preferred sits between straight preferred and common: it participates in the stock's upside but with less volatility than owning the common outright, because the dividend and conversion floor cushion the downside.

Memory hook:Ratio = par over conversion price; convertible preferred rides the common both ways, gently.

Both are company-issued privileges to buy stock at a set price, but the exam tests the differences. Rights are short-lived, typically expiring within about a month, issued to existing shareholders at a subscription price below the current market, and exist to let shareholders maintain proportionate ownership when new shares are issued. Warrants are long-dated, often running for years, frequently attached to bond offerings as a sweetener, and carry an exercise price above the market at issuance. Rights protect ownership; warrants are a speculative kicker. If a question mentions a subscription price below market with a short deadline, it is describing rights.

Memory hook:Rights are a quick dip for loyal holders; warrants wait years for the payoff.

American Depositary Receipts are issued by U.S. banks that hold foreign shares in custody. Each ADR trades in dollars on U.S. exchanges, pays dividends in dollars, and lets U.S. investors avoid foreign brokerage mechanics. What the ADR does not remove is the underlying economic exposure: the holder still bears currency risk, because the foreign shares' value in dollars rises and falls with exchange rates, and foreign withholding taxes may still apply. Sponsored ADRs are created with the foreign issuer's cooperation; unsponsored ones are assembled by the bank alone. The exam's recurring trap is a choice claiming ADRs eliminate currency risk, which they never do.

Memory hook:ADRs translate the ticker, not the risk; currency risk stays home.

Treasury securities carry the full faith and credit of the U.S. government, making them the safest credit in the market and the benchmark off which everything else prices. Bills mature in one year or less, are sold at a discount, and pay no coupon; the return is the gap between the discount purchase price and par. Notes run roughly two to ten years and pay semiannual coupons, while bonds carry the longest maturities with coupons. Interest is exempt from state and local tax. Because bills have no coupon, a question asking how a T-bill pays interest has 'it does not; it is bought at a discount' as the answer.

Memory hook:Bills are discounted, notes and bonds carry coupons; the longer the Treasury, the harder rates hit it.

Bond prices and yields move in opposite directions: when market rates rise, existing bonds with lower coupons lose value, and when rates fall, those bonds gain. The yield ranking follows mechanically. For a bond trading at a discount, yield to maturity exceeds current yield, which exceeds the coupon rate, because the investor also earns the accretion from the discounted price up to par. Premium bonds flip the stack: coupon exceeds current yield exceeds YTM. For callable bonds, yield to call replaces YTM when a call is likely, and the conservative convention quotes the lower of YTM and YTC. Memorize the ranking and the callable wrinkle, since both appear constantly.

Memory hook:Discount: YTM tops current tops coupon; premium flips the stack.

General obligation bonds are backed by the issuer's full taxing power, chiefly ad valorem property taxes, and often require voter approval, making them the stronger credit. Revenue bonds are repaid solely from the income of a specific project, such as tolls or water fees, require a feasibility study to show the project can cover debt service, and yield more to compensate for the narrower pledge. The official statement is the municipal market's disclosure document, the equivalent of a prospectus. Short-term munis include tax, revenue, and bond anticipation notes. Taxable municipal securities also exist, so do not assume every muni is tax-exempt.

Memory hook:GO taxes the town; revenue bills the project; the official statement tells the story.

The money market is short-term, high-quality debt. Commercial paper is unsecured corporate borrowing, typically maturing within 270 days, and issues at or under that mark are exempt from SEC registration, which is why the tenancy exists. Negotiable CDs are large-denomination bank deposits that trade in a secondary market. Bankers' acceptances are time drafts guaranteeing payment for international trade transactions, effectively bank-backed IOUs. On the agency side, mortgage-backed and asset-backed securities add prepayment risk: when rates fall, homeowners refinance and principal comes back faster, forcing reinvestment at lower yields. Prepayment risk peaks exactly when rates bottom, which is the counterintuitive hinge.

Memory hook:Paper under 270 days skips registration; MBS prepay fastest when rates drop.

Every option price breaks into intrinsic value plus time value. A call is in the money when the market price sits above the strike; a put is in the money when the market sits below the strike. Intrinsic value equals only the in-the-money amount; an out-of-the-money option has zero intrinsic value and trades purely on time value, which decays to nothing by expiration. Buyers hold rights and pay the premium; writers take on obligations and collect it. The exam repeatedly asks for intrinsic value on an out-of-the-money contract, hoping you compute a negative or a positive number instead of recognizing the floor at zero.

Memory hook:Premium = what it is worth inside plus what time might add.

Listed options come in two settlements. Equity options are physically settled, meaning exercise delivers actual shares, and they are American-style, exercisable any time before expiration. Index options are cash-settled, because you cannot deliver an index, and many are European-style, exercisable only at expiration. The Options Clearing Corporation issues and stands behind every listed contract, so buyers and writers never face each other's default risk. Before a customer's first options trade, the firm must deliver the Options Disclosure Document, the booklet describing risks and mechanics. The exam pairs settlement style with contract type and tests whether you know who guarantees performance.

Memory hook:Equity options hand over shares; index options hand over cash; OCC stands behind every listed contract.

A covered call combines long stock with a short call on the same shares: the premium is income, the stock's downside is cushioned only by that premium, and the upside is capped at the strike plus premium received. A covered put pairs short stock with a short put. Naked or uncovered writing means selling options without the backing position, which requires a margin account and, for uncovered calls, exposes the writer to theoretically unlimited loss because a stock can rise without bound. The strategic frame matters too: buying puts against a stock position is hedging; selling calls against it is income generation with a cap.

Memory hook:Cover the call with stock, cap your gain; write it naked, fear the rally.

Four basic positions carry four directions. A long call is bullish; a long put is bearish. A short put is bullish, because the writer wants the stock to stay above the strike and keep the premium; a short call is bearish. Breakeven math is mechanical: a long call breaks even at strike plus premium; a long put at strike minus premium. Assignment is the writer's side of exercise: when a buyer exercises, the OCC assigns the notice to a writer, who must deliver shares for a call or buy them for a put. Candidates most often miss that short puts are bullish positions, not bearish ones.

Memory hook:Buyers pick a direction; sellers hope the option dies worthless; breakeven = strike plus or minus premium.

Open-end funds, the classic mutual fund, continuously issue new shares and redeem existing ones directly with investors, and every purchase and redemption transacts at net asset value, computed once daily after the close. Closed-end funds issue a fixed number of shares once, then trade on an exchange like stock, where supply and demand set the price. That price can sit at a premium to NAV but far more often sits at a discount, and the discount can persist for years. The exam tests two things: which fund transacts at NAV, and which can trade at a discount. The answers are open-end and closed-end, respectively.

Memory hook:Open-end funds open the door at NAV daily; closed-ends trade wherever the crowd says.

Class A shares charge an upfront sales load, but the percentage drops at breakpoint dollar levels, so larger investments pay lower rates; FINRA requires firms to make breakpoints available and to apply them. A letter of intent lets an investor claim a breakpoint immediately and complete the purchase volume within a defined window, with a portion of shares held in escrow as security. A right of accumulation counts the value of shares already held in the same fund family toward the next breakpoint. Class C shares carry ongoing asset-based fees and no breakpoints at all. The exam loves scenarios where an investor qualifies for a discount and the rep fails to apply it.

Memory hook:Breakpoints reward big money; LOI lends you the discount; ROA counts what you already own.

A UIT assembles a fixed portfolio of securities at creation and then leaves it alone: no manager trades the holdings, no securities are added, and the trust terminates on a set date, returning proceeds to investors. Because the portfolio is static, a UIT offers predictability that managed funds cannot, and investors can redeem with the trust at NAV or sell in a secondary market. Compared with open-end and closed-end funds, the distinguishing marks are the absence of active management and the presence of a stated termination date. Any question describing a fund that never trades its holdings and dissolves on schedule is describing a UIT.

Memory hook:A UIT is a fund frozen at birth with an expiration date.

A variable annuity splits into an insurance wrapper and a separate account, where the investor's money buys subaccounts that resemble mutual funds and are registered under the Investment Company Act. Growth is tax-deferred, but early withdrawal triggers surrender charges that typically decline over a schedule of years, plus potential tax consequences. The insurance component provides a death benefit and annuitization options, and mortality and expense fees pay for those guarantees. FINRA Rule 2330 imposes suitability and supervisory duties on recommendations. The key insight: the guarantee comes from the insurer's balance sheet, not from the subaccounts, so market losses can still shrink the account value.

Memory hook:Separate account rides the market; the insurer, not the market, backs the death benefit.

Section 529 plans come in two forms: savings plans that invest in portfolios, often age-based, and prepaid tuition plans that lock in tomorrow's tuition at today's price. The owner keeps control, can change the beneficiary within the family, and the assets must be used for qualified education; withdrawals for qualified expenses come out free of federal tax. Plans are sold directly or through advisers, with different fee structures, and the MSRB classifies them as municipal fund securities. Local government investment pools serve municipalities' short-term cash needs, and ABLE accounts provide tax-advantaged savings for disabled beneficiaries. The owner-versus-beneficiary control distinction is the most tested point.

Memory hook:529: owner holds the keys, education holds the purpose, qualified withdrawals come out tax-free.

DPPs, chiefly limited partnerships, put investors into businesses that flow income, gains, and losses directly through to their personal tax returns, avoiding corporate-level taxation. The general partner runs the program and carries unlimited liability; limited partners contribute capital, stay passive, and their loss exposure stops at what they invested. Tenants-in-common structures co-own real estate similarly. The defining investment characteristics are unlisted status and illiquidity: there is no exchange, secondary markets are thin, and exit often means finding a buyer or waiting for dissolution. FINRA Rule 2310 sets suitability standards for recommendations precisely because the tax benefits are bait for investors who cannot handle the lockup.

Memory hook:DPPs pass the tax items through and lock the door on your exit.

REITs come in three liquidity tiers: listed REITs trade on exchanges and are liquid; registered non-listed REITs are SEC-registered but have no exchange listing, so redemptions may be limited and valuations stale; private REITs are unregistered and the least liquid. Equity REITs own and lease property; mortgage REITs lend against it. The tax logic is the point: a REIT that distributes its income to shareholders avoids corporate-level tax, so rental income reaches investors without double taxation, though distributions are generally taxed as ordinary income and shareholders cannot deduct depreciation losses the way DPP partners can. Non-listed REIT valuations are the classic exam trap.

Memory hook:REITs pass rent, not losses; non-listed means no easy exit.

Hedge funds are private placements sold to accredited investors, structured as limited partnerships with a general partner charging management plus performance fees, imposing high minimums and lock-ups, and using leverage and illiquid strategies. ETFs are the mutual fund alternative that trades intraday on exchanges like stock; most track an index passively with low fees and favorable tax mechanics. ETNs look similar but are structurally different: they are unsecured debt notes promising an index's return, so the investor bears the issuer's credit risk and there is no portfolio and no tracking error. The exam's sharpest distinction is that an ETN is a bond, not a fund.

Memory hook:ETF holds the basket; ETN only promises it; hedge funds lock the door behind accredited money.

Systematic risk, also called market risk, hits everything at once: recessions, wars, interest rate shocks, broad political shifts. No amount of diversification removes it, because there is nowhere to hide. Non-systematic risk is company- or industry-specific, such as a product recall, a strike, or a competitor's breakthrough, and it is exactly what diversification reduces: spread holdings across sectors, asset classes, and geographies, and one bad actor cannot sink the ship. Portfolio rebalancing keeps the intended risk profile intact as markets drift. The exam's cleanest question gives you a diversifiable event and asks which risk type it is; the answer is non-systematic.

Memory hook:Diversify away the company's bad day, never the market's.

When market rates rise, existing bond prices fall, because new issues pay more and older coupons look stingy. The sensitivity depends on two features: longer maturities move more than shorter ones, and lower coupons move more than higher ones. So the most price-volatile bond is long-term with a low coupon, and the steadiest is short-term with a high coupon. An investor who holds to maturity still receives par, but the opportunity cost is real. Reinvestment risk is the mirror image: when rates fall, coupons and maturing principal must be redeployed at lower yields. The two risks move opposite with the direction of rates, and the exam tests that inversion.

Memory hook:Rates up, prices down; longest and leanest coupons move most.

Inflation risk, or purchasing power risk, quietly erodes fixed income: a bond paying a fixed coupon buys less each year, so the real return shrinks even when the nominal payment never misses. Long-term fixed income bears the brunt, while assets with growth potential, like equities, have historically coped better. Reinvestment risk compounds the problem for callable bonds: when rates fall, the issuer calls the bond, hands back principal, and forces the investor to redeploy at lower yields. The exam likes to stack features, so a callable bond in a falling-rate environment carries call risk plus reinvestment risk simultaneously, and the answer usually names both.

Memory hook:Inflation shrinks the coupon; calls shrink your options for redeploying it.

Credit risk is the chance an issuer defaults, and rating agencies such as Moody's, S&P, and Fitch grade it. The market splits ratings into investment grade and high yield, the latter politely called junk, and a downgrade can hammer a bond's price even without any default. Beyond credit, the outline's remaining risks each have a signature: liquidity risk means thin markets and wide spreads; currency risk attaches to foreign holdings; political risk attaches to foreign governments and unstable regimes; prepayment risk attaches to mortgage- and asset-backed securities when falling rates speed principal return. Match the risk to the asset, since the exam rarely asks for a bare definition.

Memory hook:Ratings measure default, not market risk; prepayment risk peaks when rates bottom.

A market order executes immediately at the best available price, guaranteeing execution but never price. A limit order guarantees price but not execution, and its placement is counterintuitive: buy limits go below the current market, sell limits go above. A stop order sits dormant until the stop price is touched, then becomes a market order. Buy stops go above the market, protecting short positions or confirming breakouts; sell stops go below, limiting losses on long stock. GTC orders rest until canceled or expired. The exam's favorite trap is direction: candidates place a buy limit above market or forget that a triggered stop is no longer a limit.

Memory hook:Limits guard price; stops guard positions; markets just want it done.

The bid is the highest price a buyer will pay; the ask is the lowest a seller will accept; the spread compensates the market maker standing between them. Short selling inverts the normal sequence: the seller borrows shares, sells them, and hopes to buy back lower, profiting from a decline. Requirements are strict: the trade must happen in a margin account, shares must be located and borrowed, and the short seller owes any dividends to the lender. Risk is asymmetric: a long position can lose only the investment, but a stock can rise without limit, so short losses are theoretically unlimited. Bullish means expecting a rise, bearish a fall.

Memory hook:Short sellers rent the stock, owe the dividend, and fear the rally.

When a firm acts as an agent, it executes for the customer's account, charges a commission, and takes no position risk. When it acts as a principal, it trades for its own inventory, charging a markup on customer purchases and a markdown on sales, and it owns the price risk until the position clears. Riskless principal means the firm buys and sells the same security nearly simultaneously, capturing a spread without exposure. The confirmation must disclose which capacity the firm used and how it was compensated. The exam pairs compensation type with capacity: commission signals agency, markup or markdown signals principal, and a mismatch between the two is the wrong answer.

Memory hook:Agent earns a commission; principal earns a spread; the confirm tells you which hat.

Four dates govern a cash dividend: declaration by the board, ex-dividend, record, and payable. The rule that matters: buy on or after the ex-date and you do not receive the dividend, because the trade will settle after the record date under current settlement cycles, in which the ex-date and record date generally coincide. On the ex-date, the stock's price drops by roughly the dividend amount to reflect the payout leaving the stock. Cash dividends are taxable to the recipient. Stock dividends are different in kind: more shares, proportionally lower price, no change in total value and no immediate tax to the recipient.

Memory hook:Own before the ex-date or the dividend belongs to the seller.

A 2-for-1 split doubles the share count and halves the price; a 1-for-10 reverse split cuts the share count and multiplies the price. In both cases, total market value is unchanged, and total cost basis is unchanged; only the per-share basis adjusts, so a 2-for-1 halves your basis per share. Fractional shares left over are typically paid out in cash, which can create a small taxable event. Buybacks reduce shares outstanding and can support the price. The exam's arithmetic trap is a question asking what happens to total cost basis after a split: the answer is nothing, even though per-share basis and market price both move.

Memory hook:Splits slice the pizza differently; the pizza and what you paid for it stay the same.

Under the current regular-way cycle, equities, corporate bonds, and municipal securities settle on the next business day, T+1, and listed options settle the next business day as well. Treasury securities also settle the next business day, while money market instruments such as commercial paper, negotiable CDs, and bankers' acceptances settle same day. Delivery is overwhelmingly book-entry: securities exist as electronic records at DTCC, and ownership changes by ledger adjustment rather than certificate movement, which is what makes one-day settlement practical. Physical certificates still exist but are the exception. The exam asks which product settles when, and the recurring wrong answer treats Treasuries or money market instruments as settling on a cycle they do not follow.

Memory hook:Stocks, bonds, options, and Treasuries settle next day; money market settles same day.

Current yield is annual income divided by market price, and it deliberately ignores what happens to principal. Yield to maturity adds the accretion of a discount or amortization of a premium to the coupon, giving the full-trip return if held to par. Yield to call runs the same math to the call date and price. Total return combines income with realized or unrealized appreciation over a holding period. A basis point is one one-hundredth of a percent, so 100 basis points equals one percent, and yield quotes move in these increments. Realized gains are taxable; unrealized gains are not, a distinction the exam tests through holding scenarios.

Memory hook:Current yield watches income; YTM watches the whole trip; 100 basis points make one percent.

Joint tenants with rights of survivorship passes a deceased owner's share automatically to the survivor, outside probate. Tenants in common keeps each owner's share in that owner's estate, with no survivorship. Trusts split into revocable, where the grantor retains control, and irrevocable, where control is surrendered, often for tax or protection reasons. Custodial UTMA accounts are irrevocable gifts: the custodian manages for the minor, the minor takes full control at the state-set age of majority, one custodian serves per account, and the assets belong to the minor outright, which is why margin and short selling are off the table. The control question decides most answers.

Memory hook:JTWROS skips probate; UTMA hands the keys over at majority, no take-backs.

Traditional IRAs offer potential tax-deductible contributions, tax-deferred growth, and taxed withdrawals; Roth IRAs take after-tax contributions and pay qualified withdrawals tax-free. Employer-sponsored qualified plans carry their own contribution and coverage rules. Required minimum distributions force withdrawals from traditional IRAs and qualified plans beginning at a statutorily set age that Congress has changed before and could change again, so anchor on the principle: the tax deferral must eventually be unwound, and the stable rule is that traditional accounts have RMDs while Roth accounts do not during the owner's lifetime. Early withdrawals generally draw a tax penalty on top of ordinary income tax.

Memory hook:Traditional defers the tax and forces the withdrawal; Roth pays tax first and leaves you alone.

Regulation T, set by the Federal Reserve, governs how much credit a broker-dealer may extend, and the initial deposit on a purchase is 50 percent of the trade's value. After purchase, FINRA's maintenance rules set a minimum equity floor, and falling below it triggers a maintenance call. The core formula is equity equals long market value minus debit balance, and every margin question runs through it. Margin magnifies both directions: gains and losses are leveraged relative to the cash invested. Firms must deliver a margin disclosure statement before the first margin trade, and options and short sales carry their own margin treatment.

Memory hook:Half down at Reg T, watch the equity line: value minus debit.

Discretion means the representative chooses without the customer approving each trade, and the line is precise: discretion over price and timing alone does not require written authorization, but discretion over which security to trade, or over the amount, does. Discretionary accounts need a written power from the customer, supervisory acceptance, and ongoing principal review under FINRA's rules. Separately, a trade is solicited when it results from a recommendation, which pulls in best-interest and suitability analysis, and unsolicited when the customer acts alone. The exam blends these axes, so read the stem for who picked the security and who initiated the order.

Memory hook:Pick the stock or the size, put it in writing; price and timing alone need no signature.

Money laundering runs three stages. Placement introduces illicit cash into the financial system, often through deposits. Layering moves the money through complex transactions to obscure its source. Integration returns it to the launderer looking legitimate. Structuring deserves special attention: deliberately breaking deposits or transactions into pieces to stay below the currency reporting threshold is a crime in itself, even if the underlying money is clean. Every member firm must maintain a written AML program with designated personnel, training, and independent testing, under FINRA, MSRB, and USA PATRIOT Act requirements. The exam asks the stages in order and the structuring twist most often.

Memory hook:Place it, layer it, integrate it; slicing deposits under the threshold is its own crime.

Currency Transaction Reports cover currency transactions above the reporting threshold, currently ten thousand dollars, and are routine and disclosable. Suspicious Activity Reports are different in kind: they are filed for known or suspected suspicious activity, they are confidential, and disclosing to the customer that a SAR was filed is itself a violation, often called tipping off. FinCEN, the Treasury's financial intelligence unit, administers the Bank Secrecy Act framework. OFAC operates separately: its Specially Designated Nationals list blocks transactions with listed parties at any dollar amount, with no de minimis, and firms screen against it. The confidentiality of the SAR is the most tested point.

Memory hook:CTR counts the cash; SAR stays secret; OFAC blocks at any dollar.

Firms must make and preserve books and records for prescribed periods, generally six years with the first two years kept in an easily accessible place, covering trade confirmations, account statements, and customer information. Confirmations must disclose the essential facts of each trade, and account statements go to customers at least quarterly. Customer mail may be held only for reasonable cause, such as travel, with the customer's documented instructions. Business continuity plans must let the firm keep operating through emergencies. Regulation S-P governs privacy: firms must safeguard nonpublic personal information, give customers initial and annual privacy notices, and honor confidentiality. Match each rule to its trigger and you answer these quickly.

Memory hook:Six years on the shelf, first two within reach; privacy notices yearly, mail held only for cause.

FINRA classifies communications by audience and scale. Retail communications go to more than 25 retail investors within a 30-day window and require principal approval before use. Correspondence goes to 25 or fewer retail persons and does not require pre-approval, though it must still be reviewed and supervised. Institutional communications to qualified institutional buyers get lighter treatment. Telemarketing adds its own layer: firms must honor the national do-not-call registry and maintain their own do-not-call procedures, with limited exemptions for existing customers and with calls restricted to permissible hours. The exam tests the 25-person line and whether a given piece needed approval before or only review after.

Memory hook:Over 25 retail faces in 30 days makes it a retail communication needing pre-approval.

Know-your-customer rules require the firm to learn the essential facts about every customer: profile, objectives, financial situation. Regulation Best Interest, the SEC rule for broker-dealers, demands that recommendations to retail customers be in the customer's best interest, built on care, disclosure, conflict-of-interest, and compliance obligations. FINRA's suitability rule has three components: reasonable basis, meaning the product is suitable for anyone; customer-specific, meaning it fits this customer; and quantitative, meaning the trading frequency and cost are not excessive. The trigger for all of it is a recommendation. An unsolicited trade, where the customer acts alone, does not set these obligations in motion.

Memory hook:Recommendation pulls the trigger: best interest for retail, three-part suitability, know the customer.

The exam expects you to recognize manipulation by its behavior. Pump and dump inflates a price through hype, then insiders sell into the rise. Marking the open or the close paints the tape at session boundaries to create a misleading price or volume impression. Wash trades simulate activity without genuine ownership change. Backing away means failing to honor a firm quote, which undermines market integrity. Front running is trading ahead of a customer's block order for the firm's or rep's own benefit. Freeriding means trading without paying or withholding securities in a distribution. Churning, excessive trading in a controlled account, is the companion abuse. Match the name to the conduct.

Memory hook:Pump it, paint it, front-run it, or walk away from your own quote; each one is manipulation.

Material nonpublic information is the trigger: material means a reasonable investor would care, nonpublic means it has not reached the market. Classic insiders are corporate officers and directors, but liability extends through tipping. A tipper who breaches a duty and passes information for a benefit, and a tippee who knows the information came from such a breach, are both liable. The misappropriation theory reaches people who trade on information stolen from a relationship of trust, like a lawyer or banker, even without any connection to the issuer. Penalties run civil fines, criminal incarceration, and industry bars, and contemporaneous traders can sue. Trading on MNPI is illegal whether or not you are an insider.

Memory hook:Material plus nonpublic equals hands off; a tip carries the insider's guilt to the receiver.

FINRA restricts associated persons from buying hot IPOs, subject to narrow exceptions, because their firms get allocations retail investors cannot. Borrowing from or lending to customers is barred except under strict conditions, such as certain immediate-family relationships or arrangements the firm permits. Sharing in a customer account requires a written agreement and a proportional financial interest, and guaranteeing a customer against loss is flatly prohibited. Commissions cannot be paid to unregistered persons, and unregistered persons cannot solicit customers or take orders. Financial exploitation rules let firms place holds on suspicious disbursements for specified adults. Signatures of convenience falsify records and violate the books-and-records rules outright.

Memory hook:No IPOs for firm insiders, no loans to customers, no sharing without it in writing and in proportion.

Form U4 opens the industry door: it registers an associated person with the SRO and must be amended within 30 days when reportable changes occur. Form U5 closes it, filed when the person leaves and answering why, and its language matters because it follows the person forever. Filing misleading information or omitting required disclosures is itself a violation, independent of the underlying event. Statutory disqualification bars association with a member firm for people with certain disciplinary histories, absent SEC relief. Fingerprinting and background checks screen applicants, and failing to register an associated person exposes the firm. States separately register agents under blue-sky laws, so a person can be federally registered but state-barred.

Memory hook:U4 opens the file, U5 closes it, and 30 days is the amendment clock.

The CE system has two halves, and the exam tests which is which. The Regulatory Element is prescribed by FINRA: computer-based training tied to the person's registration category, which registered persons must complete on the required schedule, and failure to complete suspends the registration until it is done. The Firm Element is designed by the firm: an annual needs-analysis-driven training plan covering the products and practices the firm's registered persons actually use, with topics and frequency set by the firm's own assessment. The distinction is authorship. If the question says the training is mandatory, standardized, and externally prescribed, it is Regulatory Element; if it is tailored and firm-designed, it is Firm Element.

Memory hook:Regulatory Element is homework from FINRA; Firm Element is homework from your firm.

Outside business activities are non-securities pursuits for compensation: selling real estate, consulting, running a side business. The registered person must provide prompt written notice, and the firm may condition or restrict the activity. Private securities transactions are the sharper problem, commonly called selling away: the rep participates in securities transactions outside the firm's notice and supervision. The rule requires written notice to the firm even when the rep receives no compensation, and when compensation is involved, the firm must approve and supervise the activity as if it were its own business. The classic exam scenario is a rep selling promissory notes or private placements to customers on the side.

Memory hook:Selling away must be disclosed even for free; take a dime and the firm must approve and supervise.

FINRA caps gifts to customers at 100 dollars per person per year, and anything of value given because of the business relationship counts toward that cap. Business entertainment is the exception that gets tested: ordinary and usual business entertainment, such as attending an event with a client where business is genuinely discussed, is not a gift, though lavish spending can still violate standards regardless of classification. The MSRB parallels these limits for municipal activity. On the political side, MSRB Rule G-37 bans a firm from municipal securities business for two years after a covered associate's political contribution exceeds the rule's thresholds, with a small de minimis exception tied to the contributor's right to vote. The penalty lands on the firm's business, not just the contributor.

Memory hook:Gifts capped, genuine business entertainment is not a gift; political money costs muni business for two years.

Written customer complaints must be recorded and preserved, and reportable complaints go to FINRA even when the firm believes they are baseless or resolves them quietly. Red flags demand escalation rather than handling: unusual product concentration for a conservative customer, sudden withdrawals by a senior, promised performance, or a rep's unexplained affluence. On the U4, reportable events include felony charges and convictions, certain financial-related misdemeanors, liens, and bankruptcies, and failing to amend the form is a separate violation from the event itself. BrokerCheck publishes the disclosure history to the public, which is why U5 language gets litigated. The exam's recurring point: recording and reporting obligations exist regardless of merit.

Memory hook:Every complaint gets a file, every reportable event gets an amendment, and BrokerCheck shows the scars.