Finance Notes – SIE TEST

Subscribe to get access

Read more of this content when you subscribe today.

Test Topic Alert (TTA)  & Take Note (TN) & Examples

NEW Securities Industry Essentials TEST

Take Note: Although a broker-dealer must register with the SEC, the broker-/dealer may not claim that this registration in any way implies that the SEC has passed upon or approve the broker-dealer’s financial standing, business or conduct. Any such claim or statement it misrepresentation.

Example: The city of New Orleans is issuing municipal bonds. To do so they it is utilizing the services of several broker dealers acting us underwriters (syndicate members) to sell the new bonds It’s important to recognize that the MSRB has no enforcement power regarding their municipal securities rules. Those rules will be enforced by FINRA. FINRA will ensure that the broker-dealer underwriting these new bonds abode by all securities rules and regulations (including those of the MSRB) regarding the sale of new securities to the public.

Take Note: All broker-/dealers registered with the SEC must be SIPC members except:

  • Banks that deal exclusively in municipal securities;
  • Firms that deal exclusively in U.S. government securities; and
  • Firms that deal exclusively in redeemable investment company securities.

Take Note: Cash and margin accounts for the same customer are combined for the purposes of determining SIPC coverage. However, only the equity in margin account is covered, not the full market value.

Example: Mr. Jones has $200,000 deposited with an FDIC member bank. Mr. and Mrs. Jones have $450,000 deposited in a joint account at the same bank. Titled differently, each of these accounts is recognized as separate account and each is entitled to FDIC insurance. If the bank were to sail, Mr. Jones would be covered up to the $250,000 maximum.

Take Note: Carrying firms must segregate customer funds and securities held in their custody form the firm’s capital and securities.

Take Note: An introducing firm may receive customer checks, but they must be made out to the clearing firm.

Example: Firms sometimes referred to as “full service” firms, are carrying or clearing firms who clear their own transactions. Smaller regional BDs are typically introducing or fully disclosed firms who introduce their transactions to larger carrying firms in order to clear their transactions. In other words, firms like Merrill Lynch, in addition to clearing their own transactions, may accept transactions from other smaller, fully disclosed firms, and in so doing so, are acting as the smaller firms’ clearing firm.

Example: A registered representative who is registered under securities Act of 1934 and has been charging commissions for transactions now wants charge separately for investment advice regardless of whether a transaction takes place or not. In order to do so, even though already registered under the Act of 1934, the RR would now need to register under the Investment Advisors Act of 1940 by passing the appropriate exam (Series 65 or 66).

Take Note:  The Depositary Trust and Clearing Company (DTCC) is a member of the Federal Reserve System. Not in the retail banking business (one can’t open savings or checking account there), it exists to serve the custody needs of security industry participants no only in the United States but in more then 60 countries worldwide.

            Another is the Options Clearing Corporation (OCC). OCC is the clearing agent listed options contracts; that is those listed for trading on U.S. options exchanges. It’s primary functions are to standardize, guarantee the performance of, and issue option contracts. The OCC determines when new option contracts should be offered to the market on an underlying security. It designates the contract specifications such as strike prices and expiration months for new contracts utilizing standards to maintain uniformity and liquidity.

Take Note: Monetary Policies are those enacted by the FRB to influence the money supply. Fiscal policies are those enacted by our president and Congress such as tax laws and federal spending appropriations.

Test Topic Alert: FRB buying or selling securities in the open market and its impact on the economy

 BUYING – securities come out of the economy and money goes in. Money supply goes up, interest rates down, borrowing and spending for consumers is easier and the economy expands.

SELLING – securities go into the economy and money comes out. Money supply goes down, interest rates go up, borrowing and spending for consumers becomes more difficult and the economy. 


            If the FRB wants to ease its monetary policy to allow consumers to borrow more easily it can lower the discount rate. This allows member banks to borrow from the FRB at lower the discount rate. This allows member banks to borrow from the FRB at a lower rate, which in turn allows consumers to borrow from the FRB at a lower rate, which in turn allow consumers to borrow money at a lower rate from the member banks. Consumers’ ability to borrow at lower interest rates helps to fuel or push the economy forward as they are now in position to purchase more goods and services.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s