Unit 1: SIE EXAM

An investor receives a quote of 22-22.15 for BuyStuff, Inc. common stock. Which of these is correct? Purchasing the stock will cost $22 per share. Purchasing the stock will cost $22.15 per share. The spread is $0.15. The investor will receive $22.15 per share if selling. A) II and III B) I and III C) III and IV D) I and IV

A) II and III Explanation: A quote always represents the bid and the ask (offer) price. Investors pay the current ask price when purchasing and receive the current bid price when selling. The spread is the difference between the bid and the ask.

An opening transaction can be A) a sell only. B) either a buy or a sell. C) a short sale only. D) a buy only.

B) either a buy or a sell.

Under the Securities Act of 1933, which of the following is a nonexempt security? A) Commercial paper B) U.S. government bonds C) Municipal bonds D) Shares issued by a U.S. government bond fund

D) Shares issued by a U.S. government bond fund Explanation: This is a mutual fund. Mutual funds are not exempt securities under the Securities Act of 1933.

A market order to buy must be executed when and at what available price? A) Immediately, at the lowest B) Immediately, at the highest C) Within 24 hours, at the highest D) Within 24 hours, at the lowest

Immediately, at the lowest Explanation: Market orders carry the idea of immediate execution at the best available price. A market order to buy would require execution at the lowest available price.

Carrying firms may not A) send trade confirmations and statements to customers. B) execute transactions for their customers. C) clear and settle transactions for their customers. D) mix customer funds and securities with their own.

mix customer funds and securities with their own. Explanation: Carrying firms can do trade executions, clear and settle transactions, and handle all back-office tasks, such as sending trade confirmations and statements. While they can take custody of customer funds and securities, they may not commingle them with those belonging to the firm. Abiding by the rule is known as segregating customer funds and securities.

The Big Shoe Sneaker Company is a small manufacturer of athletic shoes. It is selling $100 million of its stock. This will be its first public offering. It will use the money to enhance both marketing and production with a plan to grow the business and obtain a Nasdaq listing in two or three years. After the initial sale of the new shares, buyers of the stock in the over-the-counter market should expect to receive the final prospectus for how many days? A) 90 B) Buyers in the secondary market are never entitled to the IPO prospectus C) 25 D) 40

A) 90 Explanation: This is the initial public offering of an unlisted, non-Nasdaq, security. The requirement is that the prospectus be made available to buyers in the secondary market for 90 days after the release date.

Which of the following orders need not be immediately filled in their entirety? Immediate or cancel (IOC) Fill or kill (FOK) Market at open Buy stop limit A) I and IV B) II and III C) II and IV D) I and III

A) I and IV

A private securities transaction is nonexempt and must be register under the Act of 1933. is exempt from registration under the Act of 1933. can be sold to individual accredited investors. can be sold to institutional investors only. A) II and III B) I and III C) I and IV D) II and IV

A) II and III Explanation: A private securities offering, sometimes called a private placement, is exempt from registration. While securities offered in a private securities transaction are generally sold to institutional investors, they can also be sold to small groups of wealthy individuals who meet net worth and income criteria, known as accredited investors.

A customer enters an order that must be executed in its entirety when entered or canceled immediately. This is known as A) a fill-or-kill (FOK) order. B) a day order. C) an all-or-none (AON) order. D) an immediate or cancel (IOC) order.

A) a fill-or-kill (FOK) order. Explanation: A FOK order must be canceled immediately if it cannot be filled in its entirety when entered. In this situation, there can be no partial executions. The entire order must be filled immediately, or it must be killed. An IOC order allows for partial executions, and an AON order can remain working as a good-till-canceled order if it cannot be filled immediately when entered.

A broker-dealer that accepts the risk of holding a particular security in its account to facilitate trading and provide liquidity in that security is best described as A) a market maker. B) a clearing corporation. C) a holding company. D) a direct participation program.

A) a market maker. Explanation: Market makers can be individuals or broker-dealers with a line of business to stand ready to buy or sell securities (make markets) with the view of being profitable by buying low and selling high or selling high and buying low (short selling). Market making is risky. Firms that do this must demonstrate to Financial Industry Regulatory Authority (FINRA) that they can manage the operational and financial risk.

A company is looking to raise additional capital to fund an expansion plan. The company's senior management chooses to issue additional bonds to the general public. The best expression to explain this type of offering would be A) a primary offering. B) an initial public offering (IPO). C) a secondary offering. D) a private securities offering.

A) a primary offering. Explanation: A primary offering is one in which the proceeds raised go to the issuing corporation, municipality, or government. The corporation in this case looks to increase its liquid capital by offering bonds. Primary offerings of bonds may be made by an issuer publicly, as is the case, or privately. This question points to an additional public offering (APO) of securities, not an initial public offering.

Two months ago your customer sold short 200 shares of Seabird Airlines at $15 a share. Today, the stock is trading at $10 a share. In order to close out the position your customer would A) buy 200 shares of Seabird. B) realize a $5 a share loss. C) borrow 200 shares of Seabird. D) buy Seabird calls.

A) buy 200 shares of Seabird. Explanation: A customer would need to buy the shares in order to close this short position. Borrowing the shares does not close the short, nor does buying the call. They could buy the call and then exercise, but the buy, alone, does not close the position. If they closed the position at $10 they would have a gain.

Each of the following provides for an exemption from the registration requirement of the Securities Act of 1933 except A) Regulation D. B) access equals delivery rule. C) Rule 147. D) Regulation A.

B) access equals delivery rule. Explanation: Securities offerings may qualify for exemption from the registration statement and prospectus requirements of the Securities Act of 1933 under Regulation A, Regulation D, Rule 147 and Regulation S.

ABC Corp stock is trading at BID 75.32, ask 75.35 5 x 12. What is the spread? A) $3.00 B) $0.03 C) $0.35 D) $0.30

B) $0.03 Explanation: The spread is the difference between the bid and ask. In this example it is three cents.

Certain investors are deemed accredited when they have a net worth of A) $200,000. B) $1 million, not including net equity in the primary residence. C) $500,000, not including net equity in the primary residence. D) $1 million.

B) $1 million, not including net equity in the primary residence. Explanation: An accredited investor is defined as a natural person who has a net worth of $1 million or more, not including net equity in a primary residence; or has had an annual income of $200,000 or more in each of the two most recent years (or $300,000 jointly with a spouse) and who has a reasonable expectation of reaching the same income level during the current year.

Which of these statements is true regarding shelf offerings? A) Shelf registration allows the issuer to sell portions of a registered shelf offering over a five-year period without having to reregister the security. B) For securities offered via a shelf registration, a supplemental prospectus must be filed with the SEC before each sale. C) Shelf registration allows the issuer to sell portions of a registered shelf offering over a four-year period without having to reregister the security. D) The registration statement is effective upon completion of the cooling-off period.

B) For securities offered via a shelf registration, a supplemental prospectus must be filed with the SEC before each sale.

A company is already public with several major stockholders. The company proposes an offering where sale proceeds for shares being sold to the investing public will go to some of the existing stockholders who want to divest of their shares as well as to the corporation. This is a combination offering. a primary offering. a secondary offering. an initial primary offering (IPO). A) I and IV B) I only C) II and III D) II and IV

B) I only Explanation: Anytime proceeds are going to the selling shareholders rather than the issuer, it is a secondary offering. Because the company is already public (has shares in the hands of stockholders), this offering of those shares to the investing public would be an APO rather than an IPO. The best description of this offering is a combination offering.

For the primary market, which of the following is true? A) All U.S. exchanges are primary markets where securities are offered at a public offering price. B) Issuer transactions occur in the primary market, and securities are offered at a public offering price. C) All U.S. exchanges are primary markets where price is determined by supply and demand. D) Issuer transactions occur in the primary market, and price is determined by supply and demand.

B) Issuer transactions occur in the primary market, and securities are offered at a public offering price. Explanation: The primary market, regulated by the 1933 Securities Act, is where securities are offered by issuers (issuer transactions) at an offering price. The sales proceeds of these transactions go to the issuer.

An investor requests a preliminary prospectus for a new issue. Regarding the document which of the following is true? A) It can be deemed an offer to sell securities to the public. B) It is made available between the registration date and the effective date. C) Receipt of it is a commitment that the underwriters will sell securities to the recipient. D) The final price for the securities is published within it.

B) It is made available between the registration date and the effective date. Explanation: The preliminary prospectus (red herring) is a prospecting tool used to gauge indications of interest. It is made available to those who request it between the registration date and the effective date (cooling-off period). Receiving it is not a commitment to purchase shares and making it available is not a commitment to sell shares to the recipient. No final price would be found on a preliminary prospectus.

Which of the following terms is not associated with the exchanges? A) Auction B) Negotiated pricing C) Physical location D) Listed security

B) Negotiated pricing Explanation: Negotiated pricing is a characteristic of the over-the-counter markets. Prices on the exchanges are set by the auction. Exchanges are often physical locations. Securities that trade on an exchange are called listed securities.

The SEC has established rules regarding delivery of a prospectus when a secondary market transaction occurs after the effective date. Which of these comply with those rules for initial (IPO) and additional (APO) public offerings? An IPO of a stock to be listed on the NYSE requires delivery for a period of 25 days. An IPO of a stock that will not be listed nor quoted over Nasdaq requires delivery for a period of 40 days. An APO of a stock listed on the NYSE requires delivery for a period of 25 days. An APO of a stock that will not be listed nor quoted over Nasdaq requires delivery for a period of 40 days. A) III and IV B) II and III C) I and IV D) I and II

C) I and IV Explanation: The prospectus delivery rules include the following: IPO for listed or Nasdaq—25 days APO for listed or Nasdaq—none IPO for non-Nasdaq—90 days APO for non-Nasdaq—40 day

The Securities Act of 1933 requires that all of the following be offered by a prospectus except A) unit investment trusts. B) mutual fund shares. C) Treasury bonds. D) variable annuities.

C) Treasury bonds. Explanation: Treasury securities are exempt from registration requirements and therefore do not require a prospectus.

A term indicating that a security is tradable and all of the requirements of the contract to sell the security have been met and the security is ready to be transferred is A) regular way settlement. B) seller's option. C) good delivery. D) buyer's options.

C) good delivery. Explanation: To make settlement, good delivery must be made. Good delivery means that all the conditions of the contract have been met.

If a customer's shares are held by and registered to the broker-dealer, the shares are said to be A) in custodial name. B) in trust name. C) held in street name. D) held in safekeeping.

C) held in street name. Explanation: Shares held in street name are normally registered to the broker-dealer, who hold them on behalf of the client at the broker-dealer's clearing firm.

A corporation increases capitalization by selling shares of stock which can either come from a new issue or previously authorized but unissued shares. Total stock outstanding must A) never equal the number of shares issued. B) always be greater than the number of shares issued. C) always equal the number shares authorized. D) never exceed the number of shares authorized.

D) never exceed the number of shares authorized. Explanation: A corporation's bylaws state the maximum number of shares authorized to be issued. Therefore, issued shares, those in the hands of public shareholders (outstanding shares) can never exceed the number of shares that were authorized. While those outstanding shares can therefore never be greater than the number of shares issued they could equal the number of shares issued.

The ask price represents A) the price the broker-dealer is willing to buy for. B) one of the prices set by the SEC. C) one of the prices set by FINRA. D) the price the broker-dealer is willing to sell for.

D) the price the broker-dealer is willing to sell for. Explanation: FINRA and the SEC do not set prices; broker-dealers post their own prices. The broker-dealer buys at the bid and sells at the ask. The customer buys at the ask and sells at the bid.