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FINRA SIE Exam (page: 4)
FINRA Securities Industry Essentials
Updated on: 12-Feb-2026

Viewing Page 4 of 34
SIE PDF 266 Questions

A registered representative (RR) owns 500 shares of a thinly traded security. A customer of the firm calls the RR to place a sell order for 10,000 shares of the same security. The RR sells his shares before entering the customer's order to sell.
Which of the following activities has the RR just engaged in?

  1. Selling away
  2. Front running
  3. Insider trading
  4. Market manipulation

Answer(s): B

Explanation:

Front Running Definition: Occurs when a broker executes a personal trade ahead of a customer's order to profit from the anticipated market movement.

Thinly Traded Security: Front running is particularly impactful in low-liquidity securities.

Other Options:

Selling Away: Involves unapproved securities transactions outside the employing firm.

Insider Trading: Involves trading on material non-public information.

Market Manipulation: Encompasses activities like wash trading or spoofing, not specific to this scenario.


Reference:

FINRA Rule 5270 (Front Running of Block Transactions): F, I, N, R, A Rule 5270.



Under SEC Regulation D, which of the following parties is considered an accredited investor?

  1. A person whose joint income with their spouse exceeds $200,000 in each of the two most recent years and who has a reasonable expectation of reaching the same income level in the current year.
  2. A person whose net worth, excluding the net equity in their primary residence, exceeds $500,000 at the time of purchase.
  3. A person whose net worth, excluding the net equity in their primary residence, exceeds $1 million at the time of purchase.
  4. A charitable organization, partnership, or corporation whose assets exceed $2.5 million.

Answer(s): C

Explanation:

Definition of Accredited Investor: As per SEC Regulation D, Rule 501, an accredited investor includes:

Individuals with a net worth exceeding $1 million (excluding primary residence equity).

Individuals with an annual income exceeding $200,000 (or $300,000 jointly with a spouse) for the past two years.

Elimination of Incorrect Answers:

$500,000 threshold (option B) is too low to qualify under Regulation D.

Option D is incorrect as it requires assets of $5 million, not $2.5 million.


Reference:

SEC Regulation D, Rule 501 (Accredited Investor Definition): SEC Regulation D.



Which of the following is the primary risk of using asset allocation models without periodic rebalancing?

  1. Inflation
  2. Marketability
  3. Overweighting
  4. Interest rate risk

Answer(s): C

Explanation:

Rebalancing: Ensures that a portfolio remains aligned with its target allocation. Without rebalancing, outperforming assets can become overweighted, increasing exposure to specific risks.

Incorrect Options:

Inflation: Impacts purchasing power but isn't tied to rebalancing.

Marketability: Refers to liquidity and isn't linked to allocation models.

Interest Rate Risk: Relates to fixed-income investments and isn't directly addressed by allocation models.


Reference:

SEC Investor Bulletin on Asset Allocation: SEC Asset Allocation.



An associated person at a member firm receives a complaint from a customer involving allegations of forgery. Once the complaint is received, which of the following actions is required?

  1. The member firm must report the event promptly to FINR
  2. The member firm is not required to report the event to FINRA but must maintain a file of the complaint for four years.
  3. The member firm must complete arbitration to resolve the complaint with the customer before filing a report with FINRA.
  4. The member firm must have a principal review the complaint and determine if the forgery occurred before filing a report with FINRA.

Answer(s): A

Explanation:

FINRA Rule 4530: Requires member firms to report certain events, including allegations of forgery, to FINRA promptly.

Incorrect Options:

Option B: Maintaining a record does not substitute for required reporting.

Option C: Arbitration isn't required before reporting.

Option D: Reporting is mandatory irrespective of internal investigations.


Reference:

FINRA Rule 4530 (Reporting Requirements): F, I, N, R, A Rule 4530.



The financial risk that a given security is not readily tradable in the market without impacting the market price is known as:

  1. Credit risk
  2. Market risk
  3. Liquidity risk
  4. Prepayment risk

Answer(s): C

Explanation:

Liquidity Risk: Refers to the difficulty of selling a security quickly without significantly affecting its price. This is common in thinly traded securities or complex instruments.

Other Risks:

Credit Risk: Relates to the possibility of default by the issuer.

Market Risk: Pertains to overall price changes due to market conditions.

Prepayment Risk: Associated with mortgage-backed securities and early repayment of loans.


Reference:

SEC Investor Bulletin on Risks: SEC Risk Guidance.



Viewing Page 4 of 34



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