SIE
Securities Industry
Essentials Exam
LICENSE EXAM MANUAL
3RD EDITION
,This material is protected under US copyright law. Each book is intended for only
one end user. Any attempt to distribute or resell this material is strictly prohibited.
Copyright © 2018, 2019, 2020 by Financial Training Services, Inc. All rights reserved
Printed in the United States of America
Designed and composed at Hobblebush Design, Concord, NH
(www.hobblebush.com)
Editorial services provided by Pure Text (www.pure-text.net)
Published by:
Financial Training Services, Inc., New York, NY
Edited by:
Ian Franklin
Howard Kaplan
Marcia Larson
Brian Marks
David Meshkov
, Contents
SIE Exam and Industry Introduction .......................................................... 1
What Is the SIE?........................................................................................................................ 1
How the Exam Is Structured ............................................................................................... 1
How to Make an Exam Appointment ............................................................................... 2
On the Day of Your Exam ...................................................................................................... 3
Knopman Marks Method ...................................................................................................... 4
Financial Industry Introduction ........................................................................................ 5
Regulatory Entities and Agencies .............................................................................................6
Market Participants ........................................................................................................................7
Section 1: Understanding Products and Their Risks ........... 11
1. Equity Securities ......................................................................................... 13
1.1 Common Stock ................................................................................................................ 14
1.1.1 Ownership Rights of Common Stock .......................................................................... 15
1.2 Classifying Common Stock ......................................................................................... 20
1.2.1 Classification by Investment Profile ........................................................................... 20
1.2.2 Penny Stocks ......................................................................................................................... 21
1.3 Risks of Owning Common Stock .............................................................................. 22
1.3.1 Systematic Risk.................................................................................................................... 22
1.3.2 Non-Systematic Risk ......................................................................................................... 22
1.4 Depositary Receipts ...................................................................................................... 23
1.4.1 American Depositary Receipts (ADRs) ..................................................................... 23
1.5 Preferred Stock ............................................................................................................... 26
1.5.1 Features of Preferred Stock ........................................................................................... 26
1.5.2 Types of Preferred Stock ................................................................................................. 27
1.5.3 Preferred Stock Versus Common Stock .................................................................... 28
1.6 Negotiability of Equity Securities............................................................................ 29
1.6.1 Registrar and Transfer Agent ........................................................................................ 29
1.6.2 Stock Endorsements.......................................................................................................... 30
Contents 1.7 Dividend Procedures ................................................................................................... 30
iii
, 1.7.1 Cash Settlement................................................................................................................... 31
1.7.2 Ex-Dividend Date and Price ........................................................................................... 32
1.7.3 Forms of Dividend Payment .......................................................................................... 33
1.7.4 Stock Splits and Dividends ............................................................................................. 33
1.8 Short Sales........................................................................................................................ 35
2. Debt Securities ....................................................................................... 43
2.1 General Characteristics of Bonds............................................................................. 44
2.1.1 Forms of Ownership .......................................................................................................... 44
2.1.2 Par Value ................................................................................................................................ 45
2.1.3 Bond Quotation ................................................................................................................... 45
2.1.4 Coupon .................................................................................................................................... 46
2.1.5 Zero-Coupon Bonds ........................................................................................................... 47
2.1.6 Bond Pricing ......................................................................................................................... 48
2.1.7 Basis Points ........................................................................................................................... 49
2.1.8 Maturity .................................................................................................................................. 49
2.1.9 Call Feature ........................................................................................................................... 50
2.2 Bond Yields ....................................................................................................................... 54
2.2.1 Nominal Yield ....................................................................................................................... 54
2.2.2 Current Yield ........................................................................................................................ 54
2.2.3 Yield to Maturity ................................................................................................................. 55
2.2.4 Yield to Call............................................................................................................................ 55
2.2.5 Yield Relationships ............................................................................................................ 56
2.3 Bond Risks ........................................................................................................................ 57
2.3.1 Interest Rate Risk ............................................................................................................... 57
2.3.2 Call Risk .................................................................................................................................. 58
2.3.3 Reinvestment Rate Risk ................................................................................................... 58
2.3.4 Inflationary Risk ................................................................................................................. 58
2.3.5 Credit Risk ............................................................................................................................. 59
2.4 Accrued Interest ............................................................................................................. 60
2.5 Accretion and Amortization ...................................................................................... 63
3. Types of Bonds .......................................................................... 71
3.1 Corporate Bonds ............................................................................................................ 72
3.1.1 Trust Indenture Act of 1939 .......................................................................................... 72
3.1.2 Secured and Unsecured Corporate Bonds ............................................................... 72
3.1.3 Convertible Bonds .............................................................................................................. 73
3.1.4 Eurodollar Bonds................................................................................................................ 75
3.1.5 Secondary Market Trading ............................................................................................. 75
3.2 US Government Securities .......................................................................................... 75
3.2.1 Marketable US Government Securities ..................................................................... 76
3.2.2 Quoting Treasury Notes and Bonds............................................................................ 79
3.2.3 Quoting Treasury Bills ..................................................................................................... 79
iv
Securities Industry
Essentials Exam
LICENSE EXAM MANUAL
3RD EDITION
,This material is protected under US copyright law. Each book is intended for only
one end user. Any attempt to distribute or resell this material is strictly prohibited.
Copyright © 2018, 2019, 2020 by Financial Training Services, Inc. All rights reserved
Printed in the United States of America
Designed and composed at Hobblebush Design, Concord, NH
(www.hobblebush.com)
Editorial services provided by Pure Text (www.pure-text.net)
Published by:
Financial Training Services, Inc., New York, NY
Edited by:
Ian Franklin
Howard Kaplan
Marcia Larson
Brian Marks
David Meshkov
, Contents
SIE Exam and Industry Introduction .......................................................... 1
What Is the SIE?........................................................................................................................ 1
How the Exam Is Structured ............................................................................................... 1
How to Make an Exam Appointment ............................................................................... 2
On the Day of Your Exam ...................................................................................................... 3
Knopman Marks Method ...................................................................................................... 4
Financial Industry Introduction ........................................................................................ 5
Regulatory Entities and Agencies .............................................................................................6
Market Participants ........................................................................................................................7
Section 1: Understanding Products and Their Risks ........... 11
1. Equity Securities ......................................................................................... 13
1.1 Common Stock ................................................................................................................ 14
1.1.1 Ownership Rights of Common Stock .......................................................................... 15
1.2 Classifying Common Stock ......................................................................................... 20
1.2.1 Classification by Investment Profile ........................................................................... 20
1.2.2 Penny Stocks ......................................................................................................................... 21
1.3 Risks of Owning Common Stock .............................................................................. 22
1.3.1 Systematic Risk.................................................................................................................... 22
1.3.2 Non-Systematic Risk ......................................................................................................... 22
1.4 Depositary Receipts ...................................................................................................... 23
1.4.1 American Depositary Receipts (ADRs) ..................................................................... 23
1.5 Preferred Stock ............................................................................................................... 26
1.5.1 Features of Preferred Stock ........................................................................................... 26
1.5.2 Types of Preferred Stock ................................................................................................. 27
1.5.3 Preferred Stock Versus Common Stock .................................................................... 28
1.6 Negotiability of Equity Securities............................................................................ 29
1.6.1 Registrar and Transfer Agent ........................................................................................ 29
1.6.2 Stock Endorsements.......................................................................................................... 30
Contents 1.7 Dividend Procedures ................................................................................................... 30
iii
, 1.7.1 Cash Settlement................................................................................................................... 31
1.7.2 Ex-Dividend Date and Price ........................................................................................... 32
1.7.3 Forms of Dividend Payment .......................................................................................... 33
1.7.4 Stock Splits and Dividends ............................................................................................. 33
1.8 Short Sales........................................................................................................................ 35
2. Debt Securities ....................................................................................... 43
2.1 General Characteristics of Bonds............................................................................. 44
2.1.1 Forms of Ownership .......................................................................................................... 44
2.1.2 Par Value ................................................................................................................................ 45
2.1.3 Bond Quotation ................................................................................................................... 45
2.1.4 Coupon .................................................................................................................................... 46
2.1.5 Zero-Coupon Bonds ........................................................................................................... 47
2.1.6 Bond Pricing ......................................................................................................................... 48
2.1.7 Basis Points ........................................................................................................................... 49
2.1.8 Maturity .................................................................................................................................. 49
2.1.9 Call Feature ........................................................................................................................... 50
2.2 Bond Yields ....................................................................................................................... 54
2.2.1 Nominal Yield ....................................................................................................................... 54
2.2.2 Current Yield ........................................................................................................................ 54
2.2.3 Yield to Maturity ................................................................................................................. 55
2.2.4 Yield to Call............................................................................................................................ 55
2.2.5 Yield Relationships ............................................................................................................ 56
2.3 Bond Risks ........................................................................................................................ 57
2.3.1 Interest Rate Risk ............................................................................................................... 57
2.3.2 Call Risk .................................................................................................................................. 58
2.3.3 Reinvestment Rate Risk ................................................................................................... 58
2.3.4 Inflationary Risk ................................................................................................................. 58
2.3.5 Credit Risk ............................................................................................................................. 59
2.4 Accrued Interest ............................................................................................................. 60
2.5 Accretion and Amortization ...................................................................................... 63
3. Types of Bonds .......................................................................... 71
3.1 Corporate Bonds ............................................................................................................ 72
3.1.1 Trust Indenture Act of 1939 .......................................................................................... 72
3.1.2 Secured and Unsecured Corporate Bonds ............................................................... 72
3.1.3 Convertible Bonds .............................................................................................................. 73
3.1.4 Eurodollar Bonds................................................................................................................ 75
3.1.5 Secondary Market Trading ............................................................................................. 75
3.2 US Government Securities .......................................................................................... 75
3.2.1 Marketable US Government Securities ..................................................................... 76
3.2.2 Quoting Treasury Notes and Bonds............................................................................ 79
3.2.3 Quoting Treasury Bills ..................................................................................................... 79
iv
