REGULATORY FRAMEWORK OVERVIEW – SIE CHEAT SHEET

> Exam weight (sourced from FINRA 2025 outline): Section 4 = 9% of scored items = 7 out of 75 questions. > Smallest section by weight — but each question here is regulation-heavy and highly examinable. ---

KEY REGULATORS & THEIR AUTHORITY

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REGISTRATION & CONTINUING EDUCATION (Section 4.1 of SIE outline)

FINRA Rule 1210.03 governs the SIE exam. Registration pathway (per SIE outline Section 4.1.1):

• Must associate with a FINRA member firm to take top-off exams

• SIE can be taken without firm sponsorship (open to any candidate 18+)

• After passing SIE, must pass an associated top-off exam (e.g., Series 7 per FINRA Rule 1220(b)(2))

• Firm Element CE: firm-administered training

• Regulatory Element CE: FINRA-administered; required for registered persons (governed by FINRA Rule 1240)

• Fingerprinting required for associated persons (cited in SIE outline; authority: SEC Rule 17f-2)

• Statutory disqualification defined in Exchange Act Section 3(a)(39)

Form U4 / Form U5 (Section 4.2.1):

• Form U4: Uniform Application for Securities Industry Registration or Transfer — filed to register; must be updated promptly for reportable events

• Form U5: Uniform Termination Notice — filed when representative leaves a firm

• Filing misleading information violates FINRA Rule 1122

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REPORTABLE EVENTS (Section 4.2.2 of SIE outline)

All of the following must be reported via Form U4 update:

• Outside business activities — governed by FINRA Rule 3270

• Private securities transactions — governed by FINRA Rule 3280

• Political contributions exceeding dollar thresholds — MSRB Rule G-37

• Gifts and gratuities limits — FINRA Rules 2310(c), 2320(g)(4), 2341(l)(5), 5110(h); MSRB Rule G-20

• Felony convictions, financial-related misdemeanors, liens, bankruptcy

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HIGH-YIELD TRAPS & RULES

What SEC Review Does NOT Mean

• SEC did not approve the investment

• SEC did not recommend it

• SEC only verified required disclosures were made (Securities Act of 1933, Sections 7–8)

SIPC Coverage Limits

• Covers: Missing securities/cash when broker-dealer fails

• Does NOT cover: Market losses, bad advice, fraud, commodity futures

• Per customer: $500k total ($250k cash max)

• Authority: Securities Investor Protection Act of 1970 (SIPA)

MSRB = Rulemaking, NOT Enforcement

• Writes rules for municipal securities

• Operates EMMA (Electronic Municipal Market Access — free public muni data)

• Does not enforce — FINRA enforces for B-Ds; banking regulators enforce for banks

• MSRB Rule G-32 governs disclosures in primary muni offerings

• MSRB Rule G-37 governs political contributions and pay-to-play prohibitions

Regulation T Requirement

• Investors must deposit minimum 50% of purchase price when buying on margin

• Set by Federal Reserve Board under Regulation T (Credit by Brokers and Dealers)

• FINRA Rule 4210 sets maintenance margin minimums

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BROKER-DEALER VS. INVESTMENT ADVISER

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MARKET STRUCTURE ROLES

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Body	Role	Regulates	Authority Type
SEC	Federal watchdog; created by Securities Exchange Act of 1934	Broker-dealers, investment advisers, exchanges, SROs	Primary federal authority
FINRA	Largest SRO; operates under SEC oversight	Broker-dealers & registered reps	Enforcement & rulemaking
MSRB	Municipal bond rulemaker	Muni dealers & muni advisors	Rulemaking ONLY — enforcement by FINRA (for B-Ds) and banking regulators (for banks)
SIPC	Customer asset protection	Registered broker-dealers (membership required)	Covers failed firms only ($500k/customer; $250k cash max) — authority: SIPA 1970
Federal Reserve	Monetary policy & margin rules	Margin requirements via Regulation T	Sets borrowing limits (currently 50% minimum initial margin)
NASAA	State regulators (North American Securities Administrators Association)	State-registered IAs and representatives	State blue-sky laws
Aspect	Broker-Dealer	Investment Adviser
Regulated by	SEC & FINRA	SEC ($110M+ AUM) or state (<$100M AUM)
Standard of Care	Best Interest (Reg BI — Exchange Act Rule 15l-1)	Fiduciary duty (higher; Investment Advisers Act of 1940)
Compensation	Commission (broker) or markup/markdown (dealer)	Advisory fees
Ongoing duty?	No — Reg BI applies at time of recommendation	Yes — continuous fiduciary obligation
Participant	Function	Key Duty
Registered Representative	Licensed individual; solicits orders & recommends	Must pass SIE (Rule 1210.03) + top-off exam + register with FINRA
Market Maker	Continuously quotes bid/ask; provides liquidity	Profit from bid-ask spread
Transfer Agent	Records & maintains security ownership; processes transfers	Works for issuer, not investor
Custodian	Holds & safeguards investor securities	Distinct from transfer agent
DTCC	Clears & settles trades	Standard: T+1 settlement (SEC Rule 15c6-1)

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CAPACITY DISCLOSURE RULE

When acting as broker (agent):

• Earns commission

• Must disclose: "Acting as broker"

When acting as dealer (principal):

• Earns markup or markdown

• Must disclose: "Acting as principal" & the spread/profit amount

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EXAM QUICK HITS

✓ FINRA Rule 1210.03 governs the SIE; Rule 1240 governs CE ✓ FINRA = enforcement arm for broker-dealers ✓ MSRB = rulemaker for munis (FINRA enforces) ✓ SIPC = firm fails only → covers customer losses (not fraud/advice); authority: SIPA 1970 ✓ SEC = approves disclosures, not investments (Securities Act of 1933) ✓ Fiduciary duty (Advisers Act) > Best Interest (Reg BI / Rule 15l-1) > Suitability (Rule 2111) ✓ Reg T = 50% minimum deposit for margin purchases ✓ T+1 = standard equity settlement (SEC Rule 15c6-1) ✓ Form U4 = registration; Form U5 = termination ✓ FINRA Rule 3270 = outside business activities; Rule 3280 = private securities transactions ---

Sources

All rule citations in this lesson are grounded in primary sources (verified 2026-06-29):

• [FINRA SIE Content Outline 2025](https://www.finra.org/sites/default/files/2025-10/SIE_Content_Outline.pdf) — Section 4 (9% / 7 questions); FINRA Rules 1122, 1240, 2060, 2263, 2267, 3110(e), 3220, 3270, 3280, 4330, 4530, 5110(h), 8312 (pages 14–15); MSRB Rules G-2, G-3, G-7, G-10, G-20, G-37; SEC Rule 17f-2; Exchange Act Section 3(a)(39) (Statutory Disqualification)