SIE EXAM CHEAT SHEET: Trading, Accounts & Prohibited Activities

> Exam weight (sourced from FINRA 2025 outline): Section 3 = 31% of scored items = 23 out of 75 questions. > This is the second-heaviest section on the SIE — nearly one third of the exam. ---

I. REGULATORY BODIES & JURISDICTION

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II. MARKET PARTICIPANTS

|---|---|---|---| IA Registration Thresholds:

• $110M+ AUM → SEC registration

• <$100M AUM → State registration

• $100M–$110M → Either SEC or state

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III. ACCOUNT TYPES & FEATURES

Individual Accounts

• Sole proprietor owns all; pays taxes on gains

• Margin allowed (borrow up to 50% per Regulation T)

• Ownership clear and indisputable

Joint Accounts (JTWROS – Joint Tenants with Right of Survivorship)

• Both parties own 100% (not 50% each)

• Death = automatic transfer to surviving co-owner (outside probate)

• Both liable for losses

• Either party can trade (unless restricted agreement)

Custodial Accounts (UGMA/UTMA)

• Custodian holds legal title; minor owns beneficial interest

• One custodian per minor (not joint)

• Minor's tax bracket (not custodian's)

• Transfers are irrevocable

Trust & Estate Accounts

• Trustee manages for beneficiary

• Requires probate before settlement

• Documentation required: trust document, death certificate, appointment letter

Corporate Accounts

• Requires corporate authorization: board resolution + bylaws

• Designated officer executes trades

• Cash dividends go to corporation (not automatically to individuals)

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IV. TRADING RULES & SETTLEMENT

Settlement (SEC Rule 15c6-1)

• T+1: Most trades settle next business day — governed by SEC Rule 15c6-1 (Settlement Cycle)

• Trade date vs. Settlement date: Margin interest runs from trade date

Short Sales

• Sell first, borrow & deliver later

• Proceeds held in escrow until buy-back

• Unlimited loss potential (stock can rise indefinitely)

• Short cannot be naked (must locate shares first)

Margin Calls

• Initial requirement: 50% (Regulation T — Federal Reserve Board)

• Maintenance requirement (long): 25% minimum per FINRA Rule 4210

• Margin call issued when equity drops below maintenance

• Forced liquidation if not met in time

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V. PROHIBITED ACTIVITIES (HIGH-YIELD)

The FINRA 2025 SIE outline (Section 3.3) explicitly tests these prohibited activity categories: |---|---|---|

Organization	What They Do	What They Don't Do
SEC	Oversee markets, broker-dealers, IAs, exchanges, SROs	Approve or recommend specific investments
FINRA	Regulate broker-dealers & reps; enforce rules; administer exams	Regulate investment advisers
MSRB	Write muni securities rules; operate EMMA	Enforce rules (FINRA/banking regulators do)
SIPC	Protect customers from broker-dealer failure ($500K max; $250K cash) — authority: Securities Investor Protection Act of 1970 (SIPA)	Cover market losses, fraud, bad advice
Federal Reserve	Set interest rates; Regulation T (margin = 50% minimum initial requirement)	Day-to-day market oversight
Role	Acts In	Earns	Key Duty
Broker (Agent)	Customer's interest	Commission	Execute customer order
Dealer (Principal)	Own account	Markup/Markdown	Must disclose capacity
Investment Adviser	Client's interest	Fee	Fiduciary duty (highest standard)
Registered Rep	Broker-dealer's rep	Salary + bonus/commission	Pass SIE + top-off exam to qualify
Market Maker	Both sides of trade	Bid-ask spread	Provide liquidity
Activity	FINRA/SEC Rule	Why Prohibited
Churning / Excessive trading	FINRA Rule 2111 (Suitability); FINRA Rule 2010	Excessive trades to generate commissions; quantitative suitability violation
Insider trading	SEC Rule 10b-5; Exchange Act Sections 20A, 21A; ITSFEA 1988	Trade on material non-public info; civil and criminal penalties
Front-running	FINRA Rules 5270, 5280	Trading ahead of client block orders or research reports
Painting the tape / Marking the close	SEC Rule 10b-5; FINRA Rules 2020, 5210	Wash trades to inflate volume; market manipulation
Layering/spoofing (backing away)	FINRA Rule 5240 (Anti-intimidation/Coordination)	Place false orders to move price
Selling away	FINRA Rule 3280 (Private Securities Transactions)	Rep sells unaffiliated securities outside firm
Freeriding	FINRA Rule 5290; Regulation T	Buying and selling without paying for shares
Financial exploitation of seniors	FINRA Rule 2165	Exploiting specified adults; mandatory hold authority
Paying commissions to unregistered persons	FINRA Rule 2040	Paying commissions to persons not registered with FINRA

> Key SIE outline cite: The outline lists these types of market manipulation by name: "market rumors, pump and dump, front running, excessive trading, marking the close, marking the open, backing away, freeriding" (Section 3.3.1).

Red Flags for Prohibited Activity

• Excessive trades in account → Churning (FINRA Rule 2111)

• Trades before announcement → Insider trading (Rule 10b-5)

• Sudden volume spike before major news → Front-running (FINRA Rules 5270/5280)

• Rep pushing unauthorized products → Selling away (FINRA Rule 3280)

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VI. CUSTOMER PROTECTION & DISCLOSURE

Best Interest and Suitability (FINRA Rule 2111 + SEC Rule 15l-1)

• Reg BI (Exchange Act Rule 15l-1): Best interest standard for recommendations to retail customers — higher than suitability

• FINRA Rule 2111 (Suitability): Legacy suitability rule still in the SIE outline; requires reasonable inquiry into customer age, income, risk tolerance, time horizon

• FINRA Rule 2090 (Know Your Customer): Must use due diligence to know the essential facts about each customer

Investor Protection: SIPC (SIPA 1970)

• Covers: Missing securities & cash from broker-dealer failure

• Does NOT cover: Market losses, bad advice, fraud (separate civil remedy)

• Limit: $500,000 per customer; $250,000 for cash

• Statutory authority: Securities Investor Protection Act of 1970 (SIPA)

AML (Section 3.2.3 of SIE outline)

Key AML rules tested on the SIE:

• FINRA Rule 3310 — Anti-money Laundering Compliance Program (cited in SIE outline)

• USA PATRIOT Act Section 352 — requires AML programs at broker-dealers

• USA PATRIOT Act Section 326 — Verification of Identification (Customer Identification Program / CIP)

• USA PATRIOT Act Section 314 — Cooperative efforts to deter money laundering (FinCEN coordination)

• CTR threshold: Cash transactions >$10,000 require Currency Transaction Report filed with FinCEN

• SAR threshold: Suspicious activity $5,000+ requires Suspicious Activity Report; strictly confidential — tipping off customer is a violation

Privacy (Section 3.2.4 of SIE outline)

• Regulation S-P (cited in SIE outline) — Privacy of Consumer Financial Information and Safeguarding Personal Information

• Covers: nonpublic personal information, confidentiality, privacy notifications, safeguard requirements

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VII. QUICK DECISION TREES

Account Setup Question?

Who owns? → Individual, joint, custodial, trust, or corporate

Who trades? → Account holder, custodian, trustee, or officer

Who gets proceeds? → Account owner (or minor in custodial)

What docs needed? → Trust doc, board resolution, or POA

Is This Prohibited?

Trade before news? → Insider trading (Rule 10b-5; Sections 20A/21A)

Too many trades? → Churning (Rule 2111)

Rep selling non-affiliate product? → Selling away (Rule 3280)

Breaking up cash deposits to stay under $10K? → Structuring — still file CTR + SAR (PATRIOT Act)

Senior's account being drained? → Financial exploitation (Rule 2165)

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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 3 (31% / 23 questions); all FINRA rule numbers listed on pages 12–13; USA PATRIOT Act Sections 314, 326, 352 (page 13); Regulation T (page 13); Regulation S-P (page 13); Settlement Cycle Rule 15c6-1; SIPA 1970