SIE Practice Exam
This is a free 15-question sampler for the Securities Industry Essentials exam, written by the StudyPDF team from FINRA's published content outline. It follows the same four areas the real exam uses: knowledge of capital markets, products and their risks, trading and customer accounts and prohibited activities, and the regulatory framework. The mix is multiple choice, select all that apply and fill in the blank. Answer all 15, then check your score and read the explanation for every question.
Which body was created by the Securities Exchange Act of 1934 to enforce the federal securities laws?
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All 15 questions at a glance
Prefer to read before you play? Every question in the sampler is listed below. Answers and explanations stay collapsed until you open them.
1. Which body was created by the Securities Exchange Act of 1934 to enforce the federal securities laws?
- A. FINRA
- B. The Municipal Securities Rulemaking Board
- C. The Securities and Exchange Commission
- D. The Federal Reserve Board
Show answer and explanation
Answer: C. The Securities and Exchange Commission
The Securities Exchange Act of 1934 created the SEC and gave it authority over the secondary market, broker-dealers and the exchanges. The Securities Act of 1933 came first and deals with new issues and the disclosure that goes with them. FINRA and the MSRB write rules of their own, but they are self-regulatory organizations, and the SEC has to approve those rules and oversees both.
2. A company sells newly issued shares to investors in an initial public offering. This transaction takes place in the:
- A. Primary market
- B. Secondary market
- C. Third market
- D. Fourth market
Show answer and explanation
Answer: A. Primary market
In the primary market the issuer sells new securities and the proceeds go to the issuer. Once those shares change hands between investors, on an exchange or over the counter, that is the secondary market and the issuer receives nothing further. The third market is exchange listed stock traded over the counter, and the fourth market is institution to institution trading with no broker-dealer in the middle.
3. Complete the sentence.
When the Federal Reserve sells securities through open market operations, the money supply _____ and short term interest rates tend to _____.
Options for blank 1: expands, contracts, is unaffected
Options for blank 2: fall, rise, stay flat
Show answer and explanation
Answer: contracts, rise
Open market operations are the Fed's main day to day tool. When the Fed sells securities, cash moves out of the banking system, so there is less money available and the price of borrowing goes up. Buying securities does the reverse and loosens credit. Rising rates also push the price of existing bonds down, which is why exam questions often chain the two ideas together.
4. A corporation is liquidated. In what order are these claims paid?
- A. Common stockholders, then preferred stockholders, then bondholders
- B. Preferred stockholders, then common stockholders, then bondholders
- C. Common stockholders, then bondholders, then preferred stockholders
- D. Bondholders, then preferred stockholders, then common stockholders
Show answer and explanation
Answer: D. Bondholders, then preferred stockholders, then common stockholders
Debt is paid before equity, because a bond is money the company borrowed and promised to repay, while a share is ownership. Inside equity, preferred stock has a stated priority over common. Common stockholders hold the residual claim, so they are paid last and often receive nothing, and that risk is the trade for their voting rights and their unlimited upside.
5. Which statements about preferred stock are true?
Select all that apply.
- A. It usually pays a fixed stated dividend
- B. It normally carries the same voting rights as common stock
- C. It ranks ahead of common stock in a liquidation
- D. Its dividend is guaranteed and must be paid every quarter
- E. Its market price tends to move when interest rates move
Show answer and explanation
Answer: A. It usually pays a fixed stated dividend, C. It ranks ahead of common stock in a liquidation, E. Its market price tends to move when interest rates move
Preferred stock is a hybrid. The fixed dividend and the sensitivity to interest rates make it behave like a bond, but it is still equity and sits behind every creditor. No dividend is ever guaranteed, since the board has to declare it, although cumulative preferred stacks up missed dividends that must be cleared before common holders get anything. Preferred normally comes without voting rights.
6. Market interest rates rise. What happens to the market price of a bond that is already outstanding with a fixed coupon?
- A. It rises
- B. It falls
- C. It does not change, because the coupon is fixed
- D. It falls only if the issuer is downgraded
Show answer and explanation
Answer: B. It falls
The coupon is locked in at issue, so the only way an older bond can compete with new bonds paying more is for its price to drop until its yield is comparable. Price and yield move in opposite directions, and the swing is larger the longer the maturity. That is interest rate risk, and it is present even when the issuer's credit is perfectly sound.
7. Complete the sentence.
The risk that a fixed stream of interest payments will buy less over time as prices rise is called _____.
Options for blank 1: credit risk, liquidity risk, purchasing power risk, currency risk
Show answer and explanation
Answer: purchasing power risk
Purchasing power risk, also called inflation risk, hits long term fixed income hardest because the payment never grows. It is a systematic risk, meaning it affects the whole market and diversification will not remove it. Credit risk is the issuer failing to pay, and liquidity risk is not being able to sell at a fair price when you want to.
8. An investor redeems shares of an open-end mutual fund. What price do they receive?
- A. The price quoted on the exchange at the moment the order is entered
- B. The lowest price the fund traded at that day
- C. The next net asset value calculated after the fund receives the order
- D. The net asset value from the close of the previous business day
Show answer and explanation
Answer: C. The next net asset value calculated after the fund receives the order
Open-end fund shares are not traded between investors. The fund issues new shares and redeems existing ones directly, at a price based on the next computed net asset value, which is usually struck at the close of that business day. This is forward pricing, and it exists so nobody can trade on a stale price. Exchange traded funds work differently, because they trade all day at a market price that can drift away from net asset value.
9. The buyer of a call option has:
- A. The right to buy the underlying security at the strike price
- B. The obligation to buy the underlying security at the strike price
- C. The right to sell the underlying security at the strike price
- D. The obligation to sell the underlying security at the strike price
Show answer and explanation
Answer: A. The right to buy the underlying security at the strike price
An option buyer pays a premium for a right and can simply let the contract expire worthless. The seller, or writer, keeps the premium and carries the matching obligation if the buyer exercises. A call is about buying the underlying security and a put is about selling it, so the two things to keep straight are which side holds the right and which action the contract covers.
10. A customer buys exchange listed common stock in a regular way trade. When does the trade settle?
- A. The same day as the trade
- B. One business day after the trade date
- C. Two business days after the trade date
- D. Three business days after the trade date
Show answer and explanation
Answer: B. One business day after the trade date
Regular way settlement for stocks moved from two business days to one business day in May 2024, under SEC Rule 15c6-1. Settlement is when money and securities actually change hands, which is separate from the trade date, when price and terms are agreed. Some instruments sit outside that rule, and options and government securities run on their own schedules.
11. A customer enters an order to buy 100 shares at 40 dollars, limit. Which statement is correct?
- A. The order must be filled at exactly 40 dollars
- B. The order guarantees execution but not price
- C. The order becomes a market order if the stock trades above 40 dollars
- D. The order can be filled at 40 dollars or lower, and may not be filled at all
Show answer and explanation
Answer: D. The order can be filled at 40 dollars or lower, and may not be filled at all
A limit order sets the worst price the customer will accept, so a buy limit fills at the limit or better, meaning lower. The trade off is certainty. A market order gets executed but takes whatever price is available, while a limit order controls the price and may never fill. The order that turns into a market order once a price is touched is a stop order.
12. Complete the sentence.
An account owned by two people, where a deceased owner's share passes automatically to the survivor, is held as _____.
Options for blank 1: tenants in common, joint tenants with rights of survivorship, a custodial account, a discretionary account
Show answer and explanation
Answer: joint tenants with rights of survivorship
With joint tenants with rights of survivorship the surviving owner takes the whole account, so the assets pass outside the estate. Tenants in common is the other joint form, where a deceased owner's share goes to that owner's estate instead. A custodial account has one minor beneficiary and one adult custodian, and discretion describes who is allowed to enter orders, not who owns the assets.
13. Which of the following are prohibited activities?
Select all that apply.
- A. Churning an account to generate commissions
- B. Front running a customer's large pending order
- C. Telling a customer that past performance does not predict future results
- D. Guaranteeing a customer against any loss in the account
- E. Disclosing that the firm makes a market in a security being discussed
Show answer and explanation
Answer: A. Churning an account to generate commissions, B. Front running a customer's large pending order, D. Guaranteeing a customer against any loss in the account
Churning is excessive trading that serves the representative rather than the customer. Front running is trading ahead of a customer order you know is coming, which misuses information the customer gave you in confidence. Guaranteeing a customer against loss is banned outright, no matter how safe the investment looks. The other two choices are disclosures that firms are expected to make, not violations.
14. Which of the following are the kind of red flags an anti money laundering program is meant to catch?
Select all that apply.
- A. A customer who will not provide identifying information at account opening
- B. A series of cash deposits sized just under the reporting threshold
- C. A customer who asks for a copy of a fund prospectus
- D. Money wired in and quickly wired out with almost no trading in between
- E. A customer who updates a mailing address after moving
Show answer and explanation
Answer: A. A customer who will not provide identifying information at account opening, B. A series of cash deposits sized just under the reporting threshold, D. Money wired in and quickly wired out with almost no trading in between
The Bank Secrecy Act requires firms to verify who their customers are and to report suspicious activity. Deliberately keeping deposits under the currency transaction report threshold of 10,000 dollars in a day is called structuring, and it is a crime on its own. Money that passes straight through an account with no investing purpose is another classic laundering pattern. Ordinary document requests and routine account maintenance are not red flags.
15. Which statement best describes FINRA?
- A. A federal agency that writes and enforces the securities laws
- B. A trade association with no authority over its members
- C. A self-regulatory organization whose rules must be approved by the SEC
- D. An insurance fund that reimburses investors for market losses
Show answer and explanation
Answer: C. A self-regulatory organization whose rules must be approved by the SEC
FINRA is a self-regulatory organization. It writes conduct rules for broker-dealers, runs the qualification exams and can fine, suspend or bar people, but it is not a government agency, and the SEC has to approve its rules and oversees its work. The last choice describes SIPC, which protects customer assets if a brokerage firm fails and never covers losses caused by the market moving against you.
What the SIE exam actually covers
The Securities Industry Essentials exam is FINRA's entry level exam for the securities business. Its main feature is that you do not need a sponsoring firm to sit it. FINRA states that the exam is open to anyone aged 18 or older, which means students, career changers and people who have not been hired yet can take it and carry the result into interviews. It tests foundational knowledge rather than the day to day work of a registered representative, so the questions are about how the market is put together, what the products are, what can go wrong and who makes the rules.
FINRA publishes the structure on its SIE page. At the time of writing it lists 75 questions, 1 hour and 45 minutes of testing time, a passing score of 70 and a result that stays valid for four years. The content outline splits into four sections with fixed weights: knowledge of capital markets at 16 percent, understanding products and their risks at 44 percent, understanding trading, customer accounts and prohibited activities at 31 percent, and overview of the regulatory framework at 9 percent. FINRA also sets the exam fee and shows it on the same page.
Two limits are worth knowing before you book. Those numbers can change, so treat finra.org as the only source that is current, not a prep site or this page. And passing the SIE on its own does not let you do securities business. It is the shared first half of registration, and you still need a firm plus a representative level exam such as the Series 7 to actually transact. Nothing here, and nothing on the exam, is investment advice.
How to use this sampler and how to study the material
These 15 questions are spread across all four content areas, weighted roughly the way the real exam is, so products and risk take the largest share. They stay at SIE level on purpose. You will not find suitability judgments, options strategies or margin math here, because those belong to the representative level exams. The point is the foundation: what a security is, who issues it, who trades it, what risk it carries and which behaviors are banned.
Take all 15 in one sitting with no notes, then read the explanation for every question, including the ones you got right. Guessing correctly and knowing are different states, and the explanation is where you find out which one you were in. Treat a wrong answer as a topic, not a fact. If you missed the bond price question and the inflation risk question, review interest rate risk once and both gaps close, because they are the same idea approached from two sides.
The most common way people underprepare for the SIE is by reading the prep book cover to cover and never testing themselves. Recall is the skill the exam measures, so start answering questions in week one, even badly. Vocabulary carries a lot of weight too. A large share of missed items are not reasoning failures but a word the candidate half knew, such as the difference between a call and a put or between tenants in common and joint tenants with rights of survivorship.
How StudyPDF builds full practice tests from your own prep material
Fifteen questions can show you where you are shaky. They cannot get you ready, and a generic online bank rarely lines up with the prep course you actually paid for.
StudyPDF works from your material instead. Upload the SIE prep book PDF, the course provider's chapter packets, the flashcard export or the training deck your employer sent you, and Bo, the study agent, builds full length practice tests from those exact pages. Every question is grounded in your material, and every explanation points back to where the answer came from, so you can check it at the source instead of trusting a stranger's answer key. You can regenerate fresh tests as often as you like, narrow one to a single content area such as packaged products or prohibited activities, and track which concepts you keep missing across attempts. That matters for an exam like this one, where the weighting is public and you can aim your effort at the 44 percent section.
You do not have to upload anything to start. If your prep book is paper, or you are studying on a lunch break with nothing to hand, just name a topic instead, for example municipal versus corporate debt basics, anti money laundering red flags or the role of the SEC, and Bo writes a practice test from that. Starting is free. StudyPDF explains what an exam asks and is not a source of investment, tax or legal advice.
Written by the StudyPDF team. Last updated 2026-08-19.