Steven M. Rice is founding parter and educator at Empire Stockbroker Training Institute, a leading school for securities industry training. Renowned for his upbeat and engaging training style and extensive knowledge of the securities. Rice has co-developed a complete library of training manuals for various Series exams. He is the author of Series 7 Exam For Dummies.

Introduction 1

About This Book 1

Foolish Assumptions 2

Icons Used in This Book 2

Beyond the Book 2

Where to Go from Here 3

Part 1: Getting Started with the SIE Exam 5

Chapter 1: Introducing the SIE (Securities Industry Essentials) Exam 7

What is the SIE Exam, Anyway? 7

Profiling the SIE Exam-Taker 8

One’s Not Enough: Tackling the Co-Requisite Exams 8

Series 6: Investment Company and Variable Products Representative Exam 9

Series 7: General Securities Representative Exam 9

Series 22: DPP Representative Exam 9

Series 57: Securities Trader Exam 9

Series 79: Investment Banking Representative Exam 9

Series 82: Private Securities Offerings Representative Exam 9

Series 7 + Series 86 + Series 87: Research Analyst Exam 10

Series 99: Operations Professional Exam 10

Signing Up 10

Filling out an application to enroll 10

It’s a date! Scheduling your exam 10

Planning ahead for special accommodations 11

Just in case: Cancelling as an option 13

Taking a Peek at the Tested Topics 13

Understanding the Exam Format and Other Exam Details 14

Reviewing the exam basics 14

Practicing on ten additional trial questions 14

Mastering the computerized format and features 15

Viewing exhibits 16

Instant gratification: Receiving and evaluating your score 16

Chapter 2: Preparing for the SIE Exam 19

Courses and Training Materials: Determining the Best Way to Study 19

Back to school: Attending a prep course 19

Selecting prep material to study on your own 21

Managing Your Study Time Wisely 22

Blocking out some time to study 23

It’s a plan: Getting into a study routine 23

Give it a rest: Taking short breaks 24

Staying focused from day to day 24

Devoting time to practice tests 25

Avoiding study groups 25

Staying in shape 26

Exploring Study Strategies 26

Developing Solid Test-Taking Skills 27

Read the question carefully 27

Look for phrases that lead to the topic tested 27

Work with what you have 27

Don’t obsess; mark for review 27

Keep track of time 28

Master the process of elimination 28

Maintain your concentration 28

Think carefully before changing your answers 29

Use the scrap paper wisely 29

Knowing When You’re Ready 30

Chapter 3: Examining and Mastering Question Types 31

Familiarizing Yourself with Question Formats 31

Working with the straight shooters: The straightforward types 32

Encountering quirky questions with qualifiers 33

Roman hell: Complex multiple choice 34

Looking at exhibits: Diagram questions 36

Shredding the Questions: Tips and Tricks 37

Focusing on key information 38

Answer me this: Picking the correct answer 38

Don’t make the same mistake twice 41

Chapter 4: Surviving Test Day 43

Composing Yourself the Day Before 43

Making the Most of the Morning 45

Arriving on the Scene 45

Taking advantage of one last chance to cram 45

Signing in 45

Getting seated 46

Tackling the SIE 46

Getting the Results: Drum Roll, Please 47

Part 2: Mastering Basic Security Investments 49

Chapter 5: Underwriting Securities 51

Bringing New Issues to the Market 51

Starting out: What the issuer does 51

Role call: Introducing the team players 55

Getting the skinny on the issue and issuer: The prospectus 56

Counting the securities along the way 57

Getting Up to Speed on the Types of Securities Offerings 57

Reviewing Exemptions 58

Exempt securities 58

Exempt transactions 59

Testing Your Knowledge 60

Answers and Explanations 63

Chapter 6: Corporate Ownership: Equity Securities 65

Beginning with the Basics: Common Stock 65

Understanding a stockholder’s voting rights 66

Categorizing shares corporations can sell 68

Considering the par value of common stock 68

Corporate actions 69

Splitting common stock 69

Sharing corporate profits through dividends 71

Getting Preferential Treatment: Preferred Stock 73

Considering characteristics of preferred stock 73

Getting familiar with types of preferred stock 74

Securities with a Twist 76

Opening national borders: ADRs 76

Rights: The right to buy new shares at a discount 76

Warrants: The right to buy stock at a fixed price 77

Testing Your Knowledge 77

Answers and Explanations 80

Chapter 7: Debt Securities: Corporate and U.S Government Loans 83

Tackling Bond Terms, Types, and Traits 83

Remembering bond terminology 84

Following bond issue and maturity schedules 85

Comparing secured and unsecured bonds 86

Making Basic Bond Price and Yield Calculations 87

Nominal yield (coupon rate) 88

Current yield 88

Yield to maturity (basis) 88

Yield to call 89

Yield to worst 89

Total return 89

Basis point 89

Determining the Best Investment: Comparing Bonds 90

Considering bond credit ratings 90

Contrasting callable and put bonds 91

Popping the top on convertible bonds 92

Exploring U.S Government Securities 93

Understanding the types of U.S government securities 93

Looking at agency securities 93

Playing It Safe: Short-Term Loans or Money Market Instruments 95

Testing Your Knowledge 96

Answers and Explanations 99

Chapter 8: Municipal Bonds: Local Government Securities 101

General Obligation Bonds: Backing Bonds with Taxes 101

General characteristics of GOs 102

Analyzing GO bonds 102

Dealing with Revenue Bonds: Raising Money for Utilities and Such 103

General characteristics of revenue bonds 104

Analyzing revenue bonds 104

The Primary Market: Bringing New Municipal Bonds to Market 105

Allocation of orders 106

Definitions for new issues 106

Examining Other Types of Municipal Bonds on the Test 107

Taxable Municipal Bonds 108

Don’t Forget Municipal Notes! 108

Municipal Fund Securities 109

Section 529 plans 109

ABLE accounts 110

Local Government Investment Pools 110

Understanding the Taxes on Municipal Bonds 111

Comparing municipal and corporate bonds equally 111

Scot-free! Taking a look at triple tax-free municipal bonds 112

Following Municipal Bond Rules 112

Confirmations 112

Advertising and record keeping 113

Gifts 113

Commissions 113

Gathering Municipal Bond Info 114

The bond resolution (indenture) 114

Legal opinion 114

Official statement 114

“G” That’s a Whole Lot of Rules 115

Testing Your Knowledge 117

Answers and Explanations 121

Part 3: Delving Deeper: Security Investments with a Twist 123

Chapter 9: Delivering Diversification with Packaged Securities 125

Looking at Investment Company Registration 125

Diversifying through Management Investment Companies 126

Comparing open- and closed-end funds 126

Keeping your customer’s investment objectives in mind 128

Dealing with discounts 130

Figuring the sales charge and public offering price of open-end funds 132

Considering Other Investment Company Options 134

Face-amount certificate companies 134

Unit investment trusts (UITs) 134

Exchange-traded products (ETPs) 135

Investment company rules 17a-6 and 17a-7 136

Adding Annuities to a Portfolio 136

Looking at fixed annuities 136

Checking out variable annuities 137

Putting money into (and receiving money from) annuities 137

Exploring Variable Life and Variable Universal Life Insurance 139

Testing Your Knowledge 139

Answers and Explanations 143

Chapter 10: Working with Direct Participation Programs and REITs 145

Searching for Identity: What DPPs Are (and Aren’t) 146

The DPP Characters: General and Limited Partners 146

Pushing through Partnership Paperwork 147

Partnership agreement 147

Certificate of limited partnership 148

Subscription agreement 148

Passive Income and Losses: Looking at Taxes on Partnerships 148

Evaluating Direct Participation Programs 149

Checking Out Types of Partnerships 149

Building on real-estate partnership info 149

Gearing up with equipment leasing 150

Strengthening your grasp on oil and gas 151

Reducing Real-Estate Risk with REITs 152

Private (private placement) REITs 153

Registered non-listed REITs 153

Listed REITs 153

Testing Your Knowledge 153

Answers and Explanations 156

Chapter 11: Options: The Right to Buy or Sell at a Fixed Price 157

Brushing Up on Option Basics 157

Reading an option 158

Looking at call options: The right to buy 159

Checking out put options: The right to sell 159

Getting your money back: Options in-, at-, or out-of-the-money 159

Paying the premium: The cost of an option 161

Incorporating Standard Option Math 162

Calls same: Buying or selling call options 163

Puts switch: Buying or selling put options 165

Trading options: Opening and closing transactions 168

Gaining Additional Option Info 170

Clearing through the OCC 170

That’s ODD: Options risk disclosure document 170

Getting the go-ahead: Registered options principal 170

Options account agreement 170

Order ticket 171

Last trade, last exercise, and expiration of an option 171

Exercise and assignment 171

Additional definitions 172

Some additional option rules 173

Testing Your Knowledge 174

Answers and Explanations 178

Part 4: Playing Nicely: Serving Your Customers and Following the Rules 181

Chapter 12: Serving Your Customers: Customer Accounts 183

Following Protocol When Opening Accounts 183

Filing the facts on the new account form 184

Selecting the appropriate type of account 186

Investment advisers 189

Cash or margin? 189

Getting Margin Paperwork Out of the Way 189

Introducing Long and Short Margin Accounts 190

Playing by the Federal Reserve Board’s Rules 191

Regulation T 191

Margin call 191

Opening a Margin Account: The Initial Requirements 191

Starting long accounts 192

Opening short accounts 193

Obeying the Telephone Act of 1991 193

Testing Your Knowledge 193

Answers and Explanations 196

Chapter 13: Doing a Little Market Research: Securities Analysis 199

Knowing Your Securities and Markets: Securities Analysis 200

Regarding risk 200

Mitigation of risk 201

Deciding what to buy: Fundamental analysis 203

Deciding when to buy: Technical analysis 205

Following the Green: Money Supply 207

Influencing the money supply 208

Opening the Federal Reserve Board’s toolbox 209

Reading Economic Indicators 210

Leading indicators 210

Coincident (coincidental) indicators 211

Lagging indicators 211

GDP versus GNP 211

How Economic Factors Affect Securities 212

Cyclical 212

Defensive 212

Growth 212

Principal Economic Theories 212

Keynesian (demand side) 213

Supply side (Reaganomics) 213

Monetarist 213

Testing Your Knowledge 213

Answers and Explanations 216

Chapter 14: Going to Market: Orders and Trades 219

Shopping at Primary and Secondary Markets 219

Buying new in the primary market 220

Buying used in the secondary market 220

Making the Trade 220

Auctioning securities at securities exchanges 221

Negotiating trades over-the-counter 221

Understanding the Role of a Broker-Dealer 222

Introducing broker (IB) 222

Clearing (carrying) broker 223

Prime broker 223

Receiving Orders from Customers 223

Talking about order types 223

Factoring in order features 225

Looking at Market Participants 227

Retail investors 227

Accredited investors 227

Institutional investors 228

Testing Your Knowledge 229

Answers and Explanations 231

Chapter 15: Making Sure the IRS Gets Its Share 233

Everything in Its Place: Checking Out Tax and Income Categories 233

Touring the tax categories 234

Looking at types of income 234

Noting Taxes on Investments 234

Interest income 234

Dividends 235

At the sale: Capital gains and losses 236

Exploring Retirement Plan Tax Advantages 238

Qualified versus nonqualified plans 238

IRA types and contribution limits 239

401(k) and 403(b) 240

Testing Your Knowledge 241

Answers and Explanations 244

Chapter 16: No Fooling Around: Rules and Regulations 245

The Market Watchdogs: Securities Regulatory Organizations 245

The Securities and Exchange Commission 246

Self-regulatory organizations 247

Investor education and protection 247

State regulators 248

Department of the Treasury/IRS 248

FINRA Registration and Reporting Requirements 248

Disqualification 249

Fingerprints 250

Continuing education 250

Resignation and termination 251

Associated persons exempt from registration 251

Reporting requirements 251

Trading by the Book When the Account is Open 252

Filling out an order ticket 253

Checking your calendar: Payment and settlement dates 255

Regulation S-P 256

Confirming a trade 256

Financial exploitation of specified adults 257

Borrowing from or lending to 258

Following up with account statements 258

Keeping your dividend dates straight 259

Handling complaints 261

Retail communications 262

Record keeping 262

Committing Other Important Rules to Memory 263

Sticking to the 5 percent markup policy 263

Avoiding violations 265

Following the money: Anti-money-laundering rules 267

AML compliance program 268

Insider trading rules 269

The Investor’s Bankruptcy Shield: FDIC and SIPC 270

Holding a customer’s mail 271

Business continuity plans and emergency contact information 271

Testing Your Knowledge 272

Answers and Explanations 278

Part 5: Putting Your Knowledge to Good Use: Practice Exams 281

Chapter 17: Bring It On: Practice Exam 1 283

Practice Exam Answer Sheet 285

Chapter 18: Answers & Explanations to Practice Exam 1 297

Making the Grade 305

Answer Key for Practice Exam 1 306

Chapter 19: Nothing But Net: Practice Exam 2 307

Practice Exam Part 2 Answer Sheet 309

Chapter 20: Answers & Explanations to Practice Exam 2 323

Knowing the Score 332

Answer Key for Practice Exam 2 333

Part 6: The Part of Tens 335

Chapter 21: Ten SIE Exam Traps to Avoid 337

Easing Up on the Studying 337

Assuming the Question’s Intent 338

Reading into the Question 338

Becoming Distracted When Others Finish 338

Not Dressing for Comfort 338

Forgetting to Breathe 339

Trying to Work Out Equations in Your Head Instead of Writing Them Down 339

Spending Too Much Time on One Question 339

Changing Your Answers for the Wrong Reasons 339

Calculating Your Final Score Prematurely 340

Chapter 22: Ten Ways to Start Your Career Off Right 341

Win at the Numbers Game 341

Be an Apprentice 342

Do Your Homework 342

Treat the Minnow like a Whale 342

Smile When You Dial 342

When a Security Falls, Don’t Be a Stranger 342

Put In the Hours 343

Broaden Your Horizons 343

Pay Yourself First 343

Set Some Goals: The Brass Ring 344

Index 345

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