Free FINRA SIE Practice Exam with Questions & Answers

Buying a call option gives the investor the right to purchase the stock at a fixed price (strike price). If the stock’s price rises significantly, the value of the call option increases, allowing the investor to profit.

B is correct because a call option profits directly from a stock price increase.

A is incorrect because a put option profits from a stock price decline.

C and D are incorrect because selling options limits profit potential and exposes the seller to significant risk if the stock moves unfavorably.

The correct answer is C, $500,000 in equities. SIPC (Securities Investor Protection Corporation) provides protection for customers of failed broker-dealers up to $500,000 total per customer, including a maximum of $250,000 for cash.

Step-by-step, SIPC coverage applies to securities (stocks, bonds, mutual funds) and limited cash held in brokerage accounts. The key limits are:

Total coverage: $500,000

Cash sub-limit: $250,000

Now evaluate each choice:

A: $300,000 cash exceeds the $250,000 cash limit, so $50,000 would be uncovered.

B: $500,000 in cash exceeds the $250,000 limit, leaving $250,000 uncovered.

C: $500,000 in equities is fully covered because securities can be protected up to the full $500,000 limit.

D: Total is $750,000, which exceeds SIPC limits, so not fully covered.

Thus, only the account consisting entirely of $500,000 in securities (equities) falls within SIPC coverage limits without exceeding either the total or cash sub-limit.

Therefore, Answer C is correct.

The correct answer is A, $2,000. A Coverdell Education Savings Account (ESA) is a tax-advantaged account designed to help families save for qualified education expenses, including both K–12 and higher education costs. One of the key features tested on the SIE exam is the annual contribution limit, which is $2,000 per beneficiary per year, regardless of the number of contributors.

This contribution limit is relatively low compared to other education savings vehicles, such as 529 plans, which generally allow much higher contributions. Additionally, contributions to a Coverdell ESA are not tax-deductible, but earnings grow tax-deferred, and withdrawals are tax-free if used for qualified education expenses.

The other answer choices are incorrect because they do not reflect IRS rules. $6,500 is closer to IRA contribution limits, not Coverdell accounts. $75,000 is far above any permitted annual contribution and is unrealistic for this type of account. Choice D refers to a concept used in 529 plan withdrawal limits for room and board but has no relevance to ESA contribution limits.

Thus, remembering the fixed $2,000 annual contribution cap is essential for SIE exam success.

" Regular way " settlement refers to the standard settlement cycle for securities transactions, which is T+2 for most stocks and bonds. This timeline is set by regulators to ensure orderly processing of trades.

D is correct because regular way settlement follows the preset T+2 cycle.

A is incorrect because cash settlement occurs the same day as the trade.

B is not a recognized term for settlement types.

C is incorrect because next-day settlement applies only to specific securities (e.g., Treasury securities).

The correct answer is A, It remains the same as it was prior to the split. A reverse stock split changes the number of shares outstanding and the stock price proportionally, but it does not affect the overall market capitalization of the company.

Step-by-step, market capitalization is calculated as:

Market Cap = Shares Outstanding × Price per Share

In a 1-for-25 reverse split, every 25 shares are consolidated into 1 share. This means the number of shares outstanding is reduced to 1/25th of the original amount. At the same time, the stock price increases by a factor of 25.

For example, if a company had 25,000 shares at $4 per share (market cap = $100,000), after the reverse split it would have 1,000 shares at $100 per share. The new market cap is still $100,000.

Choice B is incorrect because although the price increases, the number of shares decreases proportionally. Choice C is incorrect because shares actually decrease, not increase. Choice D is incorrect because the decrease in shares is offset by the increase in price.

Thus, a reverse stock split has no impact on total market capitalization, making Answer A correct.

Bottom of Form

When a member firm opens an account for an employee of another member firm, the account-opening firm must comply with notification and duplicate-document requirements, but it is not required to request prior written approval from FINRA. Choice A is the exception and therefore the correct answer. The firm must advise the associated person that it will notify the employing firm. It must notify the employer firm before executing the initial transaction. If the employer firm requests duplicate confirmations and account statements, the executing firm must provide them. These requirements allow the employer firm to supervise outside brokerage activity of its associated persons and detect potential conflicts, undisclosed trading, insider trading concerns, or prohibited activity. Choice B, choice C, and choice D describe required or conditionally required steps. The SIE outline includes employee conduct, outside accounts, books and records, customer confirmations, account statements, and FINRA Rule 3210, Accounts at Other Broker-Dealers and Financial Institutions. The rule is supervisory in nature: FINRA does not approve each outside brokerage account, but the employing firm must receive notice and requested records. Reference: Overview of Regulatory Framework; Employee Conduct; FINRA Rule 3210.

The correct answer is A, Blue-sky laws. Blue-sky laws are state-level securities regulations designed to protect investors from fraud and unethical practices in the sale of securities. Each state has its own securities regulator and rules governing the registration of securities, broker-dealers, and investment advisers operating within that state.

Step-by-step, Blue-sky laws require securities offerings to be registered at the state level unless exempt, and they also mandate disclosure and anti-fraud provisions to ensure investors receive accurate information. These laws complement federal regulations but specifically focus on local investor protection.

Choice B, the Truth in Lending Act, is a federal law that governs disclosure of credit terms for consumers, not securities regulation. Choice C, Regulation T, is also federal and issued by the Federal Reserve to regulate margin requirements for securities purchases. Choice D, Know-your-customer (KYC) standards, are industry rules enforced by FINRA and other regulators, but they are not state-specific laws.

Thus, the only regulation aimed specifically at protecting individuals at the state level is Blue-sky laws, making Answer A correct.

NASAA is the North American Securities Administrators Association, and its membership is made up of state, provincial, and territorial securities regulators (in the U.S., primarily the state securities administrators). That makes C correct. On the SIE, NASAA is tested as the umbrella organization representing state-level regulators, which are responsible for enforcing state securities laws (“blue sky” laws), registering certain securities offerings when applicable, and registering/licensing investment adviser representatives and other participants under state jurisdiction.

Choice A is incorrect because broker-dealers are regulated entities, not NASAA members. Broker-dealers register with the SEC and are members of self-regulatory organizations like FINRA, but they are not “members of NASAA.” Choice B is incorrect because stock exchanges are marketplaces and are often SROs themselves, but they are not NASAA members. Choice D is incorrect because SROs (such as FINRA or MSRB) are not NASAA members; NASAA represents state-level governmental regulators, not self-regulatory organizations.

This question reinforces an important SIE framework: U.S. securities regulation is shared among federal regulators (SEC), self-regulatory organizations (FINRA, MSRB, exchanges), and state regulators. NASAA serves as a coordinating body for state regulators, promoting uniformity through model rules, policy coordination, investor education, and cooperation among jurisdictions. Understanding NASAA’s membership helps you correctly assign regulatory roles—especially when questions involve blue sky laws, state registration requirements, and state-level enforcement.

Churning is the prohibited practice of excessive trading in a customer account primarily to generate commissions or other compensation for the broker-dealer or representative. It is especially associated with discretionary accounts because the representative has authority to trade and may abuse that authority by placing transactions that are unsuitable in frequency, size, or purpose. Choice B is correct. Kiting generally refers to fraudulent activity involving the misuse of funds or checks and is not the term for excessive securities trading. Freeriding occurs when a customer buys and sells securities without paying for them, typically in violation of cash account payment rules. Front running involves trading ahead of a customer order or block transaction to benefit from anticipated price movement. The SIE outline identifies excessive trading as a type of market manipulation or prohibited activity and also covers discretionary accounts, suitability, best interest obligations, and commissions. The technical elements of churning are control of the account, excessive trading in light of the customer’s profile, and intent to generate compensation rather than serve the customer’s investment interest. Reference: Understanding Trading, Customer Accounts and Prohibited Activities; Market Manipulation; Discretionary Accounts; Suitability.

Step by Step Explanation:

FINRA Rule 1122: Requires that registered representatives update their residential address with FINRA for two years post-termination.

Purpose: This ensures accurate records for potential regulatory inquiries during the statutory two-year period when a terminated individual remains subject to FINRA’s jurisdiction.

FINRA Rule 1122 (Filing False or Misleading Information): FINRA Rule 1122.