FINRA SIE - Securities Industry Essentials Exam (SIE)

Bonds pay interest periodically (commonly semiannually). Between interest payment dates, interest accrues daily. When a bond is sold in the secondary market, the buyer will receive the full next interest payment from the issuer on the scheduled coupon date—even though the buyer did not hold the bond for the entire coupon period. To make this fair, the buyer compensates the seller for the portion of interest that accrued while the seller owned the bond. This compensation is called accrued interest, and it is paid by the buyer to the seller as part of the transaction’s total cost.

Operationally, in most bond trades the quoted price is “clean” (excluding accrued interest). The settlement amount is the “dirty” price: clean price + accrued interest. From the seller’s perspective, accrued interest is added to the net proceeds of the sale, which is exactly what choice D states. Therefore, the correct answer is D.

Choice A is incorrect because the buyer is not receiving accrued interest; the buyer is paying it. Choice B is incorrect because accrued interest is not deducted from the seller’s proceeds; it is added. Choice C is incorrect because the seller does not wait until the next coupon date to receive their earned interest—accrued interest is settled in the trade. The bond issuer pays the coupon to the holder of record as of the relevant record date, which will be the buyer after settlement; the seller is compensated at settlement via accrued interest.

This is a core SIE bond settlement concept: buyer pays seller accrued interest, and the seller’s proceeds include it.

Step by Step Explanation:

403(b) Accounts: These tax-advantaged retirement plans are specifically for employees of public schools, tax-exempt organizations, and certain other nonprofit employers, such as hospitals.

Incorrect Options:

Volunteer Workers: Ineligible unless they are also employees.

Small Business Owners and Military Personnel: These groups typically qualify for other retirement plans, not 403(b).

IRS Publication 571 (403(b) Plans): IRS 403(b) Guidance.

Step by Step Explanation:

Government Bond Funds: Invest in government-backed securities, but the value of the fund itself is not guaranteed by the government, as these funds are subject to market risks.

Incorrect Options:

A: Diversification depends on the fund’s investment strategy.

B: Interest/dividend payments may fluctuate.

C: If interest rates fall, NAVs typically rise, not drop.

SEC Guidance on Mutual Funds: SEC Government Bond Funds.

Step by Step Explanation:

Regular-Way Settlement: For equity securities, settlement occurs on a T+2 basis, meaning two business days after the trade date.

Calculation:

Trade Date (T): Thursday, August 2.

T+2 Settlement: Excludes weekends, so settlement falls on Monday, August 6.

Incorrect Options:

A: Reflects T+1, not the correct settlement cycle.

C & D: Extend beyond the standard T+2 cycle.

FINRA and SEC Settlement Rules: SEC Settlement Rules.

In a tenants in common account, each owner has a distinct percentage of ownership. Upon the death of one owner, their share does not transfer to the surviving owner(s); instead, it becomes part of the deceased’s estate.

C is correct because ownership is divided, and the deceased’s share passes to their estate.

A is incorrect because partnerships have different agreements governing ownership transitions.

B is incorrect because trust corporations are governed by trust agreements, not estate processes.

D is incorrect because JTWROS accounts pass ownership directly to the surviving account holder(s).

In a UTMA account, the minor is the legal owner of the account. The custodian (in this case, the attorney) manages the account until the minor reaches the age of majority specified by state law.

C is correct because the grandson (the minor) is the account’s legal owner.

A is incorrect because the attorney is the custodian, not the owner.

B is incorrect because the grandfather established the account but does not own it.

D is incorrect because the parent does not have ownership unless explicitly named as the custodian.

Nonregistered persons may perform clerical, ministerial, and administrative functions that do not involve securities recommendations, solicitation, or order taking. Assisting sales staff in tracing and tabulating commissions is a classic back-office/administrative task and is permitted for nonregistered personnel, making B correct. This type of activity supports operations but does not involve engaging in securities business that requires registration.

Choice A is not permitted because even taking unsolicited orders can be considered participating in securities transactions and can cross into activity reserved for registered persons, depending on the specifics. The SIE expects you to treat order taking as a registered activity unless it is clearly limited to purely clerical receipt and immediate routing under strict supervision—most exam questions treat “taking orders” as requiring registration.

Choice C is also problematic because contacting customers about whether they are satisfied with their investments can easily become a discussion about performance, holdings, or recommendations. While customer service calls may be allowed if strictly scripted and non-securities related, the wording “satisfied with their existing investments” suggests an investment discussion that can cross into solicitation or advice, which a nonregistered person should not do.

Choice D is not permitted because contacting prospective investors about a seminar tied to the BD’s proprietary mutual fund is effectively marketing/sales-related outreach that can be viewed as solicitation. Even if framed as “educational,” it is connected to a specific product and prospecting activity, which generally requires registration.

The SIE tests the boundary: nonregistered = administrative support; registered = solicitation, recommendations, and securities business communications.

Step by Step Explanation:

FINRA Rule 2210: Firms are prohibited from suggesting or implying FINRA's endorsement or approval in any advertising materials.

Approvals: Even if a principal or FINRA approves the content, such a statement remains impermissible.

Key Point: FINRA's role is to regulate, not to endorse firms or their marketing.

FINRA Rule 2210 (Communications with the Public): FINRA Rule 2210.

American Depositary Receipts (ADRs) provide U.S. investors with exposure to foreign companies, making D correct. An ADR is a negotiable receipt issued by a U.S. depository bank representing shares (or a fraction of shares) in a non-U.S. company. ADRs trade in U.S. markets and are typically priced and settle in U.S. dollars, which can make foreign investing more operationally convenient for U.S. investors while still offering exposure to the underlying foreign issuer’s business and its home-market risks.

Choice A (Treasury bills) are U.S. government debt instruments and do not provide foreign exposure. Choice B (municipal bonds) are issued by U.S. states, cities, and other municipal entities, so they are domestic. Choice C (SPY) is an ETF designed to track the S&P 500, which is a U.S. large-cap equity index; while some underlying companies may have international operations, SPY is not typically considered a direct “foreign investment exposure” vehicle in SIE terms. ADRs are the clean, direct answer because the underlying issuer is foreign.

On the SIE, ADRs are tested as an equity product type and as a method of gaining international exposure, along with related concepts such as currency considerations (even if ADRs trade in dollars, the underlying business may be exposed to currency and foreign political/economic risk), and the role of depository banks.