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 12
Taking a Peek at the Tested Topics 12
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 14
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 25
Exploring Study Strategies 26
Developing Solid Test-Taking Skills 26
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 27
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 29
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 38
Focusing on key information 38
Answer me this: Picking the correct answer 39
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 44
Arriving on the Scene 45
Taking advantage of one last chance to cram 45
Signing in 45
Getting seated 45
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 54
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
Chapter 6: Corporate Ownership: Equity Securities 61
Beginning with the Basics: Common Stock 61
Understanding a stockholder’s voting rights 62
Categorizing shares corporations can sell 63
Considering the par value of common stock 64
Corporate actions 64
Splitting common stock 65
Sharing corporate profits through dividends 66
Getting Preferential Treatment: Preferred Stock 68
Considering characteristics of preferred stock 68
Getting familiar with types of preferred stock 69
Securities with a Twist 71
Opening national borders: ADRs 71
Rights: The right to buy new shares at a discount 71
Warrants: The right to buy stock at a fixed price 72
Chapter 7: Debt Securities: Corporate and US Government Loans 73
Tackling Bond Terms, Types, and Traits 73
Remembering bond terminology 73
Following bond issue and maturity schedules 75
Comparing secured and unsecured bonds 75
Making Basic Bond Price and Yield Calculations 77
Finding bond yields 77
Determining the Best Investment: Comparing Bonds 79
Considering bond credit ratings 79
Contrasting callable and put bonds 81
Popping the top on convertible bonds 82
Exploring US Government Securities 82
Understanding the types and characteristics of US government securities 82
Playing It Safe: Short-Term Loans or Money Market Instruments 84
Chapter 8: Municipal Bonds: Local Government Securities 87
General Obligation Bonds: Backing Bonds with Taxes 87
General characteristics of GOs 88
Analyzing GO bonds 88
Dealing with Revenue Bonds: Raising Money for Utilities and Such 89
General characteristics of revenue bonds 90
Analyzing revenue bonds 90
The Primary Market: Bringing New Municipal Bonds to Market 91
Allocation of orders 92
Definitions for new issues 92
Examining Other Types of Municipal Bonds on the Test 92
Taxable Municipal Bonds 94
Don’t Forget Municipal Notes! 94
Municipal Fund Securities 95
Section 529 Plans 95
ABLE accounts 96
Local Government Investment Pools 96
Understanding the Taxes on Municipal Bonds 96
Comparing municipal and corporate bonds equally 97
Scot-free! Taking a look at triple tax-free municipal bonds 97
Following Municipal Bond Rules 98
Confirmations 98
Advertising and record keeping 99
Gifts 99
Commissions 99
Gathering Municipal Bond Info 100
The bond resolution (indenture) 100
Legal opinion 100
Official statement 100
“G” That’s a Whole Lot of Rules 101
Part 3: Delving Deeper: Security Investments with a Twist 105
Chapter 9: Delivering Diversification with Packaged Securities 107
Diversifying through Management Investment Companies 108
Comparing open- and closed-end funds 108
Keeping your customer’s investment objectives in mind 110
Dealing with discounts 112
Figuring the sales charge and public offering price of open-end funds 114
Considering Other Investment Company Options 115
Face-amount certificate companies 116
Unit investment trusts (UITs) 116
Exchange-traded products (ETPs) 116
Investment company rules 17a-6 and 17a-7 117
Adding Annuities to a Portfolio 117
Looking at fixed annuities 118
Checking out variable annuities 118
Putting money into (and receiving money from) annuities 118
Exploring Variable Life and Variable Universal Life Insurance 120
Chapter 10: Working with Direct Participation Programs and REITs 121
Searching for Identity: What DPPs Are (and Aren’t) 122
The DPP Characters: General and Limited Partners 122
Pushing through Partnership Paperwork 123
Partnership agreement 123
Certificate of limited partnership 124
Subscription agreement 124
Passive Income and Losses: Looking at Taxes on Partnerships 124
Evaluating Direct Participation Programs 125
Checking Out Types of Partnerships 125
Building on real-estate partnership info 125
Gearing up with equipment leasing 126
Strengthening your grasp on oil and gas 127
Reducing Real-Estate Risk with REITs 128
Private (private placement) REITs 129
Registered non-listed REITs 129
Listed REITs 129
Chapter 11: Options: The Right to Buy or Sell at a Fixed Price 131
Brushing Up on Option Basics 131
Reading an option 132
Looking at call options: The right to buy 133
Checking out put options: The right to sell 133
Getting your money back: Options in-, at-, or out-of-the-money 133
Paying the premium: The cost of an option 135
Incorporating Standard Option Math 136
Calls same: Buying or selling call options 137
Puts switch: Buying or selling put options 139
Trading options: Opening and closing transactions 142
Gaining Additional Option Info 144
Clearing through the OCC 144
That’s ODD: Options risk disclosure document 144
Getting the go-ahead: Registered options principal 144
Options account agreement 144
Order ticket 145
Last trade, last exercise, and expiration of an option 145
Exercise and assignment 145
Additional definitions 146
Some additional option rules 147
Part 4: Playing Nicely: Serving Your Customers and Following the Rules 149
Chapter 12: Serving Your Customers: Customer Accounts 151
Following Protocol When Opening Accounts 151
Filing the facts on the new account form 151
Selecting the appropriate type of account 154
Investment advisers 156
Cash or margin? 157
Getting Margin Paperwork Out of the Way 157
Introducing Long and Short Margin Accounts 158
Playing by the Federal Reserve Board’s Rules 158
Regulation T 158
Margin call 159
Opening a Margin Account: The Initial Requirements 159
Starting long accounts 160
Opening short accounts 160
Obeying the Telephone Act of 1991 160
Chapter 13: Doing a Little Market Research: Securities Analysis 163
Knowing Your Securities and Markets: Securities Analysis 163
Regarding risk 164
Mitigation of risk 165
Deciding what to buy: Fundamental analysis 166
Deciding when to buy: Technical analysis 168
Following the Green: Money Supply 171
Influencing the money supply 171
Opening the Federal Reserve Board’s toolbox 172
Reading Economic Indicators 173
Leading indicators 174
Coincident (coincidental) indicators 174
Lagging indicators 174
GDP versus GNP 175
How Economic Factors Affect Securities 175
Cyclical 175
Defensive 175
Growth 175
Principal Economic Theories 176
Keynesian (demand side) 176
Supply side (Reaganomics) 176
Monetarist 176
Chapter 14: Going to Market: Orders and Trades 177
Shopping at Primary and Secondary Markets 177
Buying new in the primary market 177
Buying used in the secondary market 178
Making the Trade 178
Auctioning securities at securities exchanges 178
Negotiating trades over-the-counter 179
Understanding the Role of a Broker-Dealer 179
Introducing broker (IB) 180
Clearing (carrying) broker 180
Prime broker 180
Receiving Orders from Customers 181
Talking about order types 181
Factoring in order features 183
Looking at Market Participants 185
Chapter 15: Making Sure the IRS Gets Its Share 187
Everything in Its Place: Checking Out Tax and Income Categories 187
Touring the tax categories 187
Looking at types of income 188
Noting Taxes on Investments 188
Interest income 188
Dividends 189
At the sale: Capital gains and losses 190
Exploring Retirement Plan Tax Advantages 192
Qualified versus nonqualified plans 192
IRA types and contribution limits 193
401(k) and 403(b) 194
Chapter 16: No Fooling Around: Rules and Regulations 197
The Market Watchdogs: Securities Regulatory Organizations 197
The Securities and Exchange Commission 197
Self-regulatory organizations 198
Investor education and protection 199
State regulators 200
Department of the Treasury/IRS 200
FINRA Registration and Reporting Requirements 200
Disqualification 201
Fingerprints 202
Continuing education 202
Resignation and termination 203
Associated persons exempt from registration 203
Reporting requirements 203
Trading by the Book When the Account Is Open 204
Filling out an order ticket 205
Checking your calendar: Payment and settlement dates 207
Regulation S-P 208
Confirming a trade 208
Financial exploitation of specified adults 209
Borrowing from or lending to 210
Following up with account statements 210
Keeping your dividend dates straight 210
Handling complaints 212
Retail communications 213
Record-keeping 214
Committing Other Important Rules to Memory 215
Sticking to the 5 percent markup policy 215
Avoiding violations 216
Following the money: Anti-money-laundering rules 218
AML compliance program 220
Insider trading rules 220
The Investor’s Bankruptcy Shield: FDIC and SIPC 221
Holding a customer’s mail 222
Business continuity plans and emergency contact information 222
Part 5: Putting Your Knowledge to Good Use: Practice Exams 225
Chapter 17: Bring It On: Practice Exam 1 227
Chapter 18: Answers & Explanations to Practice Exam 1 241
Making the Grade 249
Answer Key for Practice Exam 1 250
Chapter 19: Nothing But Net: Practice Exam 2 251
Chapter 20: Answers & Explanations to Practice Exam 2 265
Knowing the Score 274
Answer Key for Practice Exam 2 275
Part 6: The Part of Tens 277
Chapter 21: Ten SIE Exam Traps to Avoid 279
Easing Up on the Studying 279
Assuming the Question’s Intent 280
Reading into the Question 280
Becoming Distracted When Others Finish 280
Not Dressing for Comfort 280
Forgetting to Breathe 281
Trying to Work Out Equations in Your Head Instead of Writing
Them Down 281
Spending Too Much Time on One Question 281
Changing Your Answers for the Wrong Reasons 281
Calculating Your Final Score Prematurely 282
Chapter 22: Ten Ways to Start Your Career Off Right 283
Win at the Numbers Game 283
Be an Apprentice 284
Do Your Homework 284
Treat the Minnow like a Whale 284
Smile When You Dial 284
When a Security Falls, Don’t Be a Stranger 284
Put In the Hours 285
Broaden Your Horizons 285
Pay Yourself First 285
Set Some Goals: The Brass Ring 286
Index 287
Other versions by this Author