Securities Industry Essentials (SIE) Exam

FINRA SIE Content Breakdown


SIE Key Stats

What is the SIE Exam? SIE stands for Securities Industry Essentials, and the exam is hosted by the Financial Industry Regulatory Authority (FINRA). If you didn’t already know, securities are the official name for investment vehicles such as stocks, bonds, and mutual funds. The SIE exam will cover the basics of investing, which include investment products, regulations, and general industry practices. To pass this exam, you will be required to demonstrate a fundamental knowledge of the finance industry.

 

SIE Content Breakdown

The Financial Industry Regulatory Authority (FINRA) administers the SIE, which is a 85 question exam. 10 of the questions are considered “experimental” and do not count towards your grade. In total, 75 questions will count toward your final score. The test is broken down into these categories:

 

Topic # Questions % of Test
Knowledge of Capital Markets 12 16%
Understanding Products and Their Risks 33 44%
Understanding Trading, Customer Accounts, and Prohibited Activities 23 31%
Overview of the Regulatory Framework 7 9%
Total 250 100%

This chart may vary slightly based on how the content of your specific book line up with the FINRA syllabus, but this rubric is a great starting point.

Now, digging into the content by category, you can get much more specific about what to expect. Let’s analyze the sections, starting with the largest:

 

Understanding Products and Their Risks – 33 questions – 44% of the exam

In the world of finance, you may only be aware of stocks. However, there are many financial products investors can choose from. Thankfully, the SIE exam will focus only on a small selection of investments, which include:

  • Equity securities (common and preferred stock)
  • Exchange traded funds
  • Exchange traded notes
  • Debt securities (bonds)
  • Options
  • Investment Companies (for example: mutual funds)
  • Direct Participation Programs
  • Hedge funds

Each of these products has benefits, risks, and fit a specific type of investor. These characteristics, along with how they function and how they are taxed must be known for the exam. In addition, there are the underlying ethics, rules, and regulations of each.

 

Understanding Trading, Customer Accounts, and Prohibited Activities – 23 questions – 31% of the exam

After you learn the various financial products, you’ll need to learn the rules of trading them and what type of accounts hold them. In addition, there are rules and ethics that must be understood to operate as a financial professional.

Trading securities can be detailed and complicated, but the SIE tends to focus on the basics. You’ll need to understand how investors do financial transactions and the different ways to submit orders to the market. Investors can specify certain requirements for their trade: for example, requesting that a stock be bought for $50 or less. You’ll need to demonstrate proficiency in the basics of trading securities and the mechanics of the financial markets.

Customers can open and maintain several different types of accounts. You will be asked questions on the specifics of these accounts, including ownership status, tax status, and paperwork required to open them. The accounts typically tested include:

  • Individual
  • Joint (with rights of survivorship and tenants in common)
  • Business accounts
  • Discretionary accounts
  • Options accounts
  • Margin accounts
  • Retirement accounts
  • Educational accounts

Registered representatives understanding the ethics of finance is very important to FINRA. You’re going to see questions on items ranging from market manipulation to insider trading. It will be your job to demonstrate a general knowledge of what to avoid and how to ethically operate in finance.

 

Knowledge of Capital Markets – 12 questions – 16% of the exam

You might be wondering what a capital market is. Capital is another term for an asset, which usually takes the form of money in finance. When a company or an organization wants to raise large sums of money, it can do so through a variety of means. You may have heard of an IPO – initial public offering. That’s one of the most common ways to raise capital in finance.

 

In addition to understanding how companies and organizations raise money through selling financial products, you’ll need to know finance regulators and how they operate. The SEC and FINRA write rules and regulate these markets. In addition, the MSRB (Municipal Securities Rulemaking Board) writes the rules for the municipal (city and state) market.

Economic conditions have an affect on the financial markets and investors. Therefore, the SIE will test you on the basics of the economy and how they may drive decisions made in the market. Government decisions (monetary and fiscal policy) are also tested and must be understood.

 

Overview of the Regulatory Framework – 7 questions – 9% of the exam

Rules, rules, and more rules. Whenever the word “regulatory” appears, you’re going to be required to recall laws, regulations, and general rules of the industry. As a registered representative, there are many conduct rules you must understand and follow to work in the industry. Typical questions from this section focus on:

  • Customer complaints
  • Outside business activities
  • Entertaining customers
  • Gifts given and received
  • Political contributions
  • Required disclosures to FINRA and customers

 

Bonus: Experimental Questions

The SIE exam that you take will have 85 questions, with 10 of those questions being “experimental” questions that don’t count on the final exam. Don’t sweat this too much – just answer them as normal and be confident in your approach. This is one of the reasons why it’s so important to skip questions where you are “stuck”, which we will cover more in our Test Taking Strategies post.

 

How to use this content breakdown

Analyze the content and rate your knowledge

When you’re planning out your last couple weeks before test day, be sure to spend a bit of time with each section before planning – and do a couple practice questions from each one. You can probably already tell which sections you need more practice with. Take note of your confidence with each section.

 

Prepare a study schedule

Give yourself a time budget for how many hours you plan on studying between today and test day. Be realistic – the goal here is to set an appropriate schedule. For reference, most SIE courses recommend 50-100 hours to learn the material. If you’ve already been reading through the material and are just planning your final review, 10-20 hours is often recommended.

Once you have your budget of hours, you need to split up your time according to two factors: how confident you are with each section, and how much of the exam is comprised of that section. You want to spend the most time studying the highest value topics where you have the most room to improve. Your goal is to maximize the impact on your score in the budget of time that you have.

 

Schedule? I have no time!

But wait, what if I’m far behind and the test is in a few days? You will be happy to hear that you can in fact get through more content than you think. In controlled studies, most students see a drop-off after studying for more than three hours in a row, but with just an hour break they can study another three hours with similar success. This doesn’t make for the best results, but it can do in a pinch.

The best results? You get those by studying consistently over at least a couple weeks, and reviewing the material you’ve already studying as you progress.

That’s it for our breakdown of the SIE content. We’re going to be adding a lot more SIE content to our blog in the coming months, including answers to specific questions / topics related to the exam. Subscribe in the sidebar to get these tips and more.


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