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SIE Practice Questions with Explanations

8/19/2026

Practice questions are the most efficient way to prepare for the Securities Industry Essentials exam, whether you study on your own or through a structured program such as our SIE Exam Prep Online Course, but only if you use them properly. Answering a question and checking the letter tells you very little. Working out why the right answer is right, and why each wrong answer is wrong, is what builds the recognition the SIE actually tests.

This page gives you a set of original SIE-style practice questions, written for this post rather than taken from FINRA or any prep vendor, and organized by the four sections of FINRA's SIE content outline. Every question comes with a full explanation. Use them to find out which sections need more work, and to practice the reasoning that turns a scenario into an answer.

A note on proportions before you start. FINRA's outline weights the scored questions as follows: Knowledge of Capital Markets 16%, Understanding Products and Their Risks 44%, Understanding Trading, Customer Accounts and Prohibited Activities 31%, and Overview of the Regulatory Framework 9%. The set below follows that emphasis, with the most questions on products and on trading and accounts.

How to Use These Questions

Cover the answer and explanation before you read the options. Commit to an answer, ideally writing it down, and only then check.

When you get one wrong, do not just note the correct letter. Ask which of three things went wrong:

  • You did not know the fact. Add it to a review list.
  • You knew the fact but misread the question. Look for the qualifier you missed: "most likely," "except," "best describes."
  • You fell for a distractor. Work out what made the wrong option attractive, because the real exam will use the same trap.

When you get one right, read the explanation anyway. A right answer for the wrong reason will fail you on the next variation.

Section 1: Knowledge of Capital Markets

Question 1

A company that has never issued stock sells shares to the public for the first time through an underwriting syndicate. This transaction takes place in the:

  • Secondary market
  • Primary market
  • Third market
  • Fourth market

Answer: B. A sale of newly issued securities by the issuer, with the proceeds going to the issuer, is a primary market transaction. An initial public offering is the textbook example. The secondary market is where investors trade securities already outstanding among themselves, and the issuer receives nothing. The third and fourth markets are older terms for particular kinds of secondary trading: exchange-listed securities traded over the counter, and direct trades between institutions without a broker-dealer. The test is simple: if the issuer is selling and receiving the money, it is primary.

Question 2

The Federal Open Market Committee wants to reduce the money supply. Which open market action is consistent with that goal?

  • Buying Treasury securities from primary dealers
  • Selling Treasury securities to primary dealers
  • Lowering the reserve requirement
  • Lowering the target range for the federal funds rate

Answer: B. When the Fed sells securities, buyers pay for them with reserves that leave the banking system, which tightens money and credit. Buying securities does the opposite, adding reserves. Lowering the reserve requirement or the federal funds target are both easing actions. On the exam, "tighten," "restrict" and "reduce the money supply" all point toward selling securities and raising rates; "ease" points the other way. Bank staff often know this intuitively from watching rate changes flow into deposit and loan pricing.

Question 3

A firm fills a customer's buy order by selling the customer shares from its own inventory and adding a markup. In this transaction the firm acted as a:

  • Broker, acting as agent
  • Dealer, acting as principal
  • Transfer agent
  • Underwriter

Answer: B. A firm that buys or sells for its own account is acting as a dealer, in a principal capacity, and is compensated through a markup or markdown. A firm that arranges a trade between the customer and another party, without taking ownership, is acting as a broker, in an agency capacity, and charges a commission. A firm cannot act as both broker and dealer in the same transaction. A transfer agent maintains ownership records for the issuer, and an underwriter distributes new issues. The words "inventory" and "markup" are the giveaway.

Section 2: Understanding Products and Their Risks

Question 4

A customer buys a corporate bond with a 6% coupon at a price of 96, or $960 per $1,000 of par. What is the current yield, and how does it compare with the bond's yield to maturity?

  • 6.00%; yield to maturity is lower
  • 6.25%; yield to maturity is lower
  • 6.25%; yield to maturity is higher
  • 5.76%; yield to maturity is higher

Answer: C. Current yield is annual interest divided by current market price: $60 / $960 = 6.25%. Because the bond was bought at a discount, the investor also gains the $40 difference between price and par at maturity, so the yield to maturity is higher than the current yield. For a discount bond the order is nominal yield < current yield < yield to maturity. For a premium bond it reverses. Memorizing that one relationship answers a large share of SIE yield questions without any calculation.

Question 5

Interest rates are expected to rise significantly. Which of the following would be expected to fall the most in price?

  • A 2-year Treasury note
  • A 30-year zero-coupon bond
  • A 30-year bond with an 8% coupon
  • A money market fund

Answer: B. Price sensitivity to interest rates increases with time to maturity and decreases with the size of the coupon. A long-term zero-coupon bond pays nothing until maturity, so all of its value depends on a single distant payment, which makes it the most sensitive to rate changes. The 30-year coupon bond is also sensitive, but its coupons return some value earlier. The 2-year note has little time left for rate changes to matter, and a money market fund holds very short-term instruments.

Question 6

An investor sends a purchase order for a mutual fund that is received by the fund at 2:00 p.m. Eastern time. The fund calculates its net asset value at the 4:00 p.m. close. At what price will the order be filled?

  • The NAV calculated at the previous day's close
  • The NAV calculated at the 4:00 p.m. close that day, plus any applicable sales charge
  • The price at which the fund's shares last traded on an exchange
  • A price negotiated between the investor and the fund

Answer: B. Open-end mutual funds use forward pricing: purchase and redemption orders are filled at the next NAV calculated after the order is received. An order received before the day's calculation gets that day's price. For a fund with a front-end sales charge, the purchaser pays the public offering price, which is NAV plus the sales charge. Open-end fund shares are bought from and redeemed with the fund, not traded on an exchange, which rules out option C; that description fits closed-end funds and ETFs.

Question 7

A company has skipped two quarterly dividends on its cumulative preferred stock. Before it can pay a dividend on its common stock, the company must:

  • Pay only the current preferred dividend
  • Pay the skipped preferred dividends and the current preferred dividend
  • Obtain shareholder approval for the common dividend
  • Convert the preferred stock to common stock

Answer: B. The cumulative feature means that missed preferred dividends accumulate as dividends in arrears. All of them, plus the current preferred dividend, must be paid before any common dividend. Non-cumulative preferred would only require the current dividend. Preferred stock has priority over common for dividends and in liquidation, which is why it is described as senior to common, but it remains junior to the company's debt.

Question 8

An investor buys 1 XYZ call option with a strike price of $50 for a premium of $3. Ignoring commissions, what are the investor's maximum loss and breakeven point?

  • Maximum loss $300; breakeven $53
  • Maximum loss $300; breakeven $47
  • Maximum loss unlimited; breakeven $53
  • Maximum loss $5,000; breakeven $50

Answer: A. A standard equity option covers 100 shares, so a $3 premium costs $300, and the most a buyer of any option can lose is the premium paid. For a call, the breakeven is the strike price plus the premium: $50 + $3 = $53. The stock must rise above $53 at expiration for the buyer to profit. Breakeven of $47 would be correct for a put buyer (strike minus premium). Unlimited loss belongs to the seller of an uncovered call, not the buyer.

Question 9

Which of the following municipal bonds is backed by the issuer's full faith, credit and taxing power?

  • A revenue bond issued to build a toll road
  • A general obligation bond issued by a city
  • An industrial development revenue bond
  • A bond backed by water and sewer user fees

Answer: B. General obligation bonds are backed by the issuer's taxing power and full faith and credit, and are typically repaid from tax revenue. Revenue bonds are repaid from the income of a specific facility or project, such as tolls or user fees. Industrial development revenue bonds are backed by the lease payments of the private company using the facility, so their credit really depends on that company. Distinguishing the source of repayment is the core of almost every municipal question on the SIE.

Question 10

Which statement about a variable annuity is accurate?

  • The insurance company guarantees the value of the separate account
  • The contract owner bears the investment risk of the separate account
  • A variable annuity is an insurance product and not a security
  • A representative needs only an insurance license to sell it

Answer: B. In a variable annuity, premiums are invested in a separate account whose value rises and falls with the underlying investments, so the contract owner bears the investment risk. That is what distinguishes it from a fixed annuity, where the insurer bears it. Because of that investment feature, a variable annuity is both a security and an insurance contract, so selling one requires a securities registration such as the Series 6 or Series 7 and a state insurance license. For bank investment programs, missing one of those two is a recurring gap.

Question 11

An investor holds callable bonds with a high coupon. Interest rates have fallen sharply. The risk the investor faces is best described as:

  • Inflation risk
  • Call risk, with resulting reinvestment risk
  • Liquidity risk
  • Currency risk

Answer: B. When rates fall, an issuer of high-coupon callable bonds has a strong incentive to call them and refinance at a lower rate. The investor gets the call price back and must reinvest at the new, lower rates. Call risk and reinvestment risk go together in this scenario. Inflation risk is the loss of purchasing power over time, liquidity risk is difficulty selling without a price concession, and currency risk applies to foreign-denominated investments.

Section 3: Understanding Trading, Customer Accounts and Prohibited Activities

Question 12

A registered representative makes frequent trades in a customer's account that generate substantial commissions but serve no purpose consistent with the customer's objectives. This practice is called:

  • Front running
  • Churning
  • Painting the tape
  • Selling away

Answer: B. Churning is excessive trading in a customer account, in light of the customer's financial situation and objectives, done primarily to generate commissions. It is a classic violation of suitability and fair dealing. Front running is trading ahead of a customer's large order using knowledge of it. Painting the tape is creating misleading trading activity through prearranged trades. Selling away is a representative engaging in securities transactions outside the regular course of employment without proper notice to the firm.

Question 13

A customer buys common stock in a regular-way transaction on a Monday with no holidays that week. When does the trade settle?

  • The same day
  • Tuesday
  • Wednesday
  • Thursday

Answer: B. Regular-way settlement for most U.S. securities transactions moved from two business days to one business day after trade date (T+1) on May 28, 2024. A Monday trade settles on Tuesday. Older study materials will show T+2, which is now wrong, so make sure your prep is current. Questions about settlement are easy points if you know the current standard and costly if you studied from an outdated book.

Question 14

A customer opens a margin account and buys $20,000 of marginable stock. Under Regulation T, what is the customer's initial deposit requirement?

  • $2,000
  • $5,000
  • $10,000
  • $20,000

Answer: C. Regulation T, issued by the Federal Reserve Board, sets the initial margin requirement for equity securities at 50% of the purchase price, so a $20,000 purchase requires $10,000. Separate FINRA rules set a minimum equity requirement for margin accounts and ongoing maintenance requirements, which is why $2,000 sometimes appears as a distractor. On the SIE, margin questions are conceptual and arithmetic is light, but the 50% Regulation T figure is worth knowing cold.

Question 15

Under the Bank Secrecy Act, a broker-dealer must file a suspicious activity report for a transaction conducted by, at or through the firm that involves at least what amount in funds or other assets, when the firm knows, suspects or has reason to suspect the transaction is suspicious?

  • $2,000
  • $3,000
  • $5,000
  • $10,000

Answer: C. FinCEN's suspicious activity reporting rule for broker-dealers, at 31 CFR 1023.320, applies to transactions of at least $5,000 that meet the suspicious-activity criteria. The $10,000 figure belongs to currency transaction reporting, which is a different requirement triggered by cash amounts over $10,000. The $3,000 figure is associated with recordkeeping for certain funds transfers and monetary instrument purchases. Bank employees know these thresholds from the bank side; the SIE tests the broker-dealer version. For more on the bank side, see our post on money laundering red flags.

Question 16

A representative recommends a security to a retail customer. Under the SEC's Regulation Best Interest, the broker-dealer and representative must:

  • Guarantee the customer will not lose money
  • Act in the customer's best interest at the time of the recommendation, without placing their own interest ahead of the customer's
  • Recommend only the lowest-cost product available
  • Obtain written approval from the customer before every recommendation

Answer: B. Regulation Best Interest requires a broker-dealer making a recommendation to a retail customer to act in that customer's best interest at the time of the recommendation, without placing the financial or other interest of the firm or representative ahead of the customer's. It is implemented through disclosure, care, conflict-of-interest and compliance obligations. Cost is an important factor under the care obligation, but the rule does not require recommending the cheapest product. No rule permits a representative to guarantee against loss; doing so is prohibited.

Question 17

A representative helps a friend invest in a private real estate venture, receives compensation for doing so, and does not tell the employing firm. This is an example of:

  • A permissible outside business activity
  • A private securities transaction, commonly called selling away
  • Free-riding
  • A matched order

Answer: B. Participating in a securities transaction outside the regular course of employment with the member firm is a private securities transaction. FINRA rules require written notice to the firm before participating, and where the representative is compensated, the firm must approve and supervise the activity as if it were its own. Doing it without notice is selling away, one of the more common reasons for disciplinary action. Free-riding involves improper purchases of hot new issues, and a matched order is a form of manipulation.

Section 4: Overview of the Regulatory Framework

Question 18

Which of the following is a self-regulatory organization?

  • The Securities and Exchange Commission
  • FINRA
  • The Federal Deposit Insurance Corporation
  • The Office of the Comptroller of the Currency

Answer: B. FINRA is a self-regulatory organization that writes and enforces rules for its member broker-dealers, under SEC oversight. The SEC is a federal government agency, not an SRO. The FDIC and OCC are federal banking regulators. Other SROs include the national securities exchanges and the MSRB, which writes rules for the municipal securities market. Bank staff sometimes overthink this question because their own regulators are government agencies; the SRO concept is specific to the securities industry.

Question 19

The MSRB writes rules for municipal securities dealers. For a bank that operates as a municipal securities dealer through a separately identifiable department, which regulators enforce MSRB rules?

  • The MSRB itself
  • FINRA only
  • The bank's federal banking regulator, with the SEC
  • The state treasurer

Answer: C. The MSRB writes rules but does not have its own inspection and enforcement staff for dealers. FINRA enforces MSRB rules for broker-dealer firms, and the federal banking regulators (the OCC, the Federal Reserve and the FDIC) enforce them for bank dealers, with the SEC also having authority. This is a favorite SIE distinction, and it is one of the places where the bank and securities regulatory worlds meet directly.

Question 20

A candidate has passed the SIE but has not yet passed a top-off exam or been registered. Which of the following may the candidate do?

  • Solicit customers for securities transactions
  • Accept customer orders under supervision
  • Show the SIE pass to prospective employers as evidence of industry knowledge
  • Recommend mutual funds to bank customers

Answer: C. FINRA is explicit that passing the SIE alone does not qualify anyone for registration or to engage in securities business. The candidate may not solicit, accept orders or make recommendations. What the SIE pass does provide is evidence of basic industry knowledge, which is exactly why FINRA opened it to anyone 18 or older. A bank employee who has passed the SIE but is not registered must still stay within the referral limits that apply to unregistered staff, which our post on bank investment services compliance sets out.

What Your Results Tell You

Score yourself by section rather than in total. Twenty questions is too small a sample for a reliable overall score, but section-level patterns are informative.

  • Missed several in Section 2? That is the most important finding, because products and risks are 44% of the scored exam. Spend time on the bond relationships, options basics and the differences among packaged products.
  • Missed several in Section 3? Focus on account types, prohibited practices and the operational facts such as settlement, margin and AML that are easy to memorize.
  • Missed Sections 1 or 4? They are smaller, but the questions are often definitional, so a short review list closes the gap quickly.

The next step is volume. A full-length practice set under timed conditions, with 75 scored questions in 1 hour and 45 minutes, tells you whether you can sustain accuracy at exam pace. FINRA lists a passing score of 70, but aim well above that in practice, because practice questions you have seen before inflate your score.

Keep Practicing

These twenty questions are a diagnostic, not a preparation plan. Our Securities Industry Essentials (SIE) Exam Prep Online Course is the next step once you know where your gaps are. For background on why the SIE matters for bank staff and what follows it, see our post on securities licensing for bankers, and the securities licensing page for top-off and state exam prep.

Frequently Asked Questions

Are these SIE practice questions from the real exam?

No. Every question on this page was written for this post. FINRA does not release its live exam items, and reproducing questions from FINRA or prep vendors would not be appropriate. The questions here are modeled on the topics and style described in FINRA's SIE content outline, covering the same four sections in roughly the same proportions. Use them to test your understanding of the concepts rather than to predict specific questions, because the real exam draws on a large bank of items you will not have seen.

How many practice questions should I do before the SIE?

There is no official number, but quality matters more than count. Work enough questions to cover every topic in the FINRA content outline several times, and finish with at least one or two full-length timed exams at 75 questions in 1 hour and 45 minutes. The useful measure is consistent scores comfortably above the passing mark on questions you have not seen before, rather than high scores on repeated sets, which tend to overstate readiness.

What is the hardest section of the SIE?

For most candidates it is Understanding Products and Their Risks, partly because it is the largest section at 44% of scored questions and partly because it covers a wide range: equities, debt, municipal securities, options, packaged products and the risks attached to each. Bank employees often find the debt material familiar but need extra work on options and investment company products. Trading, accounts and prohibited activities is the second-largest section and rewards straightforward memorization.

Is there a free official SIE practice exam?

FINRA publishes the SIE content outline, which lists every topic that can be tested, and its website has general information about the exam. Prep providers, including course publishers, offer practice exams of their own, some free and many as part of a paid course. Whatever you use, check that it reflects current rules, such as T+1 settlement, because outdated practice material teaches wrong answers.

What score should I aim for on SIE practice tests?

FINRA lists a passing score of 70 on the SIE, but you should aim higher in practice, ideally in the high 70s or above on fresh, timed questions. Practice scores tend to overstate readiness because you see similar questions repeatedly and are not under exam conditions. If you are scoring consistently well above the pass mark on unseen full-length tests, you are in a good position to schedule.

Do SIE practice questions help with the Series 7?

Yes, to a degree. The Series 7 top-off assumes the general knowledge the SIE tests, so solid SIE preparation gives you a foundation in products, accounts and regulation. But the Series 7 goes much deeper, especially in options, municipal securities and suitability, and its questions are built around job functions. Once you are sponsored for the Series 7, switch to Series 7 specific practice material.