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FINRA SIE Exam Preparation: Understanding Clearing, Settlement, and Market Participants, Exams of Business Finance

A comprehensive overview of the finra sie (securities industry essentials) exam, focusing on the key concepts related to clearing, settlement, and the various market participants involved in the securities industry. It covers topics such as the qualifications of accredited investors, the role and responsibilities of clearing agencies and corporations, the differences between brokers, dealers, and market makers, the various types of investor classifications, and the structure and functioning of exchange and over-the-counter (otc) markets. The document also delves into the specific functions and operations of the depository trust & clearing corporation (dtcc) and its subsidiaries, as well as the concepts of clearing and settlement. This comprehensive resource is designed to help candidates prepare for the finra sie exam by providing a thorough understanding of the fundamental principles and processes that underlie the securities industry.

Typology: Exams

2023/2024

Available from 09/24/2024

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Download FINRA SIE Exam Preparation: Understanding Clearing, Settlement, and Market Participants and more Exams Business Finance in PDF only on Docsity! FINRA SIE Chap 1 Exam 59 Questions with Verified Answers What are the quailfications of a an accredited investor? - CORRECT ANSWER 1. 200,000 annual income (single) 2. 300,000 annual income (joint/married) (last two years) 3. $1,000,000 net worth EXCLUDING primary residence For accredited investors does in include primary residence? - CORRECT ANSWER No! Must have a networth not including primary residence What is the DTCC's goal? - CORRECT ANSWER to automate and centrailze clearing and settlement. The securities do not have to be physical. How are equities cleared? (i.e what agency?) - CORRECT ANSWER National Securities Clearing Corporation (NSCC) what does the National Securities Clearing Corporation (NSCC) do? - CORRECT ANSWER - a subsidiary to the DTCC - The National Securities Clearing Corporation (NSCC) provides clearing services for the majority of broker-to-broker equity trades in the United States. What is the purpose of clearing agencies/corporations? name 3 main suctions - CORRECT ANSWER -It provides trade comparison and reporting services. -It assists broker-dealers in transferring assets in a customer account to another broker- dealer. -It offers customers the ability to have real-time trade matching. What does a DTC do? - CORRECT ANSWER has the responsibility for automated book-entry changes in the ownership of securities Where are non listed stocks found? - CORRECT ANSWER Over the counter markets (OTC equities) can be found on the OTCBB (bulletin) board and OTC pink marketplace Who maintains accounts for ominous accounts in clearing? - CORRECT ANSWER The introducing firms What is a broker-dealer? - CORRECT ANSWER a financial intermediary that connects issuers of securities to investors What does a broker do? - CORRECT ANSWER Brokers act as AGENTS that have commission by connecting buyers and sellers (or issuers and investors) What does it mean to be an agent and a principal - CORRECT ANSWER agent = act on behalf of someone else, arranges for the asset for the customer principal = provides the service, What does a dealer do? - CORRECT ANSWER dealer acts as a principal and makes profit on markups / markdowns (spreads) PDM. Hold inventory so have invetory risk What does the market maker do? - CORRECT ANSWER Market maker stands ready to buy and sell at the stated prices. They will quote and people will buy in lots. They are obligated to buy and sell at the quoted price provide liquidity What is the bid - CORRECT ANSWER What the Broker will Buy at I.e what me can sell to the broker for What is the ask - CORRECT ANSWER what the broker will sell at i.e what I can buy it for What does an investment advisor do? - CORRECT ANSWER Charges a fee for managing a portfolio (i.e is not transaction based). Typically a fee based on AUM. Will be the customer of brokers or dealers. Retail investors - CORRECT ANSWER pretty much anything that isnt classified as the others. Individuals with limited (average) asset amount What are institutional investors? - CORRECT ANSWER Large amount of assets, not a natural person, such as banks, hedge funds, pensions, etc can investment advisors be muni advisors? - CORRECT ANSWER YES! Muni advisors are advisors that help governments with their municipal bonds (i.e who to underwrite, how to go about it) Accredited investors - CORRECT ANSWER a step above retail. these are more sophisticated investors that meet certain requirements. NOT a pool of money! But can be both natural persons and intuitions such as banks if a firm buys a security from a customer using its own funds and places the securities into its inventory, it is acting as a - CORRECT ANSWER dealer What exchange has a unlimited number of market makers? - CORRECT ANSWER NASDQ What exchange has a designated market maker for a stock? - CORRECT ANSWER NYSE Does DTCC have any securities? - CORRECT ANSWER No, its a book entry system What does DTCC actually do? i.e what are they doing when a trade happens? - CORRECT ANSWER They are marketing the change of the ownership, transfers the ownership in book entry form What does the NSCC do? - CORRECT ANSWER They are the equities side for clearing trade What does FICC do? - CORRECT ANSWER They are fixed income such as debt and MBS what are clearing firm - CORRECT ANSWER they can be their own firm (such as JP Morgan) that order the execution, clearing and settlement of trades the clearing firms will have their own back office, and then will charge the smaller firms to use them (introducing firms) what is an introducing firm - CORRECT ANSWER they are the smaller firms (that it was too expensive to have their own back office) - they can either be full disclosed of omnibous - they are brokers that bring clients to the clearing firm If it is fully disclosed, what does the clearing firm know? - CORRECT ANSWER knows all the customer record keeping, knows the client, etc the client will receive statements that will say "done by the clearing firm on behalf of the introducing firm) if it is an ominous account who keeps the record keeping? - CORRECT ANSWER Introducing firm If it is a fully disclosed who does the record keeping? - CORRECT ANSWER Clearing accounts Who is DTCC interacting with? - CORRECT ANSWER BROKERS they will have funds on deposit with DTCC and it will be moved around What risk does DTCC remove? - CORRECT ANSWER Counter party risk What is the OCC - CORRECT ANSWER option clearing corp - deal with options and options contracts - Regulates exchanged traded options (listed) - Deals with broker dealers, not customers what is a prime brokerage account? - CORRECT ANSWER - when someone such as a hedge fund, is buying and selling from many different brokers, they create a prime brokerage account that allows them to interface with only one broker vs many allows for considaltion of info into one statement the one clearing broker for the hedge fund when trades from multiple firms clear and settle through one firm - CORRECT ANSWER prime brokerage account