SIE Exam (Securities Industry Essentials): Compliance Considerations — Flashcards

Compliance considerations, which represent roughly 40% of the exam when combining the "Trading, Customer Accounts, and Prohibited Activities" (31%) and "Regulatory Framework" (9%) sections, focus on ethical conduct, investor protection, and legal restrictions. 

Core Compliance & Regulatory Basics
Key Regulatory Bodies: Candidates must know the roles of the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), Municipal Securities Rulemaking Board (MSRB), and the Federal Reserve.
SIPC and FDIC: Understanding that the Securities Investor Protection Corporation (SIPC) protects customer accounts against broker-dealer failure, while FDIC protects bank deposits.
Reporting Requirements: Knowledge of reporting requirements for Suspicious Activity Reports (SAR) and Currency Transaction Reports (CTR).
Registration and Licensing: Basic understanding of Form U4 (registration) and the requirement for fingerprinting and background checks. 

Prohibited Activities (Ethical Standards)
The exam tests knowledge of unethical or illegal practices that must be avoided, including: 

Insider Trading: Trading based on material, non-public information.
Front-Running: Placing firm or personal trades ahead of customer orders.
Churning: Excessive trading in a customer's account to generate commissions.
Market Manipulation: Activities like "painting the tape" or "pump and dump" schemes.
Senior Exploitation: Rules designed to protect vulnerable investors over the age of 65. 

Customer Account & Trading Rules
Know Your Customer (KYC): Ensuring firms collect essential information about customers to properly service them.
Account Documentation: Rules regarding opening, updating, and maintaining different account types (cash, margin, retirement).
Anti-Money Laundering (AML): Understanding the basics of AML compliance programs, including the "three stages" of money laundering and the role of the Bank Secrecy Act.
Recordkeeping and Privacy: Adherence to Regulation S-P, which requires firms to protect customer privacy and notify them of privacy policies. 

Employee Conduct
Gifts and Gratuities: Strict rules against giving or receiving gifts over $100 per year from or to individuals associated with other firms.
Political Contributions: Restrictions on contributions to political parties or candidates for whom a representative is not entitled to vote (MSRB Rule G-37).
Private Securities Transactions: Rules regarding selling away—conducting securities transactions outside of the employing firm's knowledge.