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FINRA SIE Exam
Securities Industry Essentials (Page 7 )

Updated On: 12-Jan-2026
Page 7 of 42
PDF with 164 Questions

Before an affiliate of an issuer is permitted to sell 10,000 shares of restricted securities, which of the following conditions must be met?

  1. The affiliate must have a holding period of six months.
  2. The company must be traded on a listed stock exchange.
  3. The issuer must notify FINRA of the proposed sale by submitting a Form 144.
  4. The shares to be sold must be less than 10% of the average daily trading volume (ADTV) of the security.

Answer(s): A

Explanation:

Rule 144 Holding Period: Restricted securities held by affiliates require a six-month holding period before sale, provided the issuer is subject to SEC reporting requirements.

Other Options:

Notification to FINRA (C) is incorrect; Form 144 is submitted to the SEC, not FINRA.

The 10% ADTV limitation (D) applies to the volume of shares sold, not the conditions for sale.


Reference:

SEC Rule 144 (Selling Restricted Securities): S, E, C Rule 144.



Which of the following strategies is best for mitigating the risk of a concentrated position?

  1. Diversification
  2. Use of leverage
  3. Dollar-cost averaging
  4. Dividend reinvestment

Answer(s): A

Explanation:

Diversification: Spreads investments across multiple securities, industries, or asset classes to reduce exposure to a single security or sector.

Other Options:

Use of Leverage: Increases, not decreases, portfolio risk.

Dollar-Cost Averaging: Reduces timing risk but does not address concentration.

Dividend Reinvestment: Enhances returns but does not mitigate concentration risk.


Reference:

SEC Guidance on Diversification: SEC Diversification.



Which of the following rates is the interest rate at which banks borrow and lend to each other on an overnight basis?

  1. Prime rate
  2. Discount rate
  3. Federal funds rate
  4. LIBOR

Answer(s): C

Explanation:

Federal Funds Rate: The rate at which depository institutions lend reserves to each other overnight. It is set by the Federal Open Market Committee (FOMC).

Other Rates:

Prime Rate: Rate banks charge their most creditworthy customers.

Discount Rate: Rate the Federal Reserve charges banks for borrowing directly from it.

LIBOR: Interbank lending rate used internationally, now being phased out.


Reference:

Federal Reserve Explanation of Rates: Federal Funds Rate.



A real estate investment trust (REIT) is required to invest what percentage of total assets in real- estate-related assets to maintain favorable tax treatment?

  1. At least 50% of total assets
  2. At least 75% of total assets
  3. At least 90% of total assets
  4. 100% of assets

Answer(s): B

Explanation:

REIT Requirements: REITs must invest at least 75% of their total assets in real estate to qualify for favorable tax treatment under IRS regulations.

90% Rule: Refers to the distribution requirement for taxable income, not asset allocation.

100% Rule: There is no requirement to allocate 100% of assets to real estate.


Reference:

IRS Publication 542 (Real Estate Investment Trusts): I, R, S REIT Guidelines.



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