Free FINRA SIE (Securities Industry Essentials) Knowledge of Capital Markets Practice Questions
Knowledge of capital markets on the FINRA SIE exam covers the structure and function of equity, debt, and derivatives markets, regulatory agencies (SEC, FINRA, MSRB), and the role of broker-dealers and investment advisers in the securities industry.
Sample Questions
Question 1
Easy
The fourth market is best described as:
Solution
C is correct. The fourth market consists of direct institution-to-institution transactions, generally facilitated through electronic communication networks (ECNs) and alternative trading systems, without a broker-dealer acting as intermediary. The first market is exchange-floor trading of listed stocks, the third market is OTC trading of exchange-listed stocks between broker-dealers, and primary-market transactions involve new-issue distributions rather than secondary trading.
Question 2
Medium
Transactions in all of the following take place in the secondary market EXCEPT:
Solution
C is correct. The purchase of newly issued shares from the underwriting syndicate is a primary market transaction, in which the issuer (through the syndicate) sells securities and receives the proceeds. Trading among investors after issuance occurs in the secondary market: on an exchange (second market), OTC in listed securities (third market), and institution-to-institution via an ECN (fourth market).
Question 3
Hard
A registered representative is reviewing how trades route through U.S. market structure and when they settle. All of the following statements are accurate EXCEPT:
Solution
A is correct. In the primary market, securities are sold by the issuer directly to investors to raise new capital (for example, an IPO). Trades between investors on an exchange take place in the secondary market, not the primary market, so this statement is the exception. The remaining statements are accurate: regular-way settlement for most securities moved to T+1 in 2024, the fourth market is direct institution-to-institution trading executed through ECNs without a broker-dealer intermediary, and the third market is the over-the-counter trading of exchange-listed securities.