StreetPrimer

    SIE Section 3: Trading, Customer Accounts and Prohibited Activities (23 of 75 questions)

    Section 3 of the Securities Industry Essentials® (SIE®) Exam carries 23 of the 75 scored questions under FINRA's content outline (© 2025 edition), or 31 percent of the scored exam. Where Section 2 is mostly product definitions, Section 3 is mostly rules: a short scenario about a customer, a representative or a trade, resolved by knowing which rule applies.

    This guide follows the outline's headings 3.1 through 3.3, states the rule-based facts as of September 2026, and gives one original scenario per sub-area. FINRA allocates questions by section only; it does not publish how the 23 are divided among sub-areas, and we do not guess.

    3.1 Trading, Settlement and Corporate Actions

    3.1.1 Orders and Strategies

    Market, limit, stop and stop-limit orders; day and good-till-canceled instructions; long and short positions; bid, ask and spread; agency versus principal capacity. The point that produces the most errors is direction: a buy stop sits above the current market and a sell stop below it, the reverse of limit orders.

    Scenario. A customer is short 200 shares of XYZ Inc., sold at $30, and wants an order that closes the position automatically if the stock rises to $34. The answer is a buy stop at $34, which becomes a market order once the stock trades at or through $34. A buy limit at $34 would execute immediately, since the market is already below it.

    3.1.2 Investment Returns

    Dividends, interest, capital gains and losses, total return, cost basis and basic tax treatment.

    Scenario. An investor buys 100 shares of ABC Corp at $50, receives $2 per share in dividends over the year, and sells at $53. Total return is ($53 − $50 + $2) ÷ $50 = $5 ÷ $50 = 10 percent. The price change alone is the capital gain.

    3.1.3 Trade Settlement

    Regular-way settlement for stocks, corporate bonds, municipal bonds and options is T+1, one business day after the trade date, effective May 28, 2024. Before that it was T+2, and older prep material still says so. Treasury securities also settle T+1; cash settlement is same-day.

    Scenario. A customer buys 500 shares of ABC Corp on Friday, September 18, 2026. Regular-way settlement is Monday, September 21; weekends and exchange holidays do not count.

    3.1.4 Corporate Actions

    Splits, dividends, rights offerings, tender offers, mergers, buybacks, and the dividend calendar: declaration, ex-dividend, record and payable dates. The move to T+1 changed that calendar. Under T+2 the ex-date fell one business day before the record date; under T+1 it is generally the same day as the record date. To receive a declared dividend, a buyer must purchase before the ex-date so the trade settles by the record date.

    Scenario. XYZ Inc. declares a cash dividend with a record date of Thursday, October 15, 2026; the ex-date is also October 15. An investor who buys on Wednesday, October 14 settles on the 15th and receives the dividend. An investor who buys on the 15th settles on the 16th and does not.

    3.2 Customer Accounts and Compliance Considerations

    Candidates report this heading, together with suitability and the prohibited practices under 3.3, as the part of the exam they were least prepared for.

    3.2.1 Account Types and Characteristics

    Cash, margin, options, discretionary and fee-based accounts; retirement and education accounts; delivery-versus-payment and prime brokerage arrangements.

    Margin is the testable calculation. Under Regulation T, the Federal Reserve's rule on broker-dealer credit, the initial margin requirement on a purchase of marginable stock is 50 percent.

    Scenario. A customer buys $20,000 of ABC Corp stock in a margin account. Regulation T requires a deposit of $10,000; the firm lends the other $10,000. A discretionary account, by contrast, is one where the customer has given written authority to choose the security, quantity or action; choosing only price or time of execution does not require it.

    3.2.2 Customer Account Registrations

    Under joint tenants with right of survivorship (JTWROS), each owner holds an equal, undivided interest, and on one owner's death the account passes to the survivor outside the estate. Under tenants in common (TIC), interests may be unequal, and a deceased owner's share passes to that owner's estate, not to the other tenant.

    Custodial accounts under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) have one custodian and one minor. A gift into the account is irrevocable and belongs to the minor; the account uses the minor's Social Security number; the custodian manages it in the minor's interest until the age set by state law.

    Scenario. A married couple wants the survivor to own the whole account automatically if one of them dies, without probate. JTWROS does that. Two unrelated business partners who each want their share to go to their own heirs would choose TIC.

    3.2.3 Anti-money Laundering (AML)

    The Bank Secrecy Act framework: a written AML program, a customer identification program at account opening, sanctions screening, and two reporting thresholds.

    • A Currency Transaction Report (CTR) is filed for cash transactions of more than $10,000 in a single business day.
    • A broker-dealer files a Suspicious Activity Report (SAR) for a transaction of $5,000 or more that it knows, suspects or has reason to suspect involves illegal funds, evades reporting, or has no apparent lawful purpose. The customer is not told.

    The three stages of laundering (placement, layering, integration) are testable vocabulary, as is structuring: splitting cash deposits to stay under the CTR line.

    Scenario. A new customer deposits $9,600 in cash on Monday and $9,700 on Wednesday. Neither triggers a CTR on its own, but the pattern is what structuring looks like; the firm's AML program would flag it for review and likely SAR filing, and the representative must not tell the customer.

    3.2.4 Books and Records and Privacy Requirements

    SEC Rules 17a-3 and 17a-4 govern the records a broker-dealer creates and how long it keeps them; the outline also lists confirmations, account statements, Regulation S-P privacy notices and identity-theft red-flag programs.

    Scenario. A branch manager asks how long the firm must keep order tickets and its general ledger. Under Rule 17a-4, blotters and ledgers are kept six years and most other records three years, in each case the first two years in an easily accessible place. Customers receive a confirmation of each trade and an account statement at least quarterly.

    3.2.5 Communications with the Public and General Best Interest Obligations and Suitability Requirements

    FINRA Rule 2210 sorts communications by audience. A retail communication is any written or electronic communication distributed or made available to more than 25 retail investors within any 30-calendar-day period; correspondence goes to 25 or fewer retail investors in that period; institutional communications go only to institutional investors. The category sets the approval and content standards that apply.

    FINRA Rule 2111 (suitability) has three components: reasonable-basis (the firm understands the product well enough to believe it suits at least some investors), customer-specific (the recommendation fits this customer's investment profile) and quantitative (a series of recommended transactions is not excessive taken together, even if each is suitable alone).

    Regulation Best Interest (Reg BI), the SEC rule for broker-dealer recommendations to retail customers, imposes four obligations: disclosure (material facts including fees and conflicts, in writing, before or at the time of the recommendation), care (reasonable diligence, care and skill, considering the customer's profile and reasonably available alternatives), conflict of interest (written policies to identify and at least disclose or eliminate conflicts) and compliance (written policies and procedures to achieve compliance with the rule). Reg BI sits on top of Rule 2111 for retail recommendations.

    Scenario. A representative emails a summary of a fictional bond fund to 40 retail clients over a week. It reached more than 25 retail investors within 30 days, so it is a retail communication under Rule 2210. When she then recommends the fund to one of them, Reg BI's care obligation requires her to weigh that client's profile and reasonably available alternatives, and its disclosure obligation requires the fund's fees and her firm's conflicts to have been disclosed.

    3.3 Prohibited Activities

    3.3.1 Market Manipulation

    The outline names specific practices and the exam tests them by name. The four most often confused:

    • Front-running: trading for one's own or the firm's account ahead of a known customer order likely to move the price.
    • Marking the close: entering trades or orders near the end of the session to influence the closing price.
    • Spoofing: entering orders with no intention of executing them, to create a false impression of supply or demand, then canceling once the market moves.
    • Wash trades: buying and selling the same security with no change in beneficial ownership, to create the appearance of activity.

    Scenario. A trader places a large buy order for XYZ Inc. just below the market, waits for others to raise their bids, sells his existing position into the higher bids, and cancels the buy order he never meant to execute. That is spoofing. Trading for his own account moments before entering a large customer order would instead be front-running.

    3.3.2 Insider Trading

    Trading on material nonpublic information (MNPI), or passing it on, violates Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. Liability extends beyond corporate insiders: the tipper who discloses MNPI in breach of a duty and the tippee who trades on it knowing, or having reason to know, that it was obtained improperly are both liable. Civil penalties can reach three times the profit gained or loss avoided.

    Scenario. An accountant at ABC Corp learns that the company will announce a large earnings shortfall next week and mentions it to his brother-in-law over dinner. The brother-in-law sells his ABC shares the next morning. The accountant is the tipper and the brother-in-law the tippee; both have violated the rules even though the accountant traded nothing and was paid nothing.

    3.3.3 Other Prohibited Activities

    Conduct violations tested mostly as definitions: churning (excessive trading to generate commissions), unauthorized trading, guarantees against loss, selling away, borrowing from or lending to customers, commingling, selling dividends, breakpoint sales, freeriding and excessive markups.

    Scenario. A customer hesitates over a recommendation and the representative says, "If it loses money in the first year, I will make up the difference personally." That is a guarantee against loss and is prohibited whether or not the representative could ever pay. Placing the trade without asking would be unauthorized trading; trading chiefly to generate commissions would be churning.

    Drilling Section 3

    Because the section is rule-based, the errors are precise: the wrong threshold, the wrong number of days, the wrong registration. Put each fact above on a card and drill until recall is immediate. Then work scenario items under time; the exam gives 1 hour 45 minutes for 80 questions, and Section 3 stems run longer than Section 2's. Check every wrong answer against the rule.

    This is exam preparation, not investment advice.

    StreetPrimer's Full Access includes a timed Section 3 drill sized to the outline's 23-question allocation, the other section drills and the full-length 80-question mock. Results show raw percent correct and per-heading counts. The real SIE reports an equated score on a 0–100 scale; passing is 70, and a raw percentage from a practice set is not an equated score.

    Independent study tool; not affiliated with FINRA.