FINRA SIE — Securities Industry Essentials — All Questions

When the Federal Reserve raises the reserve requirement for banks, what is the likely effect?

• a.The federal budget deficit automatically shrinks because Treasury tax receipts rise
• b.Banks can lend less, contracting the money supply and tending to raise interest rates✓
• c.There is no effect on bank lending, because reserves are held purely as a safety cushion
• d.Banks can lend more, expanding the money supply and pushing interest rates lower

Raising the reserve requirement forces banks to hold more funds in reserve, leaving less available to lend. This contracts the money supply and tends to push interest rates higher, a contractionary monetary policy action.

Which of the following is the primary role of the Securities and Exchange Commission (SEC)?

• a.To insure bank deposits at member banks up to the standard $250,000 per-depositor limit
• b.To act as the main self-regulatory organization writing conduct rules for broker-dealers
• c.To set short-term interest rates and control the nation's money supply through open market operations
• d.To enforce federal securities laws and oversee the securities markets and industry participants✓

The SEC is the primary federal regulator charged with enforcing the federal securities laws and overseeing the securities markets, exchanges, and industry participants. It has authority over SROs like FINRA and reviews registration statements for public offerings.

The over-the-counter (OTC) market is best described as:

• a.A single physical trading floor in New York, where exchange specialists match all incoming customer orders
• b.The primary market in which all initial public offerings are sold to investors by the issuing corporation
• c.A decentralized dealer network where securities trade directly between parties rather than on a centralized exchange floor✓
• d.A market that trades United States Treasury securities exclusively, under Federal Reserve supervision

The OTC market is a decentralized network of dealers who trade securities directly with one another and with customers, rather than through a centralized exchange auction. Many bonds and some equities trade OTC, with prices negotiated between dealers.

A firm that maintains an inventory of a security and stands ready to buy and sell it for its own account is acting as a:

• a.Dealer (principal)✓
• b.Broker (agent)
• c.Clearing member
• d.Transfer agent

A dealer, also called a principal, trades for its own account, maintaining an inventory and profiting from the markup or markdown on transactions. A broker, by contrast, acts as an agent, arranging trades between buyers and sellers for a commission.

An issuer sells commercial paper that matures in 180 days. Under the Securities Act of 1933, this short-term instrument is:

• a.Exempt from registration because it is short-term corporate debt maturing in 270 days or less✓
• b.Available to the public only through a Regulation A offering circular filed with the SEC
• c.Required to file a full registration statement with the SEC and deliver a final prospectus
• d.Prohibited from being sold to the public because notes under one year are not securities

Commercial paper and other short-term corporate debt with a maturity of 270 days or less is exempt from registration under the Securities Act of 1933. This exemption allows corporations to raise short-term financing efficiently without the full registration process.Securities Act of 1933

During the cooling-off period, a registered representative may lawfully do which of the following with a prospective investor?

• a.Send a preliminary prospectus and accept a non-binding indication of interest✓
• b.Guarantee the investor a firm allocation of shares at the expected offering price
• c.Accept the investor's payment and finalize a binding sale of the shares
• d.Send the investor the final prospectus and confirm the offering price

During the cooling-off period, no sales may be completed and no money may be accepted, but a representative may distribute a preliminary prospectus (red herring) and take non-binding indications of interest. Actual sales can occur only after the registration becomes effective.

The Federal Open Market Committee (FOMC) is the body within the Federal Reserve responsible for:

• a.Setting federal income tax rates and federal spending levels
• b.Directing open market operations to implement monetary policy✓
• c.Insuring customer brokerage accounts against broker-dealer failure
• d.Registering new securities offerings before they are sold to the public

The FOMC is the Federal Reserve committee that sets the target for the federal funds rate and directs open market operations, the buying and selling of government securities. These decisions are the Fed's principal means of implementing monetary policy.

An investor is concerned that rising inflation will erode the purchasing power of a bond's fixed interest payments. This concern is known as:

• a.Purchasing-power (inflation) risk✓
• b.Credit risk from an issuer default
• c.Liquidity risk in a thin resale market
• d.Reinvestment risk at lower coupon rates

Purchasing-power risk, also called inflation risk, is the danger that rising prices will reduce the real value of a fixed stream of income, such as a bond's coupon payments. It is a particular concern for long-term, fixed-rate securities.

Which of the following describes the fourth market?

• a.Direct trading of securities between institutions without using an exchange or broker-dealer intermediary✓
• b.The market in which only municipal securities are traded, kept separate from all corporate and government issues
• c.Trading of newly issued securities sold directly by the issuer to investors in the primary market
• d.Trading of exchange-listed securities away from the floor in the over-the-counter dealer market

The fourth market refers to direct trading of securities between large institutions, often through electronic communication networks, without the intermediation of a traditional broker-dealer or exchange. The third market, by contrast, is the trading of exchange-listed securities in the OTC market.

Which of the following statements about the relationship between the economy and the stock market is MOST accurate?

• a.Stock prices are unrelated to expectations about the economy and respond only to company earnings reports
• b.The stock market is considered a leading indicator, often reflecting investors' expectations about future economic conditions✓
• c.Stock prices track current-quarter GDP one-for-one, so a 2% rise in GDP lifts the market exactly 2%
• d.The stock market is considered a lagging indicator that merely confirms economic turns months after they occur

The stock market is generally treated as a leading economic indicator because prices reflect investors' expectations about future earnings and economic conditions. As a result, the market often turns before the broader economy does.

In an offering that is entirely secondary, all of the proceeds go to:

• a.The SEC, which collects the proceeds as filing fees
• b.The underwriting syndicate members, not the sellers
• c.The selling shareholders, not the issuing company✓
• d.The issuing company, which receives the new capital

In a purely secondary offering, the shares being sold are already outstanding and owned by existing holders, so the proceeds go to those selling shareholders rather than the company. The issuer does not raise new capital in a secondary distribution.

A syndicate uses an 'all-or-none' (AON) underwriting arrangement. What does this mean?

• a.The offering is canceled and investors' money returned unless the entire issue is sold✓
• b.The issuer must repurchase every share the syndicate fails to place within a year
• c.Only accredited investors may participate, and each must subscribe equally
• d.The underwriter buys the entire issue outright and guarantees the proceeds

In an all-or-none arrangement, a type of best-efforts underwriting, the entire issue must be sold or the offering is canceled and all funds are returned to investors. This protects the issuer from raising only a partial, insufficient amount of capital.

Which of the following institutions serves as the central bank of the United States?

• a.The Federal Reserve System✓
• b.The World Bank's IBRD lending arm
• c.The U.S. Treasury Department
• d.The FDIC's Deposit Insurance Fund

The Federal Reserve System is the central bank of the United States, responsible for conducting monetary policy, supervising banks, and promoting financial stability. The Treasury, by contrast, manages federal finances and issues government debt.

A startup raises money by selling securities only to a small group of wealthy accredited investors, with no general advertising, relying on Rule 506(b) of Regulation D. This is an example of a:

• a.An intrastate offering exempt under Rule 147
• b.Private placement exempt from full registration✓
• c.A Regulation A mini-registration capped at $5 million
• d.A registered initial public offering of new shares

Selling securities to accredited investors without general solicitation under Rule 506(b) of Regulation D is a private placement, which is exempt from full SEC registration under the Securities Act of 1933. Such offerings involve less disclosure but produce restricted securities that cannot be freely resold.Securities Act of 1933

An investor buys 200 shares of a long-public company on an exchange. Who receives the money from this purchase?

• a.The investor who sold the shares✓
• b.The issuing company, as new capital
• c.The SEC, which holds it in escrow
• d.The underwriting syndicate

This is a secondary-market trade in an existing security, so the money goes from the buyer to the investor who sold the shares — not to the issuing company, which received its capital back at the original offering. The SEC and the underwriters are not parties to a routine secondary trade.

Which federal law primarily governs the registration and disclosure requirements for a new issue of securities sold to the public?

• a.The Securities Exchange Act of 1934
• b.The Investment Company Act of 1940
• c.The Bank Secrecy Act
• d.The Securities Act of 1933✓

The Securities Act of 1933 governs the registration and prospectus-disclosure requirements for new issues sold to the public. The 1934 Act governs the secondary market and the SEC; the 1940 Act covers investment companies; the BSA is anti-money-laundering law.

A preliminary prospectus (red herring) circulated during the cooling-off period does NOT contain which item?

• a.A description of the issuer's business
• b.The names of the underwriters
• c.Risk factors of the offering
• d.The final public offering price✓

A red herring omits the final public offering price (and the final proceeds to the issuer); it does include the business description, underwriters, and risk factors. It is used to solicit non-binding indications of interest during the cooling-off period.

When the SEC declares a registration statement effective, it is:

• a.Guaranteeing that every disclosure in the registration statement is accurate, complete, and current
• b.Endorsing the merits of the security as a sound investment for retail buyers
• c.Confirming that the required disclosures appear to have been made, without approving the security✓
• d.Insuring purchasers against any loss on the newly registered shares for one year

SEC effectiveness only means the required disclosures appear to have been made. The SEC does not guarantee accuracy, endorse the security's merit, or insure buyers against loss — claiming it "approved" a security is itself a violation.

Regulation D private placements are sold primarily to:

• a.Any member of the general public
• b.Accredited investors✓
• c.Qualified institutional buyers only
• d.Residents of the issuer's own state only

Regulation D private placements are sold mainly to accredited investors, who meet income or net-worth thresholds. Under Rule 506(b) an issuer may also sell to up to 35 non-accredited purchasers who are financially sophisticated, but may not advertise publicly; under Rule 506(c) the issuer may advertise, but every purchaser must be a verified accredited investor. Sales to the general public require registration. Qualified-institutional-buyer-only resales are the Rule 144A market, and own-state-only offerings are the intrastate exemption, not Regulation D.17 CFR 230.506

A brokerage firm fails, and a customer's fully paid securities are missing from the firm. Which organization is designed to protect the customer in this situation?

• a.The FDIC
• b.The Federal Reserve
• c.SIPC✓
• d.The MSRB

SIPC protects a customer's cash and securities when a brokerage firm fails, up to statutory limits. The FDIC covers bank deposits, the Fed conducts monetary policy, and the MSRB writes municipal rules — none of them replaces missing brokerage assets.

To add money to the banking system and put downward pressure on interest rates, the Federal Reserve will:

• a.Buy government securities in the open market✓
• b.Raise the reserve requirement
• c.Sell government securities in the open market
• d.Raise the discount rate

Buying government securities in the open market injects money into the banking system and pushes rates down. Selling securities, raising the reserve requirement, and raising the discount rate all tighten policy and push rates up.

Adjusting federal tax rates and government spending to influence the economy is an example of:

• a.Monetary policy set by the Federal Reserve Board
• b.Fiscal policy set by Congress and the President✓
• c.Open market operations run by the New York Fed desk
• d.A self-regulatory function performed by FINRA

Taxing and spending decisions are fiscal policy, controlled by Congress and the President. Monetary policy and open market operations belong to the Federal Reserve; this is not an SRO function.

A yield curve on which short-term interest rates are higher than long-term rates is described as:

• a.Normal
• b.Flat
• c.Ascending
• d.Inverted✓

When short-term rates exceed long-term rates, the curve is inverted — an unusual shape that has historically often preceded recessions. A normal curve slopes upward; a flat curve shows little difference across maturities.

The Municipal Securities Rulemaking Board (MSRB):

• a.Insures municipal bonds against default
• b.Examines member broker-dealers and directly enforces its own rules against them
• c.Writes rules for municipal securities but relies on others to enforce them✓
• d.Issues municipal bonds on behalf of cities

The MSRB writes rules for municipal securities but does not enforce them; FINRA and the SEC handle enforcement. The MSRB does not insure or issue bonds.

A recession is commonly defined as:

• a.A single quarter of rising unemployment
• b.Any stock-market decline of 10% or more
• c.Two consecutive quarters of declining GDP✓
• d.A sustained period of rising consumer prices

The common rule of thumb for a recession is two consecutive quarters of declining GDP. Rising unemployment, a market drop, or rising prices (inflation) are related economic signals but are not the definition.

A private company sells newly created shares to the public for the first time. This transaction is:

• a.An initial public offering in the primary market✓
• b.A secondary-market trade
• c.A private placement of restricted securities under Regulation D
• d.An exempt intrastate offering

A company's first public sale of newly created shares is an initial public offering in the primary market, where the issuer receives the proceeds. It is not a secondary trade, a private placement, or an intrastate exemption.

As a widely used rule of thumb, a recession is defined as:

• a.Two consecutive quarters of rising unemployment
• b.A stock-market decline of 20% or more from a recent high
• c.Two consecutive quarters of declining GDP✓
• d.A sustained rise in consumer prices

The common rule of thumb for a recession is two consecutive quarters of declining GDP. A stock-market decline of 20% or more from a recent high is a bear market, a sustained rise in consumer prices is inflation, and rising unemployment is a related labor-market signal; none of them is the definition.

When a company sells newly issued shares to the public in the primary market, the money investors pay goes to:

• a.The issuer, minus the underwriters' spread✓
• b.The underwriting syndicate, which keeps it all
• c.The shareholders selling in the aftermarket
• d.The exchange that lists the new shares

In a primary offering the issuer sells newly created shares and receives the proceeds, less the underwriting spread. The syndicate earns only that spread, not the full amount raised. Existing shareholders who sell to other investors are trading in the secondary market, where the issuer receives nothing. An exchange earns listing fees but never receives the offering proceeds.Securities Act of 1933

An investment bank agrees to buy a new issue outright from the issuer at a set price and keeps any shares it cannot resell. This arrangement is called:

• a.An all-or-none underwriting
• b.A standby underwriting
• c.A firm commitment underwriting✓
• d.A best-efforts underwriting

In a firm commitment, the underwriter buys the whole issue and bears the risk of any unsold shares. In a best-efforts deal the bank only tries to sell the shares and returns what it cannot place. A standby underwriting backs a rights offering by buying only the shares existing holders decline. An all-or-none deal is cancelled unless every share is sold, so the bank never keeps unsold stock.Securities Act of 1933

After an issuer files its registration statement but before the SEC declares it effective, which action is permitted?

• a.Accepting binding orders and payment from customers
• b.Confirming sales of the shares at the final offering price
• c.Delivering the final prospectus, which is required to open accounts
• d.Giving interested investors a preliminary prospectus✓

During the cooling-off period an underwriter may distribute a preliminary (red herring) prospectus and collect non-binding indications of interest. Sales cannot be made, orders cannot be accepted, and money cannot be taken until the SEC declares the registration effective. The final prospectus, with the final price, does not exist yet, so nothing can be confirmed at a final price.Securities Act of 1933 Section 5

A company sells shares in a Regulation D private placement to accredited investors only, with no advertising. Compared with a registered public offering, which statement is correct?

• a.No SEC registration is needed, but buyers get restricted shares✓
• b.Buyers may resell the shares freely after a 30-day holding period
• c.The issuer must file a full Form S-1 registration statement
• d.The offering is capped at 35 purchasers in total

A Regulation D offering is exempt from registration, but buyers receive restricted securities that cannot be resold freely. There is no 30-day rule; resale depends on Rule 144 holding periods or another exemption. The issuer files a short Form D notice, not a Form S-1. The 35-purchaser limit applies only to non-accredited investors in a Rule 506(b) offering; the number of accredited investors is unlimited.Securities Act of 1933 Regulation D

A manufacturer wants to raise $40 million from the general public with scaled-down disclosure and without a full registration. Which exemption fits?

• a.Regulation A Tier 2, which allows up to $75 million in 12 months✓
• b.Rule 144A, which is limited to qualified institutional buyers
• c.Regulation A Tier 1, which is capped at $20 million
• d.Rule 506(b) of Regulation D, which bars general solicitation

Regulation A Tier 2 permits offerings of up to $75 million in a 12-month period to the public with reduced disclosure, so $40 million fits. Tier 1 stops at $20 million. Rule 506(b) allows no general solicitation, so it cannot be used to sell to the general public. Rule 144A covers resales to qualified institutional buyers, not a public capital raise.Regulation A, 17 CFR 230.251(a)

Which organization, overseen by the SEC, writes and enforces conduct rules for broker-dealers and registered representatives who deal with the public?

• a.SIPC, the insurer of customer accounts
• b.NASAA, the state securities administrators
• c.The MSRB, for municipal securities dealers
• d.FINRA, a self-regulatory organization✓

FINRA is the self-regulatory organization that writes and enforces rules for broker-dealers and their registered representatives, under SEC oversight. The MSRB writes rules for municipal securities activities. NASAA coordinates state regulators but does not write or enforce FINRA-style rules. SIPC protects customers when a member firm fails and does not regulate conduct.

SIPC protection is designed to help a brokerage customer in which situation?

• a.Securities are missing because the member firm failed✓
• b.The value of the securities fell because the market declined
• c.A representative recommended an unsuitable investment that lost money
• d.A commodity futures contract held at the firm lost value

SIPC restores missing cash and securities, up to $500,000 per customer including $250,000 for cash, when a member brokerage fails. It does not protect against market declines or against losses from bad advice or unsuitable recommendations. It also does not cover commodity futures contracts.

When the Federal Reserve wants to increase the money supply and lower interest rates, it would most likely:

• a.Raise the discount rate charged to banks
• b.Buy government securities in the open market✓
• c.Sell Treasury securities to government dealers
• d.Raise the reserve requirement for banks

Buying securities in the open market puts cash into the banking system, which expands the money supply and pushes rates down. Raising the discount rate, selling Treasury securities, and raising reserve requirements all drain or restrict credit and tighten policy.

Which point in the business cycle marks the lowest level of economic activity, just before a new expansion begins?

• a.The recovery, the phase when output is rising
• b.The peak, the high point before contraction
• c.The contraction, the phase when output is falling
• d.The trough, the low point before expansion✓

The trough is the low point at the end of a contraction, after which expansion begins. The peak is the high point at the end of an expansion. A contraction is the phase of falling output leading down to the trough, and the recovery is the rise that follows the trough.

A normal yield curve shows that:

• a.Short-term rates are higher than long-term rates
• b.Rates are about equal at every maturity
• c.Rates differ by credit rating but not by maturity
• d.Long-term rates are higher than short-term rates✓

A normal (upward-sloping) yield curve pays more for longer maturities. An inverted curve has short-term rates above long-term rates, and a flat curve shows similar rates at all maturities. A yield curve compares maturities of securities of similar credit quality, so credit rating is not what defines its shape.

An employee acquired fully paid, restricted shares of a company that files periodic reports under the Exchange Act. She is not an affiliate of the issuer. Assuming every other Rule 144 condition is met, what is the minimum holding period before she may resell the shares?

• a.Six months✓
• b.Twelve months
• c.Twenty-four months
• d.Three months

Under Rule 144(d), restricted securities of a reporting issuer must be held at least six months. Twelve months (one year) is the period when the issuer is not a reporting company. Three months and twenty-four months are not Rule 144 holding periods; the three-month period matters only for the volume and Form 144 measurements.17 CFR 230.144(d)

A director of an exchange-listed company, who is an affiliate, plans to sell under Rule 144. The company has 8,000,000 shares of the class outstanding, and average weekly trading volume over the preceding four calendar weeks was 62,000 shares. What is the most she may sell in any three-month period under the volume limit?

• a.142,000 shares
• b.80,000 shares✓
• c.62,000 shares
• d.8,000 shares

Rule 144(e) caps an affiliate at the greater of 1% of the class outstanding or the four-week average weekly volume. Here 1% is 80,000 and the weekly average is 62,000, so 80,000 governs. 62,000 uses only the lesser measure, 142,000 wrongly adds the two figures, and 8,000 is 0.1% of the class.17 CFR 230.144(e)

In a popular IPO, the syndicate sold 5,500,000 shares against a base deal of 5,000,000 shares, leaving it short 500,000 shares. The stock now trades well above the offering price. How does the syndicate most economically cover that short position?

• a.It exercises the greenshoe, buying 500,000 shares from the issuer at the offering price✓
• b.It asks the issuer to repurchase the 500,000 shares sold in excess of the base deal
• c.It buys 500,000 shares in the open market at the higher prevailing trading price
• d.It cancels the confirmations on the last 500,000 shares sold to investors

The over-allotment (greenshoe) option lets the syndicate buy extra shares from the issuer at the offering price, which beats paying the higher market price when the stock trades up. Buying in the open market is the better route only when the price has fallen below the offering price. Confirmed orders cannot simply be cancelled, and selling shares back to the issuer would not cover a short position.FINRA Rule 5110

A corporation offers its existing shareholders the right to buy new shares at a discount. Before the offering, a broker-dealer agrees to purchase, at the subscription price, any shares the shareholders do not take. What is this arrangement called?

• a.All-or-none underwriting
• b.Standby underwriting✓
• c.Best-efforts underwriting
• d.Firm-commitment underwriting

A standby underwriter backs a rights offering by agreeing to buy whatever shares shareholders leave unsubscribed. Best-efforts means the underwriter only tries to sell and assumes no purchase obligation. All-or-none cancels the whole offering unless every share is sold. Firm-commitment means buying the entire issue up front to resell it to the public.

A private company wants to advertise its securities offering on a public website and in social-media posts. Which statement about general solicitation under Regulation D is correct?

• a.Rule 506(b) permits it if every purchaser is accredited and signs a written self-certification
• b.Rule 506(c) permits it if every purchaser is accredited and the issuer verifies that status✓
• c.Rule 506(c) permits it if up to 35 purchasers are non-accredited but each is financially sophisticated
• d.Rule 506(b) permits it if no more than 35 purchasers are non-accredited and each is sophisticated

Rule 506(c) allows general solicitation, but all purchasers must be accredited and the issuer must take reasonable steps to verify it. Rule 506(b) prohibits general solicitation even if every buyer is accredited, so neither 506(b) option works. The allowance for up to 35 sophisticated non-accredited purchasers belongs to 506(b), not 506(c).17 CFR 230.506(c)

Rule 144A permits resales of restricted securities to qualified institutional buyers (QIBs). Apart from registered broker-dealers, an institution generally qualifies as a QIB if it owns and invests on a discretionary basis at least how much in securities of unaffiliated issuers?

• a.$50 million
• b.$10 million in securities of unaffiliated issuers
• c.$100 million✓
• d.$5 million in total assets

Under Rule 144A(a)(1), most institutions need at least $100 million in securities of unaffiliated issuers owned and invested on a discretionary basis. Registered dealers have a lower $10 million test. A $5 million total-assets figure is an entity threshold for accredited-investor status under Regulation D, and $50 million is not a Rule 144A figure.17 CFR 230.144A(a)(1)

The economy is experiencing slowing output, rising unemployment and rising consumer prices at the same time. Which term describes this condition?

• a.Deflation
• b.Stagflation✓
• c.Disinflation
• d.Hyperinflation

Stagflation combines stagnant growth and high unemployment with rising prices. Disinflation is a slowdown in the rate of inflation while prices still rise, with no link to rising unemployment. Hyperinflation is extremely rapid, out-of-control price growth, which does not describe stagnating output and unemployment. Deflation is a general fall in prices.

The Treasury 2-year yield is 4.10% and the 10-year yield is 4.15%. Which term best describes the yield curve between those two maturities?

• a.Humped
• b.Slightly inverted
• c.Nearly flat✓
• d.Steeply upward-sloping

When yields across maturities are almost the same, as here with a gap of 0.05 percentage point, the curve is flat. An inverted curve, even a slightly inverted one, needs short-term yields above long-term yields, but here the 10-year yield is higher. A steep normal curve has long-term yields well above short-term yields. A humped curve needs intermediate maturities to yield more than both ends.

Which Federal Reserve action is an example of quantitative easing?

• a.Selling Treasury securities from its portfolio to remove reserves and push short-term rates up
• b.Raising the target range for the federal funds rate by 0.25 percentage point to slow inflation
• c.Cutting the discount rate so that banks can borrow from the Fed's discount window more cheaply
• d.Buying large amounts of longer-term Treasury and agency mortgage-backed securities to lower long-term yields✓

Quantitative easing is large-scale purchasing of longer-term securities, such as Treasuries and agency mortgage-backed securities, to lower longer-term yields. Selling securities drains reserves and tightens policy. A lower discount rate and a higher federal funds target are changes in policy rates, not asset-purchase programs.

A stock closed at $48 per share. The company pays a regular quarterly cash dividend of $0.60 per share. What is the stock's current dividend yield?

• a.2.50%
• b.1.25%
• c.5.0%✓
• d.20.0%

Dividend yield is the annual dividend divided by the current price: 4 x $0.60 = $2.40, and $2.40 / $48 = 5.0%. 1.25% divides only one quarterly payment by the price, 2.5% annualizes as if the dividend were paid twice a year, and 20% inverts the ratio.

A brokerage firm fails and cannot return customer assets. One customer's account held $100,000 of securities and $300,000 of cash. What is the most SIPC can restore?

• a.$350,000: $100,000 in securities plus $250,000 in cash✓
• b.$400,000: the full value of the securities and the cash
• c.$500,000: the overall limit applied to the whole account
• d.$250,000: the cash limit applied to the entire account

SIPC protects up to $500,000 per customer, but no more than $250,000 of that can be cash. The $100,000 of securities is fully covered. The $300,000 of cash is covered only to $250,000, so the maximum is $100,000 + $250,000 = $350,000. Paying $400,000 ignores the cash sub-limit. The $500,000 figure is the overall ceiling, not what this account is entitled to, because the account does not hold that much protected value. Paying $250,000 counts only cash and drops securities that are also covered.SIPA §9 (15 U.S.C. 78fff-3)

A customer holds a $180,000 CD and a $120,000 savings account, both in her own name at one FDIC-insured bank. If the bank fails, how much of her money is insured?

• a.$500,000, because each account type has its own limit
• b.$250,000, because the two accounts are added together✓
• c.$180,000, because only the larger account counts
• d.$300,000, because both accounts are insured in full

FDIC coverage is $250,000 per depositor, per insured bank, per ownership category. Both accounts are in her single name at the same bank, so they are combined: $180,000 + $120,000 = $300,000, of which $250,000 is insured and $50,000 is not. Treating both as fully insured ignores the combined limit. Product type does not create separate limits, so doubling to $500,000 is wrong. Coverage is not limited to the larger account; deposits in the category are added up before the limit applies.12 U.S.C. 1821(a)

A member firm opens a new retail account. Under FINRA Rule 2266, what must the firm do about SIPC information?

• a.Notify only customers whose balances exceed the SIPC coverage limits
• b.Post SIPC contact details on its website instead of notifying each customer
• c.Notify customers in writing at opening how to reach SIPC, then at least yearly✓
• d.Hand over the full SIPC brochure once, at the time the account is opened

Rule 2266 requires written notice at account opening that SIPC information, including its brochure, can be obtained from SIPC, along with SIPC's website address and telephone number. The same information must go to all customers in writing at least once a year. A one-time delivery fails the annual repeat, and the rule asks for notice of how to get the brochure rather than delivery of it. A website posting is not written notice to each customer. The duty covers all customers, not only those with large balances.FINRA Rule 2266