Chapter 3: Trading, Accounts & Prohibited Activities
This chapter covers 31% of the SIE exam (approximately 23 questions) - the second-largest section. It shifts from "what are the products" to "how do you actually trade them, manage accounts, and stay compliant."
What You'll Learn
| Unit | Topic | Key Concepts |
|---|---|---|
| 1 | Orders and Strategies | Market, limit, stop orders; principal vs. agency; long and short positions |
| 2 | Investment Returns | Dividends, capital gains, yield, total return, cost basis, benchmarks |
| 3 | Trade Settlement and Corporate Actions | T+1 settlement, stock splits, proxies, corporate actions |
| 4 | Customer Accounts | Cash, margin, options, discretionary, joint, trust, retirement accounts |
| 5 | AML Compliance | Money laundering stages, SARs, CTRs, FinCEN, OFAC |
| 6 | Books, Records, Privacy and Communications | Record retention, Reg S-P privacy, communications rules, suitability |
| 7 | Prohibited Activities | Market manipulation, insider trading, churning, unauthorized trading |
Why This Chapter Matters
Knowing what securities exist (Chapter 2) isn't enough; you need to understand the mechanics of how they're traded, how accounts work, and what conduct is prohibited. This chapter covers the operational side of the securities industry, from placing an order to detecting money laundering.
The chapter progresses logically: how to place trades -> how returns work -> how trades settle -> where trades happen (accounts) -> compliance requirements -> what you can't do.
Exam Strategy
At 31% of the exam, this is the second-largest section. Key areas to master:
- Order types: Know when to use market, limit, stop, and stop-limit orders
- Settlement: T+1 for regular-way trades is essential knowledge
- Account types: Distinguish cash vs. margin accounts, know UGMA/UTMA rules
- AML red flags: The exam loves scenarios asking whether activity is suspicious
- Insider trading: Know what constitutes material nonpublic information (MNPI)
- Prohibited activities: Market manipulation types (painting the tape, front-running, churning)
Think of it this way: Chapter 2 taught you the "what" of securities. This chapter teaches you the "how" and "what not to do."