Introduction
Welcome to Prohibited Activities - one of the most heavily tested areas on the SIE exam, covering the conduct that regulators consider serious enough to warrant criminal penalties, civil fines, and permanent industry bars.
Exam Weight: Part of 23 questions (31% of exam) - Trading, Accounts & Prohibited Activities
What You'll Learn
- What market manipulation is and how regulators define it
- Specific manipulation schemes: pump and dump, front running, churning, and more
- Criminal and civil penalties for market manipulation
- How insider trading works and why it undermines market integrity
- How material nonpublic information is defined and what triggers liability
- Who can be liable for insider trading, including tippers and tippees
- Criminal penalties up to 20 years in prison and $5 million in fines
- Who cannot buy new issues at the offering price and why
- Broad anti-fraud rules that prohibit misleading statements and omissions
- Rules against borrowing from customers, sharing in accounts, and misusing funds
- Protections against financial exploitation of elderly and vulnerable investors
- Why only registered persons can solicit and take securities orders
- Why falsifying documents or ignoring FINRA investigations can end a career
- Notice requirements for outside business activities and private securities transactions
Why This Matters
Prohibited activities questions appear frequently on the SIE exam because regulators want every securities professional to recognize misconduct before it happens. The exam tests your ability to identify specific violations, distinguish between similar-sounding schemes (front running vs. insider trading, for example), and understand the consequences. Many of these rules carry criminal penalties (up to 20 years in prison and $5 million in fines), so this is not theoretical content.
Let's start with the foundation: what market manipulation is and why it's prohibited.