The 'truth in securities' law governing the PRIMARY market: new issues must be registered with the SEC and sold with a prospectus containing full and fair disclosure, with liability for misstatements.
Beyond the IPO “tell,” the exam loves the registration timeline: the cooling-off period of at least 20 days that follows filing, during which only a preliminary (red herring) prospectus may circulate — no sales, no money, no general advertising, only nonbinding indications of interest. Watch what is permitted before the effective date: a tombstone ad is allowed (it is not an offer), but the final prospectus and confirmations belong to the effective date and after. Another favorite hinge is liability — civil exposure (Section 11) and criminal exposure for willful violations (Section 24) attach to a false or misleading registration statement/prospectus, reaching issuers, signing officers/directors, and underwriters.
The classic trap is mixing up the two statutes: ongoing issuer reporting (10-K, 10-Q, proxy rules, insider reporting) is 1934 Act, not 1933. Students also forget that SEC effectiveness is not approval — clearing registration never means the SEC endorses the security. And note the scope split: the 1933 Act registers the securities themselves, whereas Form U4/U5 and statutory disqualification govern the people selling them.
The law governing the SECONDARY market: it created the SEC, requires broker-dealers and exchanges to register, empowers the Fed to set margin (Reg T), and contains the antifraud and antimanipulation provisions.
The classic SIE item gives you a scenario and asks “which Act?” The tell is the stage of the security’s life: if it is already trading between investors — an insider tipping ahead of earnings, a pump-and-dump, churning, a customer buying on margin, a broker-dealer or representative registering — that is 1934. The trap is the 1933 Act, the primary-market/new-issue statute (registration, prospectus); when a question pairs an IPO with later abuse, students wrongly tag the whole thing 1933. Mnemonic: 1933 = the “Paper Act” (disclosure documents); 1934 = the “People Act” (the players and the marketplace).
Mind the boundary with registration mechanics: Forms U4/U5 and Continuing Education are FINRA self-regulatory tools, but FINRA exists only because the 1934 Act (via its registered-association regime) authorized SROs, all overseen by the SEC it created. Margin is another favorite — Reg T lives under the 1934 Act but is set by the Federal Reserve, not the SEC, a distinction item-writers love to test.
Form U4 registers an individual with FINRA through a member firm — disclosing employment history, residences, and disciplinary events; Form U5 reports the termination of that registration within 30 days, with a copy to the rep.
Exam items lean on who files and when: only the member firm files U4 and U5 through Web CRD — a rep can never self-register or self-terminate. Expect a clock question: U5 is due within 30 days of termination, and the firm must give the rep a copy. The classic “tell” is a disclosable event (a customer complaint, a felony charge, an unsatisfied judgment) — the answer hinges on amending the U4 within 30 days (events creating a statutory disqualification demand a faster 10-day amendment), even after the rep left, because U4 amendment duties survive the relationship.
Watch the confusables. A willful false or omitted U4 disclosure can itself trigger statutory disqualification — the form is the trigger, not just paperwork. Don’t mix up a U5 filing with CE inactivity or OBA notice: U5 ends registration, CE keeps an active rep current, and OBA (Rule 3270) is prior written notice of a side job. Memory hook: U-FOUR you’re IN, U-FIVE you’re OUT. A firm’s duty to amend a U5 has no fixed cutoff — it runs until final disposition, not a two-year cap (the U5 “two-year” figures item-writers cite are the defamation and registration-lapse clocks, not an amendment deadline).
Conditions that bar a person from associating with a member firm: any felony conviction or securities/money-related misdemeanor within the past 10 years, plus certain regulatory bars, expulsions, and false statements on registration forms.
Expect a fact pattern asking whether the person is disqualified, with the tell buried in two facts: the type of offense and how long ago it happened. Trap answers reverse the felony/misdemeanor rule — a finance-related misdemeanor counts, an ordinary one doesn’t, but ANY felony does — or pick a date outside the 10-year window (measured from the date of conviction, not release from prison; some banks borrow the banking-law “conviction or release, whichever is later” phrasing — wrong here). The other trigger family: an SEC or SRO bar, expulsion, or injunction disqualifies regardless of the 10-year clock. Re-entry runs through FINRA’s eligibility process (Form MC-400), never automatic reinstatement.
Don’t confuse this with the related forms and duties. Form U4/U5 is the disclosure vehicle — disqualifying events get reported there, but the form isn’t the disqualification itself. A Continuing Education lapse makes you CE-inactive (no registered duties or compensation until cured) — administrative, not a statutory bar. And the 1934 Act defines disqualification; this is one consequence it authorizes. Memory hook: “any felony, finance-flavored misdemeanor, ten years.”
Two ongoing requirements for registered persons: the Regulatory Element — FINRA-prescribed training completed annually by December 31 — and the Firm Element, the firm's own annual training program for covered persons.
Expect the exam to make you split the two components apart: the tell is whether the question describes FINRA-prescribed content delivered online (via FinPro) (Regulatory Element) or firm-designed training driven by an annual needs analysis (Firm Element). A favorite trap pairs CE with a registration event — the Regulatory Element is now completed annually by December 31 for each registration category you hold (S-7, S-24, etc.), not a single firm-wide course (some older banks still teach the dead 3-year, registration-anniversary cycle). Another trap on scope: the Firm Element now applies to every registered person, not only customer-facing reps and supervisors (that “covered registered persons” limit was the pre-2023 rule).
Don’t confuse CE with the two-year qualification window or with the MQP: someone who is terminated (U5) keeps qualifications via MQP for up to five years only by staying current on CE, whereas without MQP a registration lapses after two years and you must re-qualify by exam. CE-inactive status is an administrative status from missed training, not a statutory disqualification (felonies, bars) — different cause, different cure. Hook: Regulatory = the regulator’s syllabus; Firm = your firm’s homework.
Any business activity outside the member firm for which a rep receives or expects compensation — a second job, directorship, or side business — requiring PRIOR WRITTEN NOTICE to the firm before participating.
The exam loves a sorting question: it hands you an activity and makes you pick the correct regime under FINRA Rule 3270 (OBA). The tell is whether the side activity touches securities. Driving for a rideshare, selling real estate, or serving on a paid board is an OBA — the firm reviews the notice and may impose conditions or prohibit it, but the rule requires no advance approval. The moment the activity involves effecting securities transactions, the answer flips to a private securities transaction (Rule 3280). There “compensated” matters: a compensated PST needs the firm’s prior written approval, then the firm must record and supervise it as its own; an uncompensated PST needs only notice and acknowledgment.
The classic trap is treating passive investing as an OBA — you are not running a business. A reportable OBA is also disclosed on Form U4. Memory hook: OBA = tell them; PST = ask them. (FINRA has proposed folding 3270 and 3280 into a single Rule 3290, not yet effective as of 2026.)
Securities transactions a rep effects OUTSIDE the scope of their firm — 'selling away.' The rep must give prior written notice; if compensated, the firm must give written APPROVAL and supervise the trades on its books.
Expect a fact pattern, not a definition: a rep arranges a private placement, hedge fund, or promissory note for customers away from the firm, and you choose the required firm response. Every PST needs prior written notice to the firm; the “tell” is whether selling compensation flows to the rep, which adds a second layer — the firm’s written approval, recording the trades on its books, and supervising them as if executed by the firm (this is FINRA Rule 3280). A favorite wrong answer lets a compensated rep proceed on notice alone — but silence isn’t enough; the firm must affirmatively approve.
The classic trap is confusing this with Outside Business Activities (Rule 3270): if the venture involves a securities transaction, it’s a PST, and the stricter approve-and-supervise standard governs — OBA needs only prior written notice. Don’t conflate it with gifts (a $300 per-person annual cap as of 2026; some older banks still say $100) either; PST is about whose books the trade lives on. Memory hook: “selling away” means the firm can’t supervise what it never sees, so undisclosed PSTs draw the harshest sanctions.
FINRA caps gifts from a member or rep to employees of other firms at $300 per person per year (raised from $100 effective March 30, 2026) where the gift relates to the recipient's employer's business; business entertainment the giver attends is separate and must be reasonable, not conditioned on business.
Exam items almost always hand you a dollar figure and ask whether it’s allowed: the tell is whether the recipient works at another firm and whether the gift touches that firm’s business. The answer hinges on the aggregate annual ceiling per recipient — a $200 gift plus a $150 gift to the same person breaks the cap, even though each alone is under it. The limit is cumulative per person, per year, not per gift, and the giving member must record it. Personal gifts and de minimis promotional items sit outside it; cash is effectively never allowed.
Don’t confuse this with the related conduct rules: gifts test value to outsiders, while Outside Business Activities (Rule 3270) need prior written notice, and Private Securities Transactions (Rule 3280, “selling away”) need notice plus written approval and supervision when the rep is compensated. Continuing Education is unrelated. Classic miss: calling event tickets the rep attends a “gift” under the cap — that’s business entertainment, judged by reasonableness, not the dollar limit. Hook: gifts go to them, entertainment you share.