By Steven M. Rice

The Securities Industry Essentials (SIE) exam tests your knowledge of what to do after you’ve opened a new account. You have to follow additional rules and regulations to keep working in the business. You need to know how to receive trade instructions and how to fill out an order ticket, as well as settlement and payment dates for different securities.

How to fill out an order ticket

When you’re working as a registered rep, completing documents such as order tickets will become second nature because you’ll have them in front of you. When you’re taking the SIE, you don’t have that luxury, but you still need to know the particulars about what to fill out.

Get the particulars on paper (or in binary form)

When your customer places an order, you have to fill out an order ticket. Order tickets may be on paper or entered electronically. Regardless of how you enter the order, it needs to contain the following information:

  • The registered rep’s identification number
  • The customer’s account number
  • The description of the security (stocks, bonds, symbol, and so on)
  • The number of shares or bonds that are being purchased or sold
  • Whether the registered rep has discretionary authority over the account
  • Whether the customer is buying, selling long (selling securities that are owned), or selling short (selling borrowed securities)
  • For option tickets, whether the customer is buying or writing (selling), is covered or uncovered, and is opening or closing
  • Whether it’s a market order, good-till-canceled (GTC) order, day order, and so on
  • Whether the trade is executed in a cash or margin account
  • Whether the trade was solicited or unsolicited
  • The time of the order
  • The execution price

The figure shows you what standard paper order tickets may look like.

sie-order-ticket
Buy and sell order tickets have spaces for the info you need to make a trade.

Designate unsolicited trades

Normally, you’ll be recommending securities in line with a customer’s investment objectives. If, however, the customer requests a trade that you think is unsuitable, it’s your duty to inform him about it. You don’t have to reject the order (it’s the customer’s money, and you’re in the business to generate commission). If the customer still wants to execute the trade, simply mark the order as unsolicited, which takes the responsibility off your shoulders.

A trip to the principal’s office: Securing a signature

Principals are managers of a firm. All brokerage firms must have at least two principals (unless the firm is a sole proprietorship). When you open or trade an account, you have to bring the new account form or order ticket to a principal to sign. Principals need to approve all new accounts, all trades in accounts, and all advertisements and sales literature; they also handle all complaints (lucky break for you!), oversee employees, and watch for potential red flags. A principal doesn’t have to approve a prospectus or your recommendations to your customers.

Although you’ll generally bring an order ticket to a principal right after taking an order, the principal can sign the order ticket later in the day. If you’re questioned about this on the SIE exam, you want to answer that the principal needs to approve the trade on the same day, not before or immediately after the trade.

Proportionate sharing

Members or associated persons are prohibited from sharing in the profits or losses in a customer’s account. An exception to this rule is if the associated person contributed to the account. In that case, the associated person needs a written authorization from the customer and principal, and the profits and/or losses are shared by the customer and associated member based on the percentage contributed. Exempt from the rule of proportional sharing are accounts of immediate family (parents, mother-in-law, father-in-law, spouse, or children) of the associated member.

Check your calendar: Payment and settlement dates

Securities that investors purchase have different payment and settlement dates. Here’s what you need to know:

  • Trade date: The day the trade is executed. An investor who buys a security owns the security as soon as the trade is executed, whether or not he has paid for the trade.
  • Settlement date: The day the issuer updates its records and the certificates are delivered to the buyer’s brokerage firm.
  • Payment date: The day the buyer of the securities must pay for the trade.

Unless the question on the SIE specifically asks you to follow FINRA or NYSE rules, assume the Fed regular way settlement and payment dates as they appear in the following table. The FINRA and NYSE rules both require payment for securities to be made no later than the settlement date, but the Federal Reserve Board states that the payment date for corporate securities is five business days after the trade date.

Regular Way Settlement and Payment Dates

Type of Security Settlement Date (in Business Days after the Trade Date) Payment Date (in Business Days after the Trade Date)
Stocks and corporate bonds 2 (T+2 — two business days after the trade date) 4
Municipal bonds 2 (T+2) 2
U.S. government bonds 1 (T+1) 1
Options 1 (T+1) 4

Cash trades (which are same-day settlements) require payment for the securities and delivery of the securities on the same day as the trade date.

In certain cases, securities may not be able to be delivered as in the preceding chart. In these cases, the seller may specify that there’s going to be a delayed delivery. There can also be a mutually agreed upon date in which the buyer and seller agree on a delayed delivery date prior to or at the time of the transaction.

The when, as, and if issued (when-issued transaction) method of delivery is used for a securities issue that has been authorized and sold to investors before the certificates are ready for delivery. This method is typically used for stock splits, new issues of municipal bonds, and Treasury securities (U.S. government securities). The settlement date for when-issued securities can be any of the following:

  • A date to be assigned
  • Two business days after the securities are ready for delivery
  • On the date determined by the FINRA

Regulation S-P

According to Regulation S-P, broker-dealers, investment companies, and investment advisors must “adopt written policies and procedures that address administrative, technical, and physical safeguards for the protection of customer records and information.” This means that members must provide a way for securing customers’ nonpublic information, such as social security numbers, bank account numbers, or any other personally identifiable financial information. Members must provide customers with a notice of their privacy policies. Members may disclose a customer’s nonpublic information to unaffiliated third parties unless the customer opts out and chooses not to have his information shared. Members must make every effort to safeguard customers’ information, including securing computers, encrypting emails, and so on.

Confirm a trade

A trade confirmation (receipt of trade) is the document you send to a customer after a trade has taken place. You have to send out trade confirmations after each trade, at or before the completion of the transaction (the settlement date). Here’s a list of information included in the confirmation:

  • The customer’s account number
  • The registered rep’s ID number
  • The trade date
  • Whether the customer bought (BOT), sold (SLD), or sold short
  • A description of the security purchased or sold
  • The number of shares of stock or the par value of bonds purchased or sold
  • The yield (if bonds)
  • The Committee on Uniform Security Identification Procedures (CUSIP) number, a security ID number
  • The price of the security
  • The total amount paid or received, not including commission or any fees
  • The commission, which is added on purchases and subtracted on sales (if the broker-dealer purchased for or sold from its own inventory, the markdown or markup doesn’t have to be disclosed)
  • The net amount, or the amount the customer paid or received after adding or subtracting the commission (if the investor purchased or sold bonds, the accrued interest is added or subtracted during this calculation)
  • Whether the trade was executed on a principal or agency basis (the capacity)

You should recognize the items listed in the preceding list, which are required for most securities trades including municipal bonds. However, the MSRB tends to be a little stricter and also requires the following information:

  • Whether the member acted as an agent for both the customer and another person for the same trade
  • The time of execution for institutional accounts or transactions in municipal fund securities
  • The settlement date
  • Yield-to-maturity or yield-to-call, whichever is lower
  • Final monies, including the total dollar amount of the transaction and accrued interest if applicable
  • Whether there’s any credit backing the securities (for revenue bonds, the source of revenue; or if there’s insurance backing the bonds)
  • Any special features of the bonds (callable, puttable, stepped coupon, book-entry only, and so on)
  • Information on the status of the securities (pre-refunded, called, escrowed to maturity, securities in default, and so on)
  • Tax information (taxable, nontaxable, subject to alternative minimum tax, original issue discount)