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SIE: Knowledge of Capital Markets

This section is about the plumbing: who regulates the markets, who participates in them, how new securities are issued, and how the economy and the Federal Reserve move prices.

Updated 2026-09-23 · 2 sources · By the SeriesPrepKit team
Exam weight
16%
Scored questions
12
Exam
SIE
Outline
FINRA 2025

Where it sits in the outline

Official outline section: Knowledge of Capital Markets, 16% of the SIE (12 of 75 scored questions), per FINRA - SIE Content Outline (2025).

This section is about the plumbing: who regulates the markets, who participates in them, how new securities are issued, and how the economy and the Federal Reserve move prices. It is 16% of the SIE (12 questions).

Key concepts

Regulators. The SEC enforces federal securities law. SROs (FINRA, MSRB, Cboe) write rules for their members. States regulate through their securities Administrators (NASAA is their association). The Fed sets monetary policy and credit rules such as Regulation T; SIPC protects customers of failed broker-dealers; the FDIC insures bank deposits, not securities.

Markets. Primary market = the issuer sells new securities and receives the money. Secondary market = investors trade with each other. Third market = exchange-listed stock traded over the counter; fourth market = institutions trading directly with each other.

Economics. Expansion, peak, contraction, trough. Leading indicators (e.g., building permits, stock prices) turn before the economy; lagging indicators (e.g., unemployment duration) after. The Fed tightens by selling securities in open market operations or raising its target rates.

Offerings. Firm commitment: the underwriter buys the whole issue and bears the risk of unsold shares. Best efforts: the underwriter sells what it can as agent. Shelf registration lets an issuer register once and sell over time.

Worked example

Firm commitment vs. best efforts

An issuer sells 1,000,000 shares at a $20 public offering price. The syndicate buys at $18.80 under a firm commitment. Spread = $1.20 per share, $1.2 million total. If only 900,000 shares sell, the underwriters, not the issuer, hold the other 100,000 shares; under best efforts the issuer would simply raise less money.

Common traps

  • FDIC insures bank deposits; SIPC covers missing customer assets at a failed broker-dealer, not investment losses.
  • A secondary offering can be primary-market money for the issuer (a follow-on) or secondary-market money for selling holders; read who receives the proceeds.

Practice questions on this topic

SIE practice questions: Knowledge of Capital Markets

Which entity sets the initial margin requirement that limits how much credit broker-dealers may extend to customers to purchase securities?

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Frequently asked questions

How much of the SIE is knowledge of capital markets?

Official outline section: Knowledge of Capital Markets, 16% of the SIE (12 of 75 scored questions), per FINRA - SIE Content Outline (2025).

Sources

  1. FINRA - SIE Content Outline (2025) (accessed 2026-09-23)
  2. SIPC - What SIPC Protects (accessed 2026-09-23)
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