SIE Exam: Customer Communications

Section 3 — Understanding Trading, Customer Accounts and Prohibited Activities (31% of exam)

The SIE exam tests how broker-dealers communicate with customers and the public, including the regulatory framework governing corporate actions that affect customer positions. Customer communications fall into three categories under FINRA rules: institutional communications (to institutional investors), retail communications (to more than 25 retail persons within 30 calendar days), and correspondence (to 25 or fewer retail persons). Each category has different approval and filing requirements. Retail communications generally require principal pre-approval, while correspondence may be reviewed after use. The exam covers the impact of corporate actions on customer accounts, including stock splits (forward and reverse), stock dividends, cash dividends, rights offerings, tender offers, mergers, spin-offs, and share buybacks. You must understand the chronological order of dividend dates (declaration, ex-dividend, record, payable) and how these events affect share count, price, and cost basis. Tender offer rules require a minimum 20 business day open period. Knowledge of how rights offerings work — including subscription prices set below market and standby underwriting — is essential for the SIE.

Key Concepts

Retail Communication

Any written communication distributed to more than 25 retail persons within 30 calendar days. Requires principal pre-approval and may require FINRA filing.

Forward Stock Split

Increases shares outstanding and proportionally decreases price per share. A 2-for-1 split doubles shares and halves the price, keeping total value unchanged.

Reverse Stock Split

Decreases shares outstanding and increases price per share. Often used by companies to meet exchange minimum price requirements.

Dividend Dates

Declaration date (board announces), ex-dividend date (one business day before record date), record date (determines eligible shareholders), payable date (dividends paid).

Tender Offer

A public bid to purchase shares from existing shareholders, usually at a premium. Must remain open for a minimum of 20 business days.

Spin-Off

A parent company distributes shares of a subsidiary to existing shareholders. Similar to a stock dividend, the shareholder's cost basis must be allocated between the two holdings.

Practice Questions

Question 1 of 4

In a 2-for-1 forward stock split, what happens to a shareholder who owns 200 shares at $60 per share?

Question 2 of 4

Which of the following is the correct chronological order for dividend dates?

Question 3 of 4

A tender offer must remain open for a minimum of:

Question 4 of 4

In a Dutch auction tender offer, the final purchase price is determined by:

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Frequently Asked Questions

What customer communications rules are on the SIE exam?

The SIE tests the three categories of communications (institutional, retail, correspondence) and their approval and filing requirements. Retail communications require principal pre-approval. You also need to know rules about tombstone ads, research reports, and performance advertising.

How do corporate actions affect investor positions on the SIE?

Stock splits adjust shares and price proportionally, stock dividends increase shares and reduce per-share price, rights offerings let existing shareholders buy at a discount, and tender offers allow shareholders to sell at a premium. Know how each action affects share count, price, and cost basis.