SIE Exam: Trading and Settlement
Section 3 — Understanding Trading, Customer Accounts and Prohibited Activities (31% of exam)
This SIE exam topic covers the mechanics of how securities orders are placed, executed, and settled. You must know the different order types: market orders (immediate execution at best price), limit orders (price restrictions), stop orders (triggered at a specified price), and stop-limit orders (combining both features). Time qualifications such as day orders, good-til-cancelled (GTC), fill-or-kill (FOK), and immediate-or-cancel (IOC) are frequently tested. The concept of best execution under FINRA Rule 5310 requires broker-dealers to use reasonable diligence to find the best market for customer orders. You should understand the National Best Bid and Offer (NBBO) and payment for order flow. Settlement cycles are critical: equities and corporate bonds settle T+1 (trade date plus one business day), options settle T+1 after exercise, and government securities settle T+1. The roles of the NSCC (clearing and netting) and DTC (central securities depository) in the settlement process are important. Dividend-related concepts — declaration date, ex-dividend date, record date, and payable date — are essential, as is understanding when-issued trading and good delivery requirements.
Key Concepts
Market Order
An instruction to buy or sell immediately at the best available price. Guarantees execution but not a specific price.
Limit Order
Sets a maximum purchase price (buy limit) or minimum sale price (sell limit). Guarantees price but not execution.
Stop Order
Becomes a market order when the stop price is reached. Sell stops protect long positions; buy stops protect short positions.
T+1 Settlement
The standard settlement cycle for equities, corporate bonds, and municipal bonds. Payment and delivery occur one business day after the trade date.
Best Execution
Under FINRA Rule 5310, broker-dealers must use reasonable diligence to find the best market for customer orders, considering price, speed, and likelihood of execution.
Ex-Dividend Date
Under T+1 settlement (effective May 28, 2024), the ex-dividend date is the same calendar day as the record date. Buyers on or after the ex-date do not receive the declared dividend. To receive the dividend, you must purchase the day before the ex-date so that the trade settles on (or before) the record date.
NBBO (National Best Bid and Offer)
The highest available bid price and lowest available ask price across all exchanges and market centers. Broker-dealers generally must not execute at prices worse than the NBBO.
Practice Questions
Question 1 of 4
Which type of order is executed immediately at the best available market price?
Correct answer: C.
A market order is an instruction to buy or sell a security immediately at the best available price. Market orders guarantee execution but do not guarantee a specific price.
Question 2 of 4
A fill-or-kill (FOK) order differs from an immediate-or-cancel (IOC) order in that a FOK order:
Correct answer: B.
A fill-or-kill order must be executed in its entirety immediately or it is cancelled completely — no partial fills are permitted. An immediate-or-cancel order allows partial execution of whatever shares are available, cancelling the unfilled portion.
Question 3 of 4
What is the regular-way settlement cycle for equity securities and corporate bonds?
Correct answer: B.
The regular-way settlement cycle for equity securities, corporate bonds, and municipal bonds is T+1 (trade date plus one business day). The SEC shortened the settlement cycle from T+2 to T+1 effective May 2024.
Question 4 of 4
A customer places a sell stop order at $40 for a stock currently trading at $45. The stock drops rapidly, trading at $40.50, $40.00, $39.50, $39.00. At what price is the order most likely triggered, and what type of order does it become?
Correct answer: B.
A sell stop order is triggered when the stock trades at or below the stop price. When the stock reaches $40, the stop order becomes a market order. As a market order, it will execute at the next available price, which could be below $40 in a rapidly declining market.
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Start Practicing FreeFrequently Asked Questions
What order types should I know for the SIE exam?
Key order types include market orders, limit orders (buy and sell), stop orders, stop-limit orders, and time qualifications like day orders, GTC, FOK, and IOC. Know how each works, when they are used, and the difference between a stop order becoming a market order vs. a stop-limit becoming a limit order.
What is T+1 settlement?
T+1 means trades settle one business day after the trade date. This applies to equities, corporate bonds, and municipal bonds. Government securities also settle T+1. Options premiums settle T+1. Cash settlement (T+0) and when-issued settlement (TBD) are exceptions.
Sources
- Shortening the Securities Transaction Settlement Cycle (T+1 Final Rule). U.S. Securities and Exchange Commission (accessed 2026-05-14)
- FINRA Rule 5310 - Best Execution and Interpositioning. FINRA (accessed 2026-05-14)
- T+1 Settlement Implementation. Depository Trust & Clearing Corporation (accessed 2026-05-14)