SIE - Understanding Trading, Customer Accounts and Prohibited Activities (31% of the exam) - Section 3.1

Describe order types and strategies, investment returns, trade settlement time frames, and the impact of corporate actions on securities and cost basis.

Distinguish market, limit, stop, and good-til-canceled orders, solicited from unsolicited orders, and principal from agency trade capacity. Apply settlement time frames such as T+1, identify dividend dates including record, ex-dividend, and payable dates, and determine how splits, reverse splits, tender offers, and rights offerings adjust share quantity and cost basis.

Order typesTrade settlementEx-dividend dateCorporate actionsCost basis

Practice question for this objective

Free sampleUnderstanding Trading, Customer Accounts and Prohibited Activitiesmedium

Riverside Utilities declares a cash dividend with a record date of Thursday 12 June. A client tells her representative she wants to buy 200 shares in a regular-way transaction and still receive this dividend. Assuming no intervening holidays, what is the last date on which she can place the buy order and remain entitled to the dividend?

AThursday 12 June, the record date itself
BFriday 13 June, one business day after the record date
CWednesday 11 June, one business day before the record date Correct
DThursday 5 June, one week before the record date

Under T plus one the ex-dividend date equals the record date, so the last day to buy with the dividend is the business day before the record date. To receive a dividend a buyer must be an owner of record on the record date, and because trades settle T plus one the purchase must occur one business day earlier, which makes the record date itself the ex-dividend date.

Why A is wrong: Buying on the record date is too late under T plus one, because the trade would settle the next business day and she would not be an owner of record on 12 June.

Why B is wrong: This is after the record date, so settlement would fall even later and she would clearly miss the dividend, making it a tempting but incorrect late choice.

Why C is correct: Under T plus one the ex-dividend date is the record date, so she must buy no later than the business day before the record date for the trade to settle on 12 June and make her an owner of record.

Why D is wrong: Buying this early does entitle her to the dividend, but it is not the last permitted date, so it does not answer the question asked.

See more SIE practice questions, answers explained.

Exam traps in Understanding Trading, Customer Accounts and Prohibited Activities

Answers that look right on this material and are not. Each one is a distractor from a different question in the SIE bank for this domain.

The ex-dividend date falls two business days after the record date, so late buyers still receive the dividend.
Why it is wrong: This places the ex-date after the record date and points the sequence in the wrong direction, so a candidate who has the order reversed would be tempted by it.
100 shares at an adjusted basis of 120.00 dollars per share
Why it is wrong: This doubles the per-share basis and ignores the doubled share count, which is the opposite of what a forward split does to price and quantity.
A buy stop is placed below the current market and activates when the price falls to it, while a buy limit is placed above the market.
Why it is wrong: This reverses the placement of both orders; buy stops sit above the market and buy limits below, so the description is wrong.

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