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A discretionary authorization allows the rep to choose security, quantity, and buy/sell action. Time and price discretion alone does not require written authorization, but broader discretion does. The customer’s investment objectives must still be considered—those are not changed by authorization. The SIE requires candidates to understand the scope of discretionary authority, the need for written power of attorney, and principal approval before trading.

The Customer Identification Program (CIP) requires firms to verify customer identity at account opening to prevent money laundering and terrorism financing. Privacy notices (Reg S-P) and CTRs apply later in specific situations. The ODD is only for options accounts. The SIE exam tests AML compliance requirements under the USA PATRIOT Act.

Issuing bonds provides financing without diluting ownership, since bondholders are creditors, not owners. However, it does increase leverage and requires fixed interest payments. Issuing stock dilutes ownership but does not require repayment. The SIE exam emphasizes trade-offs between debt and equity financing.

The Municipal Securities Rulemaking Board (MSRB) writes rules governing municipal securities dealers and advisors. However, the MSRB does not enforce its own rules. Enforcement for broker-dealers is carried out by FINRA and the SEC, while bank dealers are overseen by federal banking regulators. The SIE exam expects candidates to know the rule-writing versus enforcement distinction: MSRB sets standards; FINRA/SEC enforce them for securities firms. This ensures consistent oversight across different types of municipal market participants.

The fourth market involves direct institution-to-institution trades, typically executed via electronic communication networks (ECNs), bypassing broker-dealers. The third market is OTC trading of exchange-listed securities. The primary market involves new issues, and exchanges are secondary markets. The SIE exam expects candidates to differentiate these structures.