SIE Ready🏛️ Regulators & Market Participants · Lesson 5 of 5 · 6 min
Who's Who in the Market
👥 One stock trade can touch an introducing firm, a clearing firm, a market maker, a custodian, a transfer agent and a depository. The SIE expects you to know each role.
💡 Key idea
Introducing firms face customers; clearing firms settle and hold assets; transfer agents track owners; DTC holds and settles by book entry; accredited investors meet SEC wealth, income or credential tests.
🧠 Why it matters
Broker-dealers buy and sell securities for customers (broker) or for their own account (dealer). An introducing firm handles customers but sends trades to a clearing firm, which settles them and holds customer assets; a prime broker serves hedge funds. Investment advisers give advice for a fee. Underwriters help issuers sell new securities. Market makers quote and trade a security continuously. Custodians safeguard assets; transfer agents keep the issuer's record of owners and issue or cancel certificates. The Depository Trust Company (DTC, part of DTCC) holds securities electronically and settles trades by book entry; the OCC clears and guarantees listed options. Investors are retail (individuals) or institutional. Accredited investors include people with net worth over $1 million excluding their home, or income over $200,000 ($300,000 joint).
📈 In the real world
🧾 Nina opens an account with a small introducing firm in her town. Her statements carry a large clearing firm's name, because that firm actually holds her shares and settles her trades. When her company pays a dividend, the transfer agent's records point to DTC's nominee, which passes the money down through the clearing firm to her account.
📌 Takeaways
- Introducing firms deal with customers; clearing firms settle trades and hold customer assets
- Transfer agents keep shareholder records; DTC holds and settles securities by book entry; OCC clears options
- Accredited: net worth over $1M excluding primary residence, income over $200K ($300K joint), or Series 7/65/82
📖 Terms in this lesson
Transfer agent: The firm that keeps an issuer's record of registered owners and records transfers of ownership.
Depository Trust Company (DTC): The central securities depository that holds securities and moves ownership between firms by book entry.
Clearing firm: A broker-dealer that clears and settles trades and holds customer assets, often for introducing firms.
Introducing firm: A broker-dealer that works with customers but sends their trades and assets to a clearing firm.
Investment adviser: A person or firm paid to advise others about securities, registered with the SEC or the states.
✅ Test yourself
Which participant keeps the issuer's official record of who owns its shares?
- The transfer agent
- The custodian bank
- The clearing firm
- The market maker
Answer: A · The transfer agent
The transfer agent keeps the issuer's register of owners and issues and cancels certificates. A custodian safeguards assets, a clearing firm settles trades, and a market maker quotes and trades the stock.
A firm takes customer orders but sends them to another firm that settles trades and holds the assets. The first firm is
- a transfer agent
- a clearing firm
- a prime broker
- an introducing firm
Answer: D · an introducing firm
An introducing firm handles customer relationships and passes trades to a clearing firm, which settles and holds the assets. A prime broker serves hedge funds; a transfer agent keeps shareholder records.
Which individual is an accredited investor under the SEC's definition?
- Income of $150,000 in each of two years
- A home worth $2 million and almost no other assets or income
- Net worth of $900,000 including home
- Income of $250,000 in each of the last two years
Answer: D · Income of $250,000 in each of the last two years
Individual income over $200,000 in each of the last two years (with the same expected this year) qualifies. Net worth must exceed $1 million excluding the primary residence, so the home-only and $900,000 cases fail, and $150,000 is below the income test.
SIE-style questions, XP and streaks in the app. No sign-up needed.