1.1 Regulatory Entities & Market Participants

What is the securities industry's primary regulatory body? Which act is it created under?

SEC, Securities Exchange Act of 1934

Who must apply and be approved for registration with the SEC?

brokers dealers who transact securities with customers or with other broker dealers

The SEC regulates ALL exchanges and trading markets. True or false?

true

After a broker dealer registered with the SEC, can they claim that this registration implies that the SEC has passed upon or approved the broker dealer's financial standing/business/conduct? Yes or No

NO

What are 5 consequences a broker dealers might face if they do not comply with SEC rules?

censure, limits on activities/functions/operations, suspension of registration, revocation of registration, fine

What does SROs stand for, and under which organization is it under?

self regulatory organizations, SEC's oversight

Each SRO is accountable to the SEC for which 2 responsibilities?

enforce federal securities laws, supervise securities practices within an assigned jurisdiction

1 of the 3 SRO is FINRA. what does it stand for and what is its jurisdiction?

financial industry regulatory authority, jurisdiction in all matters related to investment banking (securities underwriting), trading in the OTC market, trading in NYSE traded securities, conduct of FINRA member firms and persons

Besides the 4 main jurisdictions of FINRA, FINRA also regulates _______ and ______.

investment companies, limited partnership transactions

Name 4 purposes of FINRA

promote IB and securities business, provide medium for communication, enforce rules to prevent fraud, promote self-discipline by investigating and resolving grievances between public and members

1 of the 3 SRO is CBOE. what does it stand for and what is its jurisdiction?

Chicago Board Options Exchange, matters relating to trading standardized options and related contracts listed on that exchange

1 of the 3 SRO is MSRB. what does it stand for and what is its jurisdiction?

Municipal Securities Rulemaking Board, matters relating to underwriting and trading of STATE and MUNICIPAL securities

Does the MSRB have enforcement power?

No (it depends on FINRA for enforcement)

MSRB regulates but does NOT have enforcement power. True or false?

true

Does the MSRB have regulatory power over the municipalities who issue municipal securities?

no

What is the executive department that oversee the collection of taxes?

U.S. Department of Treasury (IRS)

Who in the U.S. Department of Treasury is a member of the cabinet?

Secretary of the Treasury

the collection of taxes and enforcement of tax laws is a function of which bureau within the USDT?

Internal revenue service (IRS)

Name an example of a state securities association that provide insights to SEC and SROs in their rulemaking process

North American Securities Administrators Association (NASAA)

Name some things the NASAA do

advocate pro-investor policies, provide investor education, and offer resources

What does FRB stand for and what does it consist of?

federal reserve board, 12 regional federal reserve banks and hundreds of nation and state banks

Name 2 main responsibilities of FRB

determine monetary policies and their implementation

which entity regulates the U.S. money supply?

FRB

The FRB acts as an agent of the U.S. treasury. True or false?

True

which entity clears fund transfers throughout the system?

FRB

Why are decisions from FRB critical to U.S. economy?

because it determines how much money is available for businesses and consumers to spend

What does SIPC stand for and under which act was it created?

securities investor protection corporation, Securities Investor Protection Act of 1970

say 3 words to describe the SIPC

nonprofit membership organization

How does the SIPC work?

SIPC members pay assessments into a general insurance fund that is used to meet customer claims in the event of a broker dealer bankruptcy

All broker dealers registered with the SEC must be SIPC members except 3. Name them

banks that deal exclusively in municipal securities, firms that deal exclusively in US government securities, firms that deal exclusively in redeemable investment company securities

If SEC or SRO finds indications that a broker dealer is in financial difficulty, which entity will be notified immediately?

SIPC

If SIPC determines that the member has failed or is in imminent danger of failing, it may petition a federal court to take action by doing what?

appointing a trustee to liquidate the firm and protect its customer

Under SIPC, what is defined as customer?

anyone who has cash or securities in the possession of a broker dealer

Upon receipt of SIPC's petition, what will a court do?

issue a protective decree if the broker dealer is in fact insolvent and will then promptly appoint a trustee for liquidation of the business

After receiving SIPC's petition, a court has decided to appoint a trustee to liquidate the firm. The member firm is then prohibited from what?

engage in business as a broker dealer, attempt to conceal assets, file false statements, alter securities to defraud the trustee or SIPC

What is the basic coverage of SIPC?

$500,000 per customer

the basic coverage of SIPC is $500,000 per customer, per account, true or false?

false, $500,000 per customer for all accounts

Of the $500,000 per customer SIPC basic coverage, how much is in cash?

$250,000

Cash and margin accounts for the same customer are combined for the purposes of determining SIPC coverage. However, only the _______ in a margin account is covered, NOT the full market value.

equity

When the broker dealer fails and a customer has claims in excess of SIPC coverage (above $500,000), what happens in that case?

the customer becomes a general creditor of the broker dealer for the uncovered amount

what are 4 things that are NOT covered by SIPC?

commodities, commodity futures contracts, future contracts and losses related to currencies

what are NOT considered as securities?

commodities, commodity futures contracts, future contracts and losses related to currencies

Can the term SIPC appear larger than the firm's name?

no

Do broker dealers have to include their SIPC membership on all advertising AND on their premises?

yes

what can a broker dealer NOT do in terms of SIPC advertisement?

cannot imply that SIPC coverage is more than it actually is or that its benefits are unique to only that broker dealer

What disclosure MUST be made to new customers at the time an account is opened and to all customers at least once each year thereafter

SIPC (saying that info can be obtained from SIPC)

What does FDIC stand for and when was it created?

federal deposit insurance corporation, during the Great Depression of 1930s

What is the main purpose of the FDIC?

preserve public confidence in the banking system by insuring deposits

How are the funds for the FDIC provided?

in the same way as the funds for a private insurance company. premiums are paid by all participating institutions

In the event of the failure of a member financial institution, the FDIC usually do what?

sell customer deposits and loans of the failed institution to another institution. this way, the depositors become customers of the new institution

the FDIC provides deposit insurance guaranteeing the safety of a depositor's accounts in member banks up to how much for each deposit ownership CATEGORY in each insured bank?

$250,000

FDIC covers traditional types of bank deposit accounts. Name some

checking, savings, money market deposit accounts, certificates of deposit (CD), self directed IRA

What products does the FDIC NOT covered?

investment products like mutual funds, annuities, life insurance policies, stocks and bonds