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SIE > Ch. 2: Overview of Regulation > Flashcards

Ch. 2: Overview of Regulation Flashcards

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1
Q

What is the name that’s given to a BD’s internal policies and procedures?

A

Written Supervisory Procedures (WSP)

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2
Q

What US Government Agency, created by the ‘34 Act, enforces securities laws?

A

Securities and Exchange Commission (SEC)

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3
Q

Identify the acronym: SRO

A

Self-Regulatory Organization

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4
Q

Define penny stock.

A

Non-exchange traded securities that are priced less than $5 per share

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5
Q

T/F: SIPC is backed by full faith and credit of the US government.

A

False

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6
Q

What is the SRO for corporate securities?

A

FINRA- Financial Industry Regulatory Authority

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7
Q

What is the SRO for municipal securities?

A

Municipal Securities Rulemaking Board (MSRB)

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8
Q

Jim’s cash account contains $275,000 of cash and $185,000 of securities. How much SIPC coverage is provided?

A

Covers $250,000 of cash ($250,000 SPIC limit) and will cover all of $185,000 securities

Total SIPC coverage is $500,000 (limit $250,000 cash)

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9
Q

T/F: Rule violations are handled by the Code of Arbitration.

A

False. Rule violations are covered by Code of Procedure

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10
Q

What is FINRA’s primary objective?

A

Adopt, administer and enforce rules in the securities industry

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11
Q

Identify the acronym: SIPC

A

Securities Investor Protection Corporation

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12
Q

Is SIPC part of the US Government?

A

No, it’s a member based organization of BDs; non-profit

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13
Q

Who is responsible for the formulation and interpretation of rules for the municipal industry?

A

MSRB (Municipal Securities Rulemaking Board)

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14
Q

What types of industry issues are handled under the Code of Procedure?

A

Rule violations

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15
Q

Which federal law created NASD?

A

The Maloney Act of 1938

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16
Q

Does the MSRB have the authority to enforce its own rules?

A

No, the MSRB has no enforcement authority; but, FINRA can enforce

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17
Q

What is the SRO for exchange-traded options?

A

CBOE (Chicago Board Options Exchange)

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18
Q

If Mary has a cash account and an IRA account, what coverage will SIPC provide?

A

SIPC will cover both accounts as both are treated as separate customers

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19
Q

T/F: The Investment Company Act of 1940 requires mutual funds to register.

A

True

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20
Q

What are joint accounts considered by the SEC?

A

Considered separate from individual accounts

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21
Q

What is FINRA?

A

Financial Industry Regulatory Authority

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22
Q

If a BD goes bankrupt, what happens to securities registered in the customer’s name?

A

They are returned to the customer without regard to SIPC limitations

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23
Q

Define a wrap account

A

A managed account that charges clients an annual fee to cover trading, research and advisory services

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24
Q

What actions may the hearing panel take regarding rule violations?

A

Censure, fine, suspension, request to requalify, or expulsion

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25
Q

Which federal law created the SEC?

A

Securities Exchange Act of 1934

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26
Q

T/F: The MSRB has no authority or control over municipal issuers

A

True; MSRB just formulates and interprets rules

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27
Q

Which act created SIPC?

A

Securities Investor Protection Act of 1970 (SIPA)

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28
Q

Who is subject to the Insider Trading Act?

A

Anyone who misuses material non-public information

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29
Q

Identify the acronym: NASAA

A

North American Securities Administrators Association

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30
Q

The Securities Exchange Act of 1934 regulates the _____ market

A

Secondary market

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31
Q

What is the role of an SRO?

A

Maintain fair and orderly securities markets and establish rules for protecting investors

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32
Q

What is a member firm?

A

A BD that is a member of FINRA

33
Q

T/F: The Investment Company Act of 1940 requires mutual fund managers to register?

A

False- it requires money managers to register

34
Q

T/F: Decisions arising from arbitration may be appealed to the federal court system

A

False; decisions are binding on both parties and may not be appealed

35
Q

Name some SROs

A

FINRA, MSRB, CBOE

36
Q

Does SIPC protect customers from market losses?

A

No; SIPC protects customers from losses due to BD bankruptcy

37
Q

T/F: The FDIC is backed by the full faith and credit of the US Government

A

True

38
Q

Identify the acronym: TCPA

A

Telephone Consumer Protection Act (of 1991)

39
Q

What is NASAA’s primary responsibility?

A

To establish and modify the Uniform Securities Act

40
Q

Describe a wrap account

A

An account that charges a client a single, annual fee that covers transaction execution and account management

41
Q

What is SIPC?

A

Security Investors Protection Coverage- covers client losses in the event of BD bankruptcy

42
Q

What act governs private, qualified retirement accounts?

A

Employee Retirement Security Act of 1974

43
Q

What amount of coverage is provided by FDIC?

A

$250,000 per depositor per bank

44
Q

Which federal law governs the registration of RR’s and their firms?

A

Securities Exchange Act of 1934

45
Q

The IC Act of 1940 requires a fund with more than ____ shareholders to register with the SEC.

A

100 shareholders

46
Q

Identify the acronym: WSP

A

Written Supervisory Procedures

47
Q

Identify the acronym: ERISA

A

Employee Retirement Security Act

48
Q

The _____ is the SRO for the OTC market.

A

FINRA

49
Q

The Maloney Act of 1938 is credited with creating what SRO?

A

NASD, and once it merged with NYSE, FINRA was formed

NASD merged with NYSE, which led to FINRA

50
Q

What act prevents terrorists from laundering money?

A

USA PATRIOT Act

51
Q

Customers become ______ if their cash or securities positions exceed SIPC coverage.

A

general creditors

52
Q

Tim has both a cash and margin account with the same BD. If bankruptcy occurs, how are Tim’s accounts handled?

A

Those accounts are combined; unlike a cash and IRA account which are treated separately

53
Q

_____ protects customers from BD bankrupcty

A

SIPC

54
Q

How is the FDIC different from SIPC?

A

SIPC does not insure against bank deposits

55
Q

The _____ covers disciplinary actions by FINRA against member firms and their employees

A

Code of Procedure

56
Q

Industry disputes are handled through ____

A

Arbitration

57
Q

List the 4 categories of FINRA rules:

A

1) Conduct Rules
2) Uniform Practice Code
3) Code of Procedure
4) Code of Arbitration

58
Q

SIPC provides coverage of $_____ of which no more than $_____ can be cash

A

$500k; $250k

59
Q

Under which federal law are firms, RRs and exchanges registered?

A

Securities Exchange Act of 1934

60
Q

Ben’s margin account has a market value of $800k and a debit balance of $350k. How much SIPC coverage is provided?

A

$450k; in a margin account, SIPC covers net equity (market value less debit)

61
Q

What is the purpose of the FDIC?

A

To insure bank deposits and examine/supervise financial institutions for safety and soundness

62
Q

T/F: SIPC covers commodities and futures markets.

A

False

63
Q

____ of a BD are responsible for supervising registered employees

A

Principals

64
Q

For SIPC purposes, what happens to securities that are able to be specifically identified as belonging to a client?

A

They are distributed to the client without regard to dollar limit

65
Q

From what do SROs derive their power?

A

SEC

66
Q

How is SIPC funded?

A

Through member BDs

67
Q

Who enforces MSRB rules?

A

BD enforcement; FINRA; SEC, FDIC

68
Q

T/F: MSRB rules regulate the municipal activities of BDs, banks, and the employees of these institutions

A

True

69
Q

Give some examples of what an SPIC does NOT cover.

A

Fraud, futures contracts, commodities

70
Q

T/F: SIPC provides coverage for market losses.

A

False

71
Q

T/F: Code of Procedure can be used by a customer against a member firm to resolve a monetary dispute.

A

False, it would be handled under Code of Arbitration

72
Q

What will SIPC cover in a customer’s margin account?

A

Customer’s net equity (margin amount less debit/loans)

73
Q

Trading on material, non-public information is considered ______.

A

Insider trading

74
Q

Identify acronym: FDIC

A

Federal Deposit Insurance Corporation

75
Q

What organization is responsible for implementing monetary policy in the US?

A

Federal Reserve

76
Q

Identify the acronym: COP

A

Code of Procedure

77
Q

Tom has an individual account and a joint account with the same BD. How much SIPC coverage is provided?

A

$1mm of coverage, since each account is covered separately

78
Q

What is the purpose of the FDIC?

A

Provide insurance on bank deposits in the event of bankruptcy and examine financial institutions for soundness

79
Q

New issues are regulated by what act?

A

Securities Act of 1933

SIE (20 decks)

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