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SIE > Ch. 2: Overview of Regulation > Flashcards

Ch. 2: Overview of Regulation Flashcards

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
Which federal law created the SEC?
Securities Exchange Act of 1934
26
T/F: The MSRB has no authority or control over municipal issuers
True; MSRB just formulates and interprets rules
27
Which act created SIPC?
Securities Investor Protection Act of 1970 (SIPA)
28
Who is subject to the Insider Trading Act?
Anyone who misuses material non-public information
29
Identify the acronym: NASAA
North American Securities Administrators Association
30
The Securities Exchange Act of 1934 regulates the _____ market
Secondary market
31
What is the role of an SRO?
Maintain fair and orderly securities markets and establish rules for protecting investors
32
What is a member firm?
A BD that is a member of FINRA
33
T/F: The Investment Company Act of 1940 requires mutual fund managers to register?
False- it requires money managers to register
34
T/F: Decisions arising from arbitration may be appealed to the federal court system
False; decisions are binding on both parties and may not be appealed
35
Name some SROs
FINRA, MSRB, CBOE
36
Does SIPC protect customers from market losses?
No; SIPC protects customers from losses due to BD bankruptcy
37
T/F: The FDIC is backed by the full faith and credit of the US Government
True
38
Identify the acronym: TCPA
Telephone Consumer Protection Act (of 1991)
39
What is NASAA's primary responsibility?
To establish and modify the Uniform Securities Act
40
Describe a wrap account
An account that charges a client a single, annual fee that covers transaction execution and account management
41
What is SIPC?
Security Investors Protection Coverage- covers client losses in the event of BD bankruptcy
42
What act governs private, qualified retirement accounts?
Employee Retirement Security Act of 1974
43
What amount of coverage is provided by FDIC?
$250,000 per depositor per bank
44
Which federal law governs the registration of RR's and their firms?
Securities Exchange Act of 1934
45
The IC Act of 1940 requires a fund with more than ____ shareholders to register with the SEC.
100 shareholders
46
Identify the acronym: WSP
Written Supervisory Procedures
47
Identify the acronym: ERISA
Employee Retirement Security Act
48
The _____ is the SRO for the OTC market.
FINRA
49
The Maloney Act of 1938 is credited with creating what SRO?
NASD, and once it merged with NYSE, FINRA was formed NASD merged with NYSE, which led to FINRA
50
What act prevents terrorists from laundering money?
USA PATRIOT Act
51
Customers become ______ if their cash or securities positions exceed SIPC coverage.
general creditors
52
Tim has both a cash and margin account with the same BD. If bankruptcy occurs, how are Tim's accounts handled?
Those accounts are combined; unlike a cash and IRA account which are treated separately
53
_____ protects customers from BD bankrupcty
SIPC
54
How is the FDIC different from SIPC?
SIPC does not insure against bank deposits
55
The _____ covers disciplinary actions by FINRA against member firms and their employees
Code of Procedure
56
Industry disputes are handled through ____
Arbitration
57
List the 4 categories of FINRA rules:
1) Conduct Rules 2) Uniform Practice Code 3) Code of Procedure 4) Code of Arbitration
58
SIPC provides coverage of $_____ of which no more than $_____ can be cash
$500k; $250k
59
Under which federal law are firms, RRs and exchanges registered?
Securities Exchange Act of 1934
60
Ben's margin account has a market value of $800k and a debit balance of $350k. How much SIPC coverage is provided?
$450k; in a margin account, SIPC covers net equity (market value less debit)
61
What is the purpose of the FDIC?
To insure bank deposits and examine/supervise financial institutions for safety and soundness
62
T/F: SIPC covers commodities and futures markets.
False
63
____ of a BD are responsible for supervising registered employees
Principals
64
For SIPC purposes, what happens to securities that are able to be specifically identified as belonging to a client?
They are distributed to the client without regard to dollar limit
65
From what do SROs derive their power?
SEC
66
How is SIPC funded?
Through member BDs
67
Who enforces MSRB rules?
BD enforcement; FINRA; SEC, FDIC
68
T/F: MSRB rules regulate the municipal activities of BDs, banks, and the employees of these institutions
True
69
Give some examples of what an SPIC does NOT cover.
Fraud, futures contracts, commodities
70
T/F: SIPC provides coverage for market losses.
False
71
T/F: Code of Procedure can be used by a customer against a member firm to resolve a monetary dispute.
False, it would be handled under Code of Arbitration
72
What will SIPC cover in a customer's margin account?
Customer's net equity (margin amount less debit/loans)
73
Trading on material, non-public information is considered ______.
Insider trading
74
Identify acronym: FDIC
Federal Deposit Insurance Corporation
75
What organization is responsible for implementing monetary policy in the US?
Federal Reserve
76
Identify the acronym: COP
Code of Procedure
77
Tom has an individual account and a joint account with the same BD. How much SIPC coverage is provided?
$1mm of coverage, since each account is covered separately
78
What is the purpose of the FDIC?
Provide insurance on bank deposits in the event of bankruptcy and examine financial institutions for soundness
79
New issues are regulated by what act?
Securities Act of 1933

SIE (20 decks)

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