ch.2 Flashcards
Securities Act of 1933
regulates the primary market, issuers must register with SEC, prospectus,
Securities Exchange Act of 1934
Created SEC, registration of BD and agents, regulates the secondary market,
SEC
ultimate authority, direct govt body, 5 commissioners, 5 year terms, chosen by pres approved by senate. not an SRO or DEA.
Public Utilities Holding Act of 1935
regulates all co. that provides gas and electric power, they are exempt from state registration requirements.
Financial Industry Regulatory Authority (FINRA)
regulates BD’s that conduct business in the OTC market. Four major bylaws
- fair practice code
- uniform practice code
- code of procedure
- code of arbitration
Trust indenture Act of 1939
Only applies to corporate. 5M+ exp 1y+ issues must issue trust indenture: contract between issuer and trustee, trustee acts on behalf of bondholders and ensures issuer is in compliance with promises.
investment advisers act of 1940
regulates investment advisers. sets registration requirements and disclosure docs
investment company act of 1940
sets registration requirements for 1. management investment co.’s 2. unit investment trust (UIT) 3. face-amount companies (FACs)
FINRA rule 2210 communications with the public
3 categories of member communication, 1. retail communication 2. institutional communication 3. correspondence
retail communication
any written coms distributed to 25+ retail investors in a 30-day period. all coms must be approved prior to use, must be maintained 3 years. young firms file coms 10 days prior to use unless renewing, older firms can file up to 10 days after
institutional communications
any coms exclusive to institutional investors, do not need approval, maintained 3 years
correspondence
any coms to members and up to 25 retail within a 30-day period.
blind recruiting ads
job ad,
generic advertising
promote firm awareness, advertises products and services (securities, contact & address, type of accounts offered)
tombstone ads
ad announcement of a new security, must include 1. registration not yet effective 2. responding does not obligate 3. where to find prospectus 4. ad isn’t offering, only prospectus may make offer
testimonials
BD may use testimonials, if quoting past performance, must include past performance is not indicative of future performance. if compensated over $100 it must be disclosed. IA cannot use testimonials
free services
must actually be free no strings attached, free lunch seminars are prohibited unless strict compliance to conduct and disclosure rules, particularly concerning with seminars for seniors.
misleading communications
not allowed, examples include: 1. excessive hedge clauses 2. implying FINRA NYSE or SEC endorsement 3. printing FINRA bigger than firm name 4. implying larger r&d facilities than reality 5. implying higher qualifications than reality
Securities Investor Protection Act of 1970 (SIPC)
BD required to be SIPC member and created net capital requirements. SIPC covers $500k total and up to $250k cash per person. examples of people 1. Mr. J 2. Mr & Mrs J 3. Mrs J
fidelity bond
protects customers in the event of employee dishonesty, minimum $25k
Municipal Securities Rulemaking Board (MSRB)
regulate municipal bonds, has no enforcement, rules are enforced by regulators
insider trading and securities fraud enforcement act of 1988
fine 3x amount made or loss avoided, civil or criminal fine for person who gave info, criminal prosecutions may result in 1m fine and 20 years
firewall
To ensure inside information doesn’t move between retail division and inside information BD must separate with a firewall
Telephone Consumer Protection Act of 1991
regulates how telemarketing calls are made by businesses.
telephone protection act exemptions
- calls to existing customers
- calls to a delinquent debtor
- calls from a religious or nonprofit organization
National Securities improvement act of 1996
AKA coordination act, eliminated duplicated effort.
- federal law overrides state law
- registration requirements for IAs
- Capital Requirements
- eliminated collusive behavior
Uniform Securities Act
sets minimum qualification standards for each state securities administrator.
1. USA sets civil and criminal penalties for violators.
securities administrator
top securities regulator within the state.
- enforces rules of USA
- sets registration requirements
- sets fees
- may suspend or revoke license
The Patriot Act
requires BDs to have written policies and procedures designed to detect suspicious activity.
From money laundering to not conducting business with anyone on the OFAC list.
Regulation S-P
Requires firms to maintain adequate procedures to protect financial information of its customers.
a firm must deliver:
1. An initial privacy notice to customers upon acct opening
2. an annual privacy notice to all customers
Identity Theft
the TFC requires written identity theft prevention programs. Must be designed to detect red flags and mitigate potential damage.
