ch.2

Question 1

Securities Act of 1933

Answer 1

regulates the primary market, issuers must register with SEC, prospectus,

Question 2

Securities Exchange Act of 1934

Answer 2

Created SEC, registration of BD and agents, regulates the secondary market,

Question 3

SEC

Answer 3

ultimate authority, direct govt body, 5 commissioners, 5 year terms, chosen by pres approved by senate. not an SRO or DEA.

Question 4

Public Utilities Holding Act of 1935

Answer 4

regulates all co. that provides gas and electric power, they are exempt from state registration requirements.

Question 5

Financial Industry Regulatory Authority (FINRA)

Answer 5

regulates BD’s that conduct business in the OTC market. Four major bylaws

1. fair practice code
2. uniform practice code
3. code of procedure
4. code of arbitration

Question 6

Trust indenture Act of 1939

Answer 6

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.

Question 7

investment advisers act of 1940

Answer 7

regulates investment advisers. sets registration requirements and disclosure docs

Question 8

investment company act of 1940

Answer 8

sets registration requirements for 1. management investment co.’s 2. unit investment trust (UIT) 3. face-amount companies (FACs)

Question 9

FINRA rule 2210 communications with the public

Answer 9

3 categories of member communication, 1. retail communication 2. institutional communication 3. correspondence

Question 10

retail communication

Answer 10

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

Question 11

institutional communications

Answer 11

any coms exclusive to institutional investors, do not need approval, maintained 3 years

Question 12

correspondence

Answer 12

any coms to members and up to 25 retail within a 30-day period.

Question 13

blind recruiting ads

Answer 13

job ad,

Question 14

generic advertising

Answer 14

promote firm awareness, advertises products and services (securities, contact & address, type of accounts offered)

Question 15

tombstone ads

Answer 15

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

Question 16

testimonials

Answer 16

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

Question 17

free services

Answer 17

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.

Question 18

misleading communications

Answer 18

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

Question 19

Securities Investor Protection Act of 1970 (SIPC)

Answer 19

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

Question 20

fidelity bond

Answer 20

protects customers in the event of employee dishonesty, minimum $25k

Question 21

Municipal Securities Rulemaking Board (MSRB)

Answer 21

regulate municipal bonds, has no enforcement, rules are enforced by regulators

Question 22

insider trading and securities fraud enforcement act of 1988

Answer 22

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

Question 23

firewall

Answer 23

To ensure inside information doesn’t move between retail division and inside information BD must separate with a firewall

Question 24

Telephone Consumer Protection Act of 1991

Answer 24

regulates how telemarketing calls are made by businesses.

Question 25

telephone protection act exemptions

Answer 25

1. calls to existing customers
2. calls to a delinquent debtor
3. calls from a religious or nonprofit organization

Question 26

National Securities improvement act of 1996

Answer 26

AKA coordination act, eliminated duplicated effort.

1. federal law overrides state law
2. registration requirements for IAs
3. Capital Requirements
4. eliminated collusive behavior

Question 27

Uniform Securities Act

Answer 27

sets minimum qualification standards for each state securities administrator.
1. USA sets civil and criminal penalties for violators.

Question 28

securities administrator

Answer 28

top securities regulator within the state.

1. enforces rules of USA
2. sets registration requirements
3. sets fees
4. may suspend or revoke license

Question 29

The Patriot Act

Answer 29

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.

Question 30

Regulation S-P

Answer 30

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

Question 31

Identity Theft

Answer 31

the TFC requires written identity theft prevention programs. Must be designed to detect red flags and mitigate potential damage.