Chapter 1

Question 1

What does the SEC do?

Answer 1

ensure adherence to the rules and regulations that the commission makes and enforces

protects investors from fradulent activities, ensures that the securities market remain effective, and faciltates the capital formation required to support economic growth

Question 2

When was the Federal Reserve Act passed

Answer 2

December 23, 1913

Question 3

What does the Federal Reserve Act do?

Answer 3

stabilize prices
maximize employment
moderate long-term interest rates

Question 4

What are the 4 components of the FED?

Answer 4

Board of Governors
Federal Open Market Committee
12 Regional federal reserve banks
member banks throughout the US

Question 5

who establishes monetary policy

Answer 5

FOMC

Question 6

duties of the FED

Answer 6

strengthening US economy standing
maintaining balance between private interests of banks and centralized responsibilites of government
ensuring the financial system’s stability and mitigating systemic risk with financial markets

Question 7

FDIC

Answer 7

provides deposit insurance
oversees financial institutions to ensure their safety and soundness
facilitates the resolution of significant financial organizations and administers receiverships

Question 8

what does the fdic NOT cover

Answer 8

annuities, mutual funds, life insurance policies, bonds or stocks

Question 9

blue sky laws

Answer 9

anti-fraud regulations at state level
require sellers of new issues to provide indepth financial details of the entities involved in every deal

require brokerage firms, investment advisors, individual brokers offering securities in their states to obtain licenses

Question 10

North American Securities Administrators Association

Answer 10

group of securities regulators dedicated to safeguarding investors against fraudulent activities

licensing securities firms, investment professionals

Question 11

Securities Act of 1933

Answer 11

establish laws against misrepresentation and fraudulent activities in the securities market

ensure transparency in financial statements to help investors make informed decisions

must register with the SEC

Question 12

what info must companies make available before IPO

Answer 12

description of security being offered

description of the company’s business and properties

financial statements that have been certified by independent accountants

Question 13

Securities Exchange Act of 1934

Answer 13

regulate securities trading in the secondary market

compliance requirements such as proxy solicitations, company financial disclosures, registration of any securities listed on stock exchanges

Question 14

Investment Advisers Act of 1940

Answer 14

must provide accurate and complete information to ensure their clients’ best interests and maintain the market’s integrity

Question 15

exclusions to definition of investment adviser

Answer 15

banks and bank holding companies

lawyers, accountants, engineers, teachers

brokers and dealers

publishers

government securities advisers

credit rating agencies

family offices

Question 16

Securities Investors Protection Act

Answer 16

created the Securities Investor Protection Corporation

Question 17

SIPC

Answer 17

safeguard the customers of brokerage firms that become insolvent

cash and securities in an account are covered up to $500,000

coverage includes:
- joint accounts
- corporate accounts
- individual accounts
- trust accounts
- ROTH IRAs and traditional IRAs
- accounts held by legal guardian or estate executor

Question 18

Penny Stock Reform Act of 1990

Answer 18

prevent fraud in non-exchange listed stocks (penny stocks)

penny stocks: <$5 stocks

{the NYSE mandates companies to have a certain minimum in outstanding equity shares and a specific market cap}

Question 19

Insider Trading and Securities Fraud Enforcement Act of 1988

Answer 19

expanded the SEC’s authority to enforce insider trading laws

Question 20

Investment Company Act of 1940

Answer 20

safeguard investors by making them aware of the risks of purchasing and holding securities

Question 21

Telephone Consumer Protection Act of 1991

Answer 21

limits use of telemarketing

Question 22

FINRA

Answer 22

established by combining the regulatory, enforcement, and arbitration functions of the NYSE

Question 22

FINRA Rule 2266

Answer 22

requires SIPC member firms to provide written notice to customers about SIPC protections

Question 22

FINRA Rule 2269

Answer 22

Disclosure of Participation or Interest in Primary or Secondary Distribution

requires firms to disclose any participation or interest in a primary or secondary distribution of securities to customers

Question 23

FINRA Rule 5250

Answer 23

prohibits firms from accepting payments from issuers or promoters of a security for acting as market makers in that security

Question 24

Uniform Practice Code

Answer 24

set of rules that govern the activities of FINRA members and ensures consistent practices in the securities industry

-trade terms
-payment and delivery procedures
-dividend and interest payments
-reclamations
-exchange of confirmations

Question 25

MSRB

Answer 25

creates rules and policies for investment firms and banks in the issuing and sale of municipal bonds, notes, and other municipal securities.

FINRA and SEC monitors broker-dealers
Bank dealers fall under jurisdiction of the Comptroller or FDIC