Chapter 1-Overview of Financial Markets and Regulations Flashcards
Securities Act of 1933
Concerned with full and fair disclosure, specifically in the primary market.
- new issues
- primary markets
- IPOs
- issuer sales
- full disclosure
- prospectus
- red herring
- registers paper
- SEC never approves
Securities Exchange Act of 1934
Covers secondary market activities, created the SEC, gives regulatory oversight regarding the extension of credit in the securities industry (i.e. use of margin) to the Federal Reserve Board.
- secondary market
- trading markets
- antifraud rules
- margin: Regulation T
- created the SEC
- registers persons (exchanges, firms, individuals)
Maloney Act of 1938
Enabled the creation of non exchange SROs for the OTC market (NASD) also created MSRB and lead to FINRA.
-created the former SRO for the OTC markets (NASD)
Trust Indenture Act of 1939
Provides added security for corporate bond investors.
Investment Company Act of 1940
Covers mutual funds.
- more than 100 shareholders
- min $100k in assets
- annual reports to SEC
- semianual reports to shareholders
Investment Advisors Act of 1940
Regulates those who have a specific investment advisory fee.
- ABC test (advice, business, compensation)
- incidental advisors (lawyers, accountants, teachers, engineers) are excluded from the definition of advisors
Securities Investor Protection Act of 1970 (SIPA)
Enabled the creation of the insurance entity for protection against brokerage house bankruptcy.
- firm bankruptcy
- $500k coverage per separate customer
- $250k limitation on cash coverage
- industry-funded
- not part of the US government
Employee Retirement Income Security Act of 1974 (ERISA)
Covers administration of private, qualified retirement accounts.
Securities Acts Amendments of 1975
Created MSRB.
Insider Trading Act of 1988
Sets out criminal penalties for insider trading (up to $5mm and 20 years in prison).
- misuse of material nonpublic information
- treble (3x) damages
- $5mm max fine
- 20 years max prison time
- tippers and tippees
- any person can be in violation of insider trading laws
Federal Telephone Consumer Protection Act of 1991
Rules for maintaining a do not call list and not solicit from those on that list.
- do not call lists
- 8am to 9pm customer time zone
- call in/help lines are exempt
Penny Stock Rule of 1991
Covers selling of sub $5 OTC stocks.
FINRA Conduct Rules
Interactions between customers and firm (compensation, communication, and sales practice violations).
FINRA Uniform Practice Code (UPC)
Govern trading and the proper settlement of transactions. Goal is to standardize procedures in the industry (good delivery, buy-ins, sell-outs, ex-dividends, accrued interest).
FINRA Code of Procedure
Covers enforcement and punishment of members as it relates to FINRA rule violations.
