Chapter 3 Flashcards
Rules that sets standards for conduct and that carry the force of law
Regulations
Companies set and enforce rules for their employees to ensure compliance with regulation and to guide employees with matters outside the scope of regulation
Corporate policies
A failure of the entire financial system, including loss of access to credit and collapse of financial markets.
Systemic failure
Criminals using companies in the financial services industry to transfer money from illegal operations to other legal activities. As a consequence of the transfer the money becomes “clean”.
Money laundering
Regulators set up broad principles within which the investment industry is expected to operate
Principles - based regime
Provide explicit regulations that, in theory, offer clarity and legal certainty to investment industry participants.
Rules based regimes
Regulators attempt to protect investors by limiting the product sold to them.
Merit – based regulation
Seeks to ensure not whether the investment is appropriate for investors, but only whether all material information is disclosed to investors.
Disclosure – based regulation
Govern who is allowed to operate as an investment professional as well as if and how products can be marketed
Gatekeeping rules
Under this standard, any advice or recommendation must be both suitable for the client and in the clients best interests.
Fiduciary standard
Any advice or recommendation should be suitable for the client (Consistent with the clients interests).
Suitability standards
 Involves taking actions intended to move the price of a stock to generate a short term profit.
Market manipulation
The act of placing an order ahead of a customer’s order to take advantage of the price impact that the customer’s order will have. For example, if you know a customer is ordering a large quantity that is likely to drive up the price, you could take advantage of this information by buying in advance of that customers order.
Front running
