Chapter 8 Part 5

Question 1

The Securities Exchange Act of 1934 defines an insider as

Answer 1

any officer, director, or owner of more than 10% or more of a company’s stock. An insider’s immediate family is also included

Question 2

Anyone inappropriately using

Answer 2

material, nonpublic information may be charged with insider trading, where the penalties may include fines, imprisonment, and expulsion from the industry

Question 3

The maximum civil penalty is

Answer 3

three times the profit gained or loss avoided (treble damages)

Question 4

The maximum criminal penalty is a fine of

Answer 4

of $5 million for an individual and $25 million for a corporation or other entity. An individual may also be sentenced to prison for a period up to 20 years

Question 5

By the nature of their position, certain people have access to nonpublic information, but may not take advantage ofil to earn a profit or to avoid a loss on a securities transaction. An insider is also not allowed to make a

Answer 5

short-swing profit (i.e., a profit earned on stock held less than six months) on the company’s stock. Any short-swing profit must be returned to the company. If not, the owner may be sued for disgorgement of all profits

Question 6

Your exam may include an example of an individual who possesses insider information (the tipper} and provides the information to another individual (the tippee} who ultimately profits with the information. Both parties would be

Answer 6

in violation under the Act

Question 7

The Municipal Securities Rulemaking Board was created by Congress in

Answer 7

1975 as part of an amendment to the Securities Exchange Act of 1934

Question 8

As with FINRA, the MSrB is a

Answer 8

self-regulatory organization that is subject to oversight by the Securities and Exchange Commission. The purpose of the MSRB is to oversee practices within the municipal securities industry

Question 9

The MSrB requires every broker or dealer of municipal secmities to comply with its rules. The MSRB is concerned mainly with the standards of

Answer 9

professional practice, including qualifications of brokerdealers, rules of fair practice, and record keeping

Question 10

MSRB rules do not apply to

Answer 10

issuers of municipal securities

Question 11

Municipal securities are exempt from the registration requirements of

Answer 11

the Securities Act of 1933, but issuers remain subject to the antifraud provisions set forth in the federal securities acts