Financial Services Industry Regulation Requirements

Question 1

The Securities Act of 1933 has two main goals:

Answer 1

ensure investors received information about the security they were purchasing so they could make an informed decision
prevent fraudulent activities in the sale of securities.

Question 2

The Securities Act of 1934 created the ____ and required certain individuals participating in the securities industry to register with the NASD

Answer 2

SEC

Question 3

_______ regulates the organization of companies, including mutual funds, that engage primarily in investing, reinvesting, and trading in securities, and whose own securities are offered to the investing public. The goal is to reduce the conflicts of interest that may occur in these organizations.

Answer 3

The Investment Company Act of 1940

Question 4

_____ is the law that regulates investment advisers.

Answer 4

The Investment Advisers Act of 1940

Question 5

‘Investment Adviser’’ is defined as:

Answer 5

any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities.

Question 6

______ is the self-regulatory organization of the securities industry responsible for the regulation of The NASDAQ Stock MarketSM, as well as the vast over-the-counter securities market and the many products traded in it.

Answer 6

FINRA

Question 7

What is the SEC is responsible for?

Answer 7

the registration, regulation, and oversight of brokerage firms, transfer agents, and clearing agencies as well as the nation’s securities self regulatory organizations (SROs).

Question 8

What type of organization is FINRA?

Answer 8

self-regualting

Question 9

Each state has its own securities laws called ____ to protect investors from fraudulent sales and activities.

Answer 9

Blue Sky Laws

Question 10

Broker/Dealer Regulation:

Answer 10

A broker/dealer, registered representative and the security must all be registered in the state where they want to sell. The registered representative must also pass the Series 63 exam.

Question 11

There are three methods for registering a security at the state level:

Answer 11

Registration by Notification, Registration by Coordination and Registration by Qualification.

Question 12

_______ required securities to register and provide investors accurate and timely information.

Answer 12

The Securities Act of 1933

Question 13

______ created the SEC and required certain individuals participating securities industry to register with the NASD, which is now FINRA.

Answer 13

Securities Act of 1934

Question 14

Registration forms call for:

Answer 14

A description of the company’s properties and business,
A description of the security to be offered for sale,
Information about the management of the company, and
Financial statements certified by independent accountants.

Question 15

FINRA is responsible for:

Answer 15

Creating rules and regulations for the securities industry.
Constant surveillance of the markets to ensure the fair and orderly conduct of securities transactions.
Examining securities firms and their business activities.

Question 16

The preliminary prospectus that is used by securities professionals to obtain indications of interest as the SEC reviews a registration statement is commonly referred to as ________________.

Answer 16

a red herring

Question 17

What is the length of the waiting period that is imposed after the issuer of a new security has filed a registration statement with the SEC.

Answer 17

20 days

Question 18

To sell securities in states that require state-level representative registration, a registered representative must pass the ___________.

Answer 18

Series 63 Exam

Question 19

Under the “Advisers Act,” a three-prong test must be met:

Answer 19

The individual or firm advises as to the value of securities, or as to the advisability of investing in or selling securities, through publications or writings and, in fact, they hold themselves out to the general public as providing such advice.
The individual or firm is engaged in the business of advising others, by providing general or specific advice or issues reports about securities.
The individual or firm receives compensation for advisory services.

Question 20

Rule 204-3 under the Investment Advisers Act of 1940, commonly referred to as the “brochure rule” Requires:

Answer 20

Generally requires every SEC Registered Investment Adviser to deliver to each prospective advisory client a written disclosure statement, or “brochure”, describing the adviser’s business practices and educational and business background.

Question 21

SEC has broad authority including the power to register, regulate, and oversee:

Answer 21

Brokerage firms:
Transfer agents:
Clearing agencies:
Self Regulatory Organizations (SROs)

Question 22

Brokerage firms:

Answer 22

Firms that charge a fee or commission for executing buy and sell orders submitted by another individual or firm.

Question 23

Transfer agents:

Answer 23

Person or company who maintains the records of registered securities.

Question 24

Clearing agencies:

Answer 24

Facilitate the validation, delivery and settlement of securities transactions

Question 25

Self Regulatory Organizations (SROs):

Answer 25

A SRO is an organization accountable to the SEC for the enforcement of federal securities laws within an assigned area.
SROs must create rules that allow for disciplining members for improper conduct and for establishing measures to ensure market integrity and investor protection. SRO proposed rules are published for comment before final SEC review and approval.

Question 26

The ‘34 Act is the ______ major piece of financial regulation, that strengthens oversight of the _____ markets, and created the SEC!

Answer 26

SECond
SECondary

Question 27

SEC=

Answer 27

(Securities and Exchange Commission)

Question 28

______, ______, and ______ are self-regulating organizations (SRO)

Answer 28

The New York and American Stock Exchanges and the Financial Industry Regulatory Authority (FINRA)

Question 29

______ requires these companies to disclose their financial condition and investment policies to investors when stock is initially sold and, subsequently, on a regular basis.

Answer 29

Investment Company Act of 1940

Question 30

________ is designed to minimize conflicts of interest that arise in these complex operations.

Answer 30

Investment Company Act of 1940

Question 31

To be considered an investment adviser under the Investment Advisers Act of 1940, remember your A-B-C’s:

Answer 31

The individual must be providing Advice, in the Business of offering advice, and receiving Compensation for the advice provided.

Question 32

FINRA=

Answer 32

Financial Industry Regulatory Authority

Question 33

The _____ passed in 2010, made important amendments to the registration rules outlined in the Investment Advisers Act of 1940.

Answer 33

Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”)

Question 34

Rule 204-3 under the Investment Advisers Act, commonly referred to as the “brochure rule,” generally requires every SEC Registered Investment Adviser to deliver to each prospective advisory client a written disclosure statement, or “brochure”, describing…..

Answer 34

the adviser’s business practices and educational and business background.

Question 35

Rule 204-3 under the Investment Advisers Act, commonly referred to as the “brochure rule requires advisors to provide:

Answer 35

A cover page which lists identifying information for the Investment Advisor Representative
Disclosure of the adviser’s educational background, and business background for the past 5 years.
regulators.
Disclosure of disciplinary or legal actions against the adviser
Disclosure of other business activities that might create a material conflict of interest
Disclosure of additional compensation from someone other than the client, who provides the adviser with an economic benefit.
Disclosure of how the firm supervises the advice given to clients, and the name and phone number of the Investment advisers who must register with the SEC have specific filing requirements that must be met

Question 36

investment advisers who must register with the SEC have specific filing requirements that must be met. This is accomplished by filing Form ADV.

Answer 36

Form ADV, Part 1: Consists of general business information
Form ADV, Part 2: Contains more specific information about business operations and compensation.supervisor.

Question 37

______ duel objectives are to protect investors and the market’s integrity through regulation and complementary compliance and technology-based services.

Answer 37

FINRA’s

Question 38

State-registered investment advisers are also subject to federal regulation in areas such as:

Answer 38

Insider trading
Performance fees
Fraudulent or deceptive practices, and
Assignment of advisory contracts

Question 39

Every state has its own securities laws, commonly referred to as ______ that are designed to protect investors against fraudulent sales practices and activities.

Answer 39

Blue Sky Laws

Question 40

_____ provides the following three methods for registering securities offerings with the states.

Answer 40

The Uniform Act

Question 41

The Uniform Act has 3 methods of registering securities offerings with the states:

Answer 41

Registration by Notification
Registration by Coordination
Registration by Qualification