Knowledge of Capital Markets

Question 1

Securities Act of 1933

Answer 1

• Governs the new issuance (primary) market, which involves money-raising activities of issuers
• Requires issuers to register their securities when selling to the public

Question 2

Securities Exchange Act of 1934

Answer 2

• Governs trading markets for existing securities and registration requirements of BDs, BD employees, and exchanges

Question 3

Investment Advisers Act of 1940

Answer 3

• Governs regulation of packaged products such as mutual funds, closed-end funds, and unit investment trusts

Question 4

Securities Investor Protection Act of 1970 (SIPA)

Answer 4

• Covers the protection thresholds for customers in event of BD’s bankruptcy

Question 5

Insider Trading and Securities Fraud Enforcement Act of 1988

Answer 5

• Defines penalties for misuse of material, nonpublic information by both firms and individuals

Question 6

The USA Patriot Act

Answer 6

• Covers anti-money laundering (AML) policies and procedures that must be followed by financial firms

Question 7

Conduct Rules

Answer 7

These regulations establish the relationship between firms and their customers.

Question 8

Uniform Practice Code

Answer 8

These rules cover technical aspects of trading and payment for securities transactions.

Question 9

Code of Procedure

Answer 9

This covers the enforcement of FINRA rules and details the punishment of members who incur rule violations. This may be appealable to the SEC.

Question 10

Code of Arbitration

Answer 10

A FINRA-run dispute resolution process to settle monetary disputes. The goal of this is to provide a faster and cheaper resolution versus going through the traditional court system. These decisions are final and binding.

Question 11

The Chicago Board Options Exchange

Answer 11

This regulates all matters related to trading and standardized options and related contracts listed on that exchange.

Question 12

Municipal Securities Rulemaking Board

Answer 12

This regulates all matters related to the underwriting and trading of state and municipal securities. Does not have enforcement powers. No regulatory power over the municipalities who issue municipal securities.

Question 13

North American Securities Administrations Association

Answer 13

A voluntary association whose members provide insight from their unique perspective to the SEC and SROs as they move forward in their rulemaking process

Question 14

Securities Investor Protection Corporation

Answer 14

• Created under the Securities Investor Protection Act of 1970.
• Nonprofit membership organization.
• Members pay assessments into general insurance fund used to meet customer claims in the event of BD bankruptcy.
• Banks dealing exclusively in municipal securities, firms dealing exclusively in U.S. govt securities, and firms dealing exclusively in redeemable investment company securities do NOT have to be members.

Question 15

retail investor

Answer 15

Individual who makes investments such as purchase of securities for her own personal account rather than for organization

Question 16

Institutional investor

Answer 16

entity that pools money to purchase securities and other investment assets. These include banks, insurance companies, pensions, hedge funds and mutual funds.

Question 17

Qualified Institutional Buyer

Answer 17

an institutional investor who owns and invests a minimum of $100 million in securities on a discretionary basis.