Knowledge of Capital Markets

Question 1

Securities Act of 1933

Answer 1

Governs the new issuance (primary) market, which involves the 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 Broker-Dealers, Broker-Dealer employees, and exchanges

Question 3

Investment Company Act of 1940

Answer 3

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

Question 4

Investment Advisers Act of 1940

Answer 4

Governs the regulation of firms that earn fees for providing investment advice.

Question 5

Securities Investor Protection Act of 1970 (SIPA)

Answer 5

Covers the protection thresholds for customers in the event of a broker-dealers bankruptcy

Question 6

Insider Trading and Securities Fraud Enforcement Act of 1988

Answer 6

Defines penalties for the misuse of material, non-public information by both firms and individuals

Question 7

The USA Patriot Act (2001)

Answer 7

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

Question 8

Securities and Exchange Commission (SEC)

Answer 8

Commission created by Congress to regulate the securities markets and protect investors. Composed of five commissioners appointed by the President and approved by the Senate.

Question 9

Broker-Dealer (BD)

Answer 9

A person or firm in the business of buying and selling securities.

Question 10

Self-Regulatory Organization (SRO)

Answer 10

One of eight organizations accountable to the SEC for the enforcement of federal securities laws and the supervision of securities practices within an assigned field of jurisdiction.

Question 11

Over-the-counter (OTC) market

Answer 11

SEC system in which BDs negotiate directly with one another rather than through an auction on the exchange floor

Question 12

Conduct Rules

Answer 12

Regulations designed to ensure that FINRA member firms and their reps follow fair and ethical trade practices when dealing with the public.

Question 13

Code of Procedure (COP)

Answer 13

The formal procedure for handling trade practice complaints involving violations of the Conduct Rules

Question 14

Code of Arbitration Procedure

Answer 14

The formal method of handling securities-related disputes or clearing controversies between members, public customers, clearing corporations, or clearing banks.

Question 15

Chicago Board Options Exchange (CBOE)

Answer 15

The self-regulatory organization with jurisdiction over all writing and trading of standardized options and related contracts listed on that exchange.

Question 16

Municipal Securities Rulemaking Board (MSRB)

Answer 16

A self-regulatory organization that regulates the issuance and trading of municipal securities. No enforcement powers.

Question 17

Blue-sky laws

Answer 17

The nickname for state regulations governing the securities industry

Question 18

Federal Reserve Board (FRB)

Answer 18

A seven-member group that determines monetary policy and takes action to implement its policies.

Question 19

Securities Investor Protection Corporation (SIPC)

Answer 19

A nonprofit membership corporation created by an act of Congress to protect clients of brokerage firms that are forced into bankruptcy

Question 20

SIPC provides brokerage firm customers:

Answer 20

Up to $500,000 coverage for cash and securities held by the firms (although cash coverage is limited to $250,000).

Question 21

Customer

Answer 21

Any person who opens a trading account with a broker-dealer.

Question 22

Margin account

Answer 22

A customer account in which a brokerage firm lends the customer part of the purchase price of securities

Question 23

Federal Deposit Insurance Corporation (FDIC)

Answer 23

The government agency that provides deposit insurance for member banks and prevents bank and thrift failures.

Question 24

Institutional Investor

Answer 24

A person or organization that trades securities in large enough share quantities or dollar amounts that it qualifies for preferential treatment such as lower commissions.

Question 25

Accredited Investor

Answer 25

Any institution or individual meeting minimum net worth requirements for the purchase of securities qualifying under the Reg D registration exemption.

Question 26

Investor

Answer 26

The purchaser of an asset or security with the intent of profiting from the transaction

Question 27

Market Maker

Answer 27

A dealer willing to accept the risk of holding a particular security in its own account to facilitate trading in that security

Question 28

Registered Representative

Answer 28

An associated person engaged in the investment banking or securities business who gives investment advice for compensation.

Question 29

Investment Advisors Act of 1940

Answer 29

Legislation which governs who must register with the SEC as an investment advisor

Question 30

Investment Advisor

Answer 30

Any person who makes investment recommendations in return for a flat fee or a percentage of assets managed.

Question 31

Issuer

Answer 31

The entity, such as a corporation or municipality, that offers or proposes to offer its securities for sale

Question 32

Underwriter

Answer 32

An investment banker that works with an issuer to help bring a security to the market and sell it to the public

Question 33

Investment Banker

Answer 33

An institution in the business of raising capital for corporations and municipalities. May not accept deposits or make commercial loans.

Question 34

Make A Market

Answer 34

To stand ready to buy or sell a particular security as a dealer for its own account.

Question 35

Custodian

Answer 35

An institution or person responsible for making all investment, management and distribution decisions in an account maintained in the best interests of another.

Question 36

Mutual Fund Custodian

Answer 36

A national bank, a stock exchange member firm, a trust company, or another qualified institution that physically safeguards the securities a mutual fund holds. Clerical.

Question 37

Trustee

Answer 37

A person legally appointed to act on a beneficiary’s behalf

Question 38

Fiduciary

Answer 38

A person legally appointed and authorized to hold assets in trust for another person and manage those assets for that persons benefit

Question 39

Transfer Agent

Answer 39

A person or corporation responsible for recording the names and holdings of registered security owners, seeing that certificates are signed by the appropriate corporate officers, affixing the corporate seal, and delivering securities to the new owners.

Question 40

Capital Market

Answer 40

The segment of the securities market that deals in instruments with more than one year to maturity - that is, long term debt and equity securities.

Question 41

New Issue Market

Answer 41

The securities market for shares in privately owned businesses that are raising capital by selling common stock to the public for the first time.

Question 42

Initial Public Offering (IPO)

Answer 42

A corporations first sale of common stock to the public

Question 43

Public Offering

Answer 43

The sale of an issue of common stock, either by a corporation going public or by an offering of additional shares.

Question 44

Secondary Market

Answer 44

The market in which securities are bought and sold subsequently to their sold to the public for the first time.

Question 45

Fiscal Policy

Answer 45

The federal tax and spending policies set by Congress or the President. These policies affect tax rates, interest rates, and government spending in an effort to control the economy

Question 46

Monetary Policy

Answer 46

The Federal Reserve Boards (FRB) actions that determine the size and rate of the money supply’s growth, which, in turn, affect interest rates.