Securities Laws

Question 1

Securities Act of 1933

Answer 1

• All new issues must register and are subject to full disclosure
• prohibits fraud and deception in security dealings

Question 2

Securities Exchange Act of 1934

Answer 2

• established the SEC
• the SEC has full authority and oversight duties for IPOs and extends registration and full disclosure to existing stocks
• requires B/D to register with the SEC and regulates their activities through the SEC and NASD
• requires filling of annual 10-k report and quarterly 10-Q report

Question 3

Securities and Exchange Rule 145

Answer 3

• Shelf Rule
• permits large companies to file “short-form registration and place the securities on the shelf” to be sold piecemeal over the next two years.

Question 4

Public Utilities Holding Company Act of 1935

Answer 4

• limited the use of debt financing of the utility industry

- required better financial accounting methods

Question 5

Maloney Act of 1936

Answer 5

• extended SEC control to the OTC market
• provides self regulation of the OTC dealers through the NASD
• SEC has authority over the NASD

Question 6

Trust Indenture Act of 1939

Answer 6

-set requirements for corporate issuers of debt securities for greater than $1 MM

Question 7

Investment Company Act of 1940

Answer 7

-authorized SEC to regulate investment companies

Question 8

Investment Advisors Act of 1940

Answer 8

• established regulation of investment advisers with the SEC

- 3 prong test: Advice, Business, Compensation

Question 9

Securities Investors Protection Act of 1970

Answer 9

• established SIPC to act as an insurance company to protect investors from brokerage firm bankruptcies
• limited protection afford by the act: total coverage is $500,000 of which only $250,000 can be cash, securities must be held in street name

Question 10

Securities Act Amendments of 1975

Answer 10

• promoted the establishment of a national market system for securities trading
• abolished fixed brokerage commissions

Question 11

Insider Trading and Securities Fraud Enforcement Act of 1988

Answer 11

-authorized treble (3x) damages for individuals found guilty of fraudulent insider trading

Question 12

Investment Advisors Supervision Coordination Act of 1996

Answer 12

-eliminated the need for investment managers to register with the SEC if they are regulated as such by state and do not manage $25 MM or more of client assets

Question 13

Securities Exchange Commission

Answer 13

• Executive - seeks to enforce the laws for which it is responsible
• Legislative- enact various formal regulations and rules in the process of upholding the laws
• Judicial- decides civil cases under its jurisdiction

Question 14

National Association of Securities Dealers

Answer 14

-responsible for licensing and monitoring securities brokers

Question 15

Due Diligence

Answer 15

-both the ‘33 and ‘34 acts require the registered representative investigate any security before recommending it to a client.

Question 16

Blue Sky Laws

Answer 16

• state laws dealing with the regulation of the securities business
• set standard that must be met by every new security before it is sold

Question 17

Glass-Steagall Act of 1933

Answer 17

• legislation passed by congress authorizing deposit insurance and prohibiting commercial banks from owning brokerage firms
• the purpose of the act was to insulate bank depositors from the risk involved when a bank engaged securities activities and to prevent a bank collapse similar to the one that happened in the great depression.