Vol 1 Chapter 5 Flashcards
Three reasons for regulation
o Protect consumer
o Protect investor
o Preventing systemic risk
Alternative approaches to regulations
Self-regulations and Governmental regulations
Disclosure (what you should not give out to the public but is enough for the public to know is available to them to make a decision) and Merit (What you can give to the public)
Federal Reserve Act of 1913
Established the Fed
Helps whose failure would significantly harm the economy
Securities Act of 1933
Require issuers to give investors financial info concerning securities offerings and bans misrepresentation and fraud for selling securities
Securities Exchange Act of 1934
Established SEC
Established (Financial Industry Regulatory Authority) FINRA
Private organization to regulate the conduct of member brokerage firms and exchanges (work with the Government)
Federal Exchange Act of 1934
Authorized and regulate the charting of Federal credit unions
Sarbanes-Oxley Act of 2002
Strengthens and providing independence of auditors, to provide a more truthfulness firm’s financial statements
Rules for financial analysts
Under the oversight of the SEC
Systematic Risk
known as “un-diversifiable risk,” “volatility” or “market risk,” affects the overall market, not just a particular stock or industry
Regulatory Capture
happens when a regulatory agency, formed to act in the public’s interest, eventually acts in ways that benefit the industry it is supposed to be regulating, rather than the public
Regulation Reach V.S. Regulation Arbitrage
Arbitrage: practice whereby firmscapitalize on loopholes in regulatory systems in order to circumvent unfavorable regulation
Regulation Fair Disclosure 2003
Adopted by the SEC in 2003, companies are mandated to the public and investment professionals at the same time
Bankruptcy
Legal process which an organization is either liquidated and financially restructured
