Regulatory Ethics, Agencies and Market Participants

The FDIC protects which of the following?

Bank depositors

Which of the following organizations was created to protect investors financially from a bank failure?

The FDIC provides deposit insurance guaranteeing the safety of a depositor's accounts in member banks up to $250,000 for each deposit ownership category in each insured bank.

An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another who has been legally appointed to provide these services is BEST described as a(n)

Trustee

When a firm engages in proprietary trading, buying into and selling out of its own inventory for profit, it is acting as

a market maker

Broker-dealers must comply with SEC rules and regulations when conducting business. A broker-dealer that does not comply may be subject to all of the following EXCEPT

a prison sentence for principals of the firm ranging from 2 to 5 years

Anyone who, as part of their business, gives investment advice for compensation must register as a(n)

investment adviser under the Investment Advisers Act of 1940.

A fully disclosed broker-dealer

is one that introduces its business to a carrying firm to clear transactions

A broker-dealer that accepts the risk of holding a particular security in its account to facilitate trading and provide liquidity in that security is BEST described as a(n)

market maker

All of the following are benefits of using a prime broker EXCEPT

research; An institutional investor may select one firm (the prime broker) to provide custody and financing of securities while other firms, called executing brokers, handle all trades placed by the customer. It is not unusual for large companies to use dozens of executing broker-dealers. Trade confirmations from the many executing broker-dealers are consolidated and are provided along with account statements by the prime broker. Prime brokerage is efficient and saves the customer time and money. Research is not associated with prime brokerage accounts.

The Depository Trust Company (DTC)

serves the custody needs of securities industry participants

A customer has a significant amount of money in bank deposit accounts: $225,000 in a savings account titled in the customer's name; $240,000 in a checking account titled jointly with a spouse; and $100,000 in an account where the customer is custodian for a grandchild. Should that bank fail, the Federal Deposit Insurance Corporation (FDIC) insurance would cover

the entire $565,000 The FDIC provides deposit insurance guaranteeing the safety of a depositor's accounts in member banks up to $250,000 for each deposit ownership category in each insured bank. Each account listed (savings, checking, and custodial) is a separate ownership category under FDIC rules, so all the money in each of them is covered.

A market maker

trades in a proprietary account to facilitate trading of a security and provide liquidity

FINRA regulates all matters related to investment banking, including

trading in the OTC market

A company that offers sales of another company's securities would BEST be described as a(n)

underwriter

An investor opens an account with BNZ Government Securities, a broker-dealer limiting its transactions exclusively to securities issued by the U.S. government. The account holds $250,000 of Treasury bonds, $250,000 of Treasury notes, and $50,000 in cash. If BNZ's broker-dealer business should fail, the investor would receive SIPC protection in the amount of

$0.00; Although the vast majority of broker-dealers are required to be members of SIPC, those who deal exclusively in U.S. government securities are exempt.

Certain investors are deemed "accredited" when they have a net worth of

$1 million not including net equity in the primary residence

The transfer agent for a corporation is responsible for each of the following:

- Acting as an intermediary between the buy and sell sides of a transaction - Maintaining records of ownership - Ensuring that its securities are issued in the names of the correct owners

A broker-dealer and its associated persons may be subjected to sanctions for violations of FINRA and SEC rules. Which of the following penalties can be levied against both the member firm AND its associated persons? - Censure - Limits placed on activities - Imprisonment - Loss of SIPC coverage

- Censure - Limits placed on activities

A clearing corporation agent or depository for securities transactions

- MSRB

The following regulatory authorities relies exclusively upon other examining authorities to enforce its rules

- MSRB (Municipal Securities Rulemaking Board)

Broker dealers and registered representatives may be subject to each of the following administrative and regulatory bodies

- NYSE - state securities administrator - FINRA

A firm designated as self-clearing can

- act in a back-office capacity for an introducing firm - clear and settle transactions executed by other firms

Which of the following regulatory bodies regulates but has no enforcement powers?

A firm that deals only in OTC and exchange listed stocks

Carrying firms may NOT

- mix customer funds and securities with their own

The following are acceptable choices to function as a depository and intermediary for transactions between buyers and sellers of securities

- the National Securities Clearing Corporation - Carrying firms - the Depository Trust Company

Which of the following is TRUE regarding a member firm operating under FINRA membership or the membership of another self-regulatory organization (SRO)?

Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, options and others, or limit the products they offer to only a few.

An institutional investor selects a single FINRA/NYSE member firm to provide for financing and custody of securities, while orders to buy or sell are placed with executing brokers. This is an example of a(n)

A prime brokerage account is one in which a customer (an institution) selects one member to provide custody and financing of securities and executes trades with other firms known as executing brokers.

Correspondent firms would be likely to have relationships with which of the following types of broker-dealers?

A self-clearing (or carrying) firm holds funds and securities of the fully disclosed or introducing firm's customers and performs related functions, such as sending confirmations and statements for them. Those firms for whom the carrying firm performs these services are known as their correspondents.

Your broker-dealer executes trades for other broker-dealers and after execution settles those transactions for them. Your firm would be classified as which of the following?

Carrying firm

An investor has a cash account with $300,000 in securities and $40,000 in cash. The investor also has a restricted long margin account containing securities with a market value of $220,000 and equity of $60,000. What is the extent of this investor's SIPC coverage?

Coverage under SIPC may not exceed $500,000 in cash and securities, of which up to $250,000 may be cash. In the cash account, his coverage is $300,000 in securities plus $40,000 in cash. In the long margin account, the coverage is only the equity, which is $60,000. Total: $300,000 + $40,000 + $60,000 = $400,000.

Broker-dealers that transact securities business with customers or other broker-dealers must apply and be approved for registration with

SEC

FINRA staff must submit new rules and await approval from which of the following regulatory bodies prior to becoming effective?

SEC

The primary regulatory body for the securities industry would be which of the following?

SEC

An individual who purchases securities for a personal account is called a(n)

An individual who makes investments such as the purchase of securities for his or her account rather than for an organization is a retail investor. This investor may be accredited, but there is no way to know for sure given the limited information.

Which of the following organizations looks to promote self-discipline among members and investigate and resolve grievances between the public and members and between members?

FINRA

While the MSRB writes the rules and regulations regarding underwriting and trading for municipal securities, it does not enforce those rules. Who does?

FINRA

Which of the following is an SRO?

FINRA is considered the primary self-regulatory organization (SRO) in the securities industry.

All of the following SROs function under the SEC's oversight EXCEPT

FSLIC

A broker-dealer has a line of business restricted solely to the purchase and sale of securities with trade executions being handled by another member firm. Which of the following would best describe this type of firm?

Introducing/fully disclosed

A person who looks to provide advice to a city government concerning the issuance of municipal debt securities would BEST be described as a(n)

municipal advisor

Some institutions can function as a depository and intermediary for settling transactions between buyers and sellers of securities. All of the following are acceptable for this purpose EXCEPT

national banks