SIE Chapter 2

If SIPC does not cover in full a customer's account in a brokerage firm that has gone bankrupt, the investor is a: A. General creditor B. Secured creditor C. Preferred creditor D. Guaranteed creditor

A. General creditor If SIPC does not cover a client's account in a brokerage firm that has gone bankrupt, the client is a general creditor. The client ranks equally with all other general creditors.

If a company's insiders are buying its shares, what will most likely happen to the share price? A. It will appreciate B. It will depreciate C. It will neither appreciate nor depreciate D. It depends on how correlated the stock is with the S&P 500 Index

A. It will appreciate Insiders know more about their company than most investors and are required to report their purchases and sales to the SEC. If a large number of insiders are buying stock, it's likely that investors will feel more confident about the company and the result is that the share price will rise or appreciate in value.

Which of the following is NOT considered a self-regulatory organization (SRO)? A. The Securities Exchange Commission (SEC) B. Financial Industry Regulatory Authority (FINRA) C. The Municipal Securities Rulemaking Board (MSRB) D. Chicago Board Options Exchange (CBOE)

A. The Securities Exchange Commission (SEC) The Securities and Exchange Commission is an independent federal government agency that's responsible for protecting investors, maintaining fair and orderly securities trading markets, and regulating the process by which issuers raise capital in the primary market. The SEC allowed for the creation of separate SROs to be responsible for regulation of specific aspects of the securities industry. Examples of SROs include FINRA, the MSRB, and the CBOE.

"Blue Sky Laws" were established by: A. Uniform Securities Act B. National Securities Markets Improvement Act C. Bank Secrecy Act D. The Maloney Act

A. Uniform Securities Act "Blue Sky Laws," which are state securities laws, were established by the Uniform Securities Act (USA). The National Securities Markets Improvement Act (NSMIA) created a more efficient process by which state and federal regulations apply to investment advisers and securities. The Bank Secrecy Act (BSA) addresses the concerns of money laundering. The Maloney Act established the NASD, which was the predecessor to FINRA. (17504)

If a broker-dealer declares bankruptcy, which of the following positions is fully covered by SIPC? A. $200,000 in stock, $100,000 in cash, $75,000 in futures B. $300,000 in stock, $100,000 in cash C. $100,000 in stock, $300,000 in cash D. $200,000 in stock, $200,000 in cash, $25,000 in futures

B. $300,000 in stock, $100,000 in cash The SIPC provides for coverage of $500,000 per separate customer, with a maximum coverage of $250,000 of cash. SIPC doesn't provide protection for futures positions. (17505)

Which of the following statements is TRUE regarding the role of SIPC? A. SIPC provides protection against employee theft. B. SIPC covers separate accounts. C. SIPC covers separate customers. D. All regulated investment companies must obtain SIPC coverage.

C. SIPC covers separate customers. SIPC covers separate customers of a broker-dealer. An individual would be viewed as a separate customer. An individual who holds a personal account and an IRA would be treated as two separate customers.

If there is a violation of securities laws, which of the following is responsible for taking criminal action? A. The Financial Industry Regulatory Authority (FINRA) B. The Securities Exchange Commission (SEC) C. The Department of Justice (DOJ) D. The Internal Revenue Service (IRS)

C. The Department of Justice (DOJ) The SEC may investigate potential securities law violations through its Division of Enforcement, which prosecutes cases on behalf of the Commission. The SEC may also bring civil actions. However, if criminal activity is discovered by the Commission, the case falls under the jurisdiction of the Department of Justice (DOJ).

Which of the following organizations does NOT enforce MSRB rules? A. The Comptroller of the Currency B. FINRA C. The MSRB D. The SEC

C. The MSRB The MSRB has no enforcement power. The SEC and FINRA enforce municipal regulations for broker-dealers. The Comptroller of the Currency, FRB, and FDIC enforce municipal regulations for dealer banks. The MSRB establishes its rules but has no enforcement powers.

The Municipal Securities Rulemaking Board (MSRB) does NOT regulate which of the following? A. Municipal dealers B. Municipal salespersons C. Municipal advertising D. Municipal issuers

D. Municipal issuers The MSRB has the power to regulate municipal securities broker-dealers, their personnel, and their municipal securities communications with the public. However, the MSRB doesn't have the authority to regulate municipal issuers.

If a customer exceeds SIPC limits: A. The customer will receive cash rather than his securities B. The customer is a secured creditor C. The customer doesn't have a claim to the excess amount D. The customer is a general creditor

D. The customer is a general creditor If a customer's claim exceeds SIPC limits, he becomes a general creditor.