STC SIE Chapter 2

What is FINRA?

The Financial Industry Regulatory Authority; created by the merger of the NASD and NYSE regulatory authorities

The IC Act of '40 requires a fund with more than _____ shareholders to register with the SEC.

The IC Act of '40 requires a fund with more than 100 shareholders to register with the SEC.

Who is responsible for the formulation and interpretation of rules for the municipal industry?

The MSRB

Which federal law created the NASD?

The Maloney Act of 1938

What is the SRO for municipal securities?

The Municipal Securities Rulemaking Board (MSRB)

The Maloney Act of 1938 is credited with creating which SRO?

The NASD. In 2007, the regulatory units of the NASD and NYSE merged to create FINRA.

Identify the acronym: SEC

Securities and Exchange Commission

Identify the acronym: SRO

Self-Regulatory Organization (such as FINRA)

Does SIPC protect separate customers or separate accounts?

Separate customers. A customer with both a cash and margin account with a BD would be covered once.

What Act governs private, qualified retirement accounts?

The Employee Retirement Security Act of 1974

Identify the acronym: FDIC

The Federal Deposit Insurance Corporation

What organization is responsible for implementing monetary policy in the United States?

The Federal Reserve Board

What is the SRO for corporate securities?

The Financial Industry Regulatory Authority (FINRA)

The __________________________________________ is the SRO for the OTC market.

The Financial Industry Regulatory Authority (FINRA) is the SRO for the OTC market.

True or False: Jim's joint account with his wife is considered a separate customer by SIPC.

True. E.g. Jim's cash and margin account are combined for coverage, but Jim's joint account with his spouse is separate.

True or False: MSRB rules regulate the municipal activities of BDs, banks, and the employees of these institutions.

True. The MSRB also regulates municipal advertising.

Define wrap account.

A managed account that charges clients an annual fee to cover trading, research, and advisory services

SIPC provides coverage of $_________ of which no more than $_________ can be cash.

$500,000; $250,000

What amount of coverage is provided by FDIC?

$250,000 per depositor, per bank

List the four categories of FINRA rules.

1. Conduct Rules 2. Uniform Practice Code 3. Code of Procedure 4. Code of Arbitration

What is a member firm?

A broker-dealer that is a member of FINRA

Describe a wrap account.

An account that charges the client a single fee that covers transaction execution and account management

Who is subject to The Insider Trading Act?

Anyone who misuses material non-public information

Industry disputes are handled through ______________.

Arbitration

Who enforces MSRB rules?

BD Enforcement: SEC or FINRA and Bank Dealer Enforcement: FRB, FDIC, or the Comptroller of the Currency

What actions may the hearing panel take regarding rule violations?

Censure, fine, suspension, request to requalify, or expulsion of the respondent

Identify the acronym: COP

Code of procedure

The______________________ covers disciplinary actions by FINRA against member firms and their employees.

Code-of-procedure

Identify the acronym: ERISA

Employee Retirement Security Act

Name some Self-Regulatory Organizations (SROs).

FINRA, MSRB, CBOE, and other exchanges

True or False: SIPC is backed by the full faith and credit of the U.S. government.

False

True or False: SIPC provides coverage for both commodities and futures accounts.

False

True or False: A penny stock has a bid price of less than $1.00 per share?

False. A penny stock is an unlisted security whose bid price is less than $5.00 per share.

True or False: Decisions arising from arbitration may be appealed to the federal court system.

False. Decisions are binding on both parties and may NOT be appealed.

True or False: Rule violations are handled by the Code of Arbitration.

False. Rule violations are covered by the Code of Procedure.The Securities Exchange Act of 1934

True or False: SIPC provides coverage for market losses.

False. SIPC protects against BD bankruptcy.

True or False: The Investment Company Act of 1940 requires mutual fund managers to register.

False. The Investment Advisers Act of 1940 is the Act that requires money managers to register.

True or False: The Code of Procedure can be used by a customer against a member firm to resolve a monetary dispute.

False. This situation would be handled under the Code of Arbitration.

Give some examples of what SIPC does NOT cover.

Fraud, futures contracts, and commodities

Customers become ___________________ if their cash or securities positions exceed SIPC coverage.

General creditors

Identify the acronym: RR

Registered representative

What is the role of an SRO?

Maintain fair and orderly securities markets and establish rules and regulations for protecting investors

_____________________________ protects customers from BD bankruptcy.

Securities Investor Protection Corporation (SIPC)

What is SIPC?

Securities Investor Protection Corporation. SIPC protects separate customers in the event of BD bankruptcy.

Ben's margin account has a market value of $800,000 and a debit balance of $350,000. How much SIPC coverage is provided?

In a margin account, SIPC covers the net equity (market value minus debit). In this example, $450,000.

Trading on material, non-public information is considered __________________.

Insider trading

Identify the acronym: IC Act of '40

Investment Company Act of 1940

What are joint accounts considered by SIPC?

Joint accounts are considered separate from individual accounts.

The Securities Act of 1933 regulates _____________.

New issues

Is SIPC part of the U.S. Government?

No. It is a non-profit entity funded by assessments on BD members.

Does SIPC insure client assets?

No. SIPC protects against firm bankruptcy.

Does SIPC protect customers from market losses?

No. SIPC protects customers from losses due to BD bankruptcy.

Does the MSRB have the authority to enforce its own rules?

No. The MSRB has no enforcement authority.

Define penny stock.

Non-exchange traded securities that are priced at less than $5 per share

Identify the acronym: NASAA

North American Securities Administrators Association

What will SIPC cover in a customer's margin account?

Only the customer's equity (securities clear of any outstanding loan)

__________ of a broker-dealer are responsible for supervising registered employees.

Principals

What types of industry issues are handled under the Code of Procedure (COP)?

Rule violations

Jim's cash account contains $275,000 of cash and $185,000 of securities. How much SIPC coverage is provided?

SIPC coverage is provided for $250,000 of cash and the full $185,000 of securities.

How is the FDIC different from SIPC?

SIPC does not insure bank deposits. Instead, it insures BD clients against the loss of securities due to BD bankruptcy.

The Securities Exchange Act of 1934 regulates the __________ _______.

Secondary market

Which Act created SIPC?

Securities Investor Protection Act of 1970 (SIPA)

Identify the acronym: SIPC

Securities Investor Protection Corporation

Identify the acronym: TCPA

Telephone Consumer Protection Act (of 1991)

What is the SRO for exchange-traded options?

The Chicago Board Options Exchange (CBOE)

Which federal law governs the registration of new issues?

The Securities Act of 1933

Which federal law created the SEC?

The Securities Exchange Act of 1934

Which federal law governs the registration of RRs and their firms?

The Securities Exchange Act of 1934

Under which federal law are firms, RRs, and exchanges registered?

The Securities and Exchange Act of 1934

From what do Self Regulatory Organisations (SROs) derive their power?

The Securities and Exchange Commission (SEC)

What U.S. Government agency, created by the '34 Act, enforces securities laws?

The Securities and Exchange Commission (SEC)

What Act prevents terrorists from laundering money?

The USA PATRIOT Act

What is NASAA's primary responsibility?

To establish and modify the Uniform Securities Act (USA), which is the basis for most states' securities laws.

What is the purpose of the Federal Deposit Insurance Corporation?

To guarantee the safety of cash deposited in FDIC member banks against bank failure

What is the purpose of the FDIC?

To insure bank deposits and also to examine and supervise financial institutions for safety and soundness

Tom has an individual account and a joint account with the same BD. How much SIPC coverage is provided?

Tom will have $1 million of coverage, since each account is covered separately.

True or False: The FDIC is backed by the full faith and credit of the U.S. government.

True

True or False: The Investment Company Act of 1940 requires mutual funds to register.

True

True or False: The MSRB has no authority or control over municipal issuers.

True

Tim has both a cash and margin account with the same BD. If BD bankruptcy occurs, how are Tim's accounts handled?

Tim's accounts are combined for SIPC coverage purposes.

What is FINRA's primary objective?

To adopt, administer, and enforce rules in the securities industry.

If Mary has a cash account as well as an IRA account, what coverage will SIPC provide?

The cash account is one customer and the IRA (which is a trust) is a second customer. So, $500,000 for each customer.

For SIPC purposes, what happens to securities that are able to be specifically identified as belonging to a client?

They are distributed to the client without regard to the dollar amount limit.

If a BD goes bankrupt, what happens to securities registered in the customer's name?

They are returned to the customer without regard to SIPC limitations.

How is SIPC funded?

Through assessments on BDs that are SIPC members

Identify the acronym: WSP

Written Supervisory Procedures

What is the name that's given to a broker-dealer's internal policies and procedures?

Written Supervisory Procedures (WSP)