Securities Industry Essentials

The USA PATRIOT Act (Partially based on the Bank Secrecy Act of 1970)

- Covers anti-money laundering (AML) policies and procedures that must be followed by financial firms

Securities Investor Protection Act of 1970 (SIPA)

- Covers the protection thresholds for customers in the event of BD's bankruptcy

Insider Trading and Securities Fraud Enforcement Act of 1988

- Defines penalties for the misuse of material, nonpublic information by both firms and individuals

Securities Act of 1933

- Governs the new issuance (primary) market, which involves the money-raising activities of issuers - Requires issuers to register their securities when selling to the public

Investment Advisers Act of 1940

- Governs the regulation of firms that earn fees for providing investment advice

Investment Company Act of 1940

- Governs the regulation of packaged products such as mutual funds, closed-end funds, and unit investment trusts

Securities Exchange Act of 1934

- Governs trading markets for existing securities and registration requirements of BDs, BD employees, and exchanges

True statements regarding the third market

- It is composed of listed securities traded OTC

Interpret factors impacting the securities market

- Supply and Demand: affect the prices of company's product as well as the prices of their equity and debt securities - Economic Climate: enormous effect on the conditions of individual companies company's earning and business prospect, any changes in business cycle the money supply, and FRB actions - Economic Conditions Abroad: can influence the conditions domestically and in turn will impact our securities markets.

A market maker

- trades in a proprietary account to facilitate trading of a security and provide liquidity - When a firm engages in proprietary trading, buying into and selling out of its own inventory for profit, it is acting as

Components of the business cycle

1. Expansion 2. Peak 3. Contraction 4. Trough

Name the types of interest rates

1. Federal Fund Rate 2. Discount Rate 3. Prime Rate 4. Broker Loan Rate

Different types of securities offerings

1. Primary Offering 2. Public Offering 3. Private Offering 4. Initial Public Offering (IPO) 5. Secondary Offering

Introducing/fully disclosed

A broker-dealer's business model allows for only the purchase and sale of securities for retail customer accounts. It does not execute, settle, or clear its customer's transactions, nor does it tend to any back-office functions such as sending trade confirmations or forwarding proxies. This broker-dealer would best be described as what type of firm?

What kind of AGENT can be a; commercial bank

A clearing corporation AGENT or depository for securities transactions can be a _______

An issuer transaction

A corporation sells shares to the investing public in order to raise capital. This is known as

Inflation

A general and progressive increase in prices

The Securities Investors Protection Corporation (SIPC)

A non profit organization requiring members to pay assessments into a general insurance fund used to meet customer claims in the event of a BD bankruptcy

SIPC (Securities Investor Protection Corporation)

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

Self-clearing

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

Carrying firms, those that carry customer accounts, must

Segregate customer funds and securities from the firms' funds and securities.

national banks

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

the securities and exchange commission (SEC)

The federal regulatory body that governs the securities industry is

M1 money supply

The largest and most liquid component of the money supply. Includes: NOW accounts, credit union share drafts, traveler's check, checking accounts, paper currency and coins.

A fully disclosed BD (broker-dealer)

is an introducing firm clearing its transactions through a carrying firm

A corporation increases capitalization by selling shares of stock which can either come from a new issue or previously authorized but unissued shares. Total stock outstanding must

never exceed the number of shares authorized

stagnation

prolonged periods of slow or little economic growth, accompanied by high unemployment

The rate at which banks lend to broker-dealers for the purpose of lending money for margin loans is typically

slightly above (a percentage point or so) other short-term lending rates

Stagflation

the combination of inflation and stagnation. The economy isn't growing and there is a lack of consumer demand and business activity. However, price on goods are still rising.

The access equals delivery rule applies to

the final prospectus and aftermarket delivery obligations

The prospectus delivery requirement, access equals delivery, is satisfied when

the final prospectus has been filed with the SEC and is available on the SEC's website for investors to see

A clearing agent

An intermediary between the buy and sell sides of a transaction is known as

$400,000 ($300,000+$40,000+$60,000)

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?

Trustee

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)

A) the National Securities Clearing Corporation B) the Depository Trust Company C) carrying firms

Acceptable choices to function as a depository and intermediary for transactions between buyers and sellers of securities

Research is not a benefit of using a ______ broker

All of the following are benefits of using a prime broker EXCEPT A) research B) multiple executing brokers C) consolidation of records D) cost savings

An issuer

An entity such as a corporation wising to offer securities for sale to the public for the purpose of raising capital

retail investor

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

Custodian

An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another is known as a(n)

The secondary market

One investor enter an order to purchase. Another investor enters a order to sell. The two orders meet on the floor of the U.S stock exchange where they are executed. This transaction took place in...

A TRUE statement 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.

Which of the following securities is exempt from the Securities Act of 1933

Municipal note

The Federal Reserve Board (FRB)

Determining monetary policy and taking actions to implement those policies is the responsibility of the...

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 does the MSRB rely on for enforcement of these rules?

Financial Industry Regulatory Authority (FINRA)

Keynesian Theory

Government intervention in the economy is a significant force in creating prosperity by engaging in activities that affect aggregate demand.

Which of the following pairs are NOT covered by the Federal Deposit Insurance Corporation (FDIC) at any level? A) Certificates of deposit and mutual funds B) Certificates of deposit and self-directed IRAs C)Savings accounts and annuities D)Mutual funds and annuities

Mutual funds and annuities are not covered by (4 letters)

Credit Unions

Not an Acceptable choice to function as a depository and intermediary for transactions between buyers and sellers of securities

The fourth market

If an investment company bought stock directly from a bank, bypassing any intermediary or broker, this trade took place in..

Mini-max

In an underwriting where fixing a minimum dollar amount to be sold in order to move forward with the entire offering is most commonly referred to as

M2 money supply

Includes all of M1 money supply plus most savings accounts, money market accounts, and certificates of deposit. (less than $100,000)

For the Depository Trust & Clearing Corporation (DTCC), all of the following are true EXCEPT

It acts as a retail bank serving savings and checking accounts

M3 money supply

Large- denomination time deposits ($100,000 or more) held longer than one day

The Money Supply divided up in three categories

M1 M2 M3

Supply-side Economic Theory

Match the following statement to the BEST expression: Government should allow market forces to determine prices of all goods and that the federal government should reduce government spending as well as taxes.

Define the roles of the regulatory agancies

To enforce laws known as acts passed by Congress and designated by the year they passed

The FDIC provides insurance guaranteeing the safety of a depositor's accounts in FDIC member banks for each deposit up to

Up to $250,000

Capital Market

What market can be used to raise the money needed to build the new plant?

The primary market

When securities are sold to the investing public in what are known as issuer transactions, the transactions are being done in..

MSRB (Municipal Securities Rulemaking Board)

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

Deflation

a decrease in the general level of prices

To expand the overall economy, the Federal Reserve Board, acting as agent for the U.S. Treasury department, will

buy securities via open-market operations, pushing interest rates down

A tombstone advertisement placed before the effective date

can be placed by the issuer directly or by the underwriters