UNIT 1 FEDERAL SECURITIES REGULATIONS: 1.6-1.11 (REVIEW QUESTIONS)
Investment Company Act of 1940-Which of the following statements regarding an investment company's board of directors is NOT true?
- An investment company's board of directors manages the portfolio on behalf of the investor shareholders. -The board of directors sets policy and manages the administrative affairs of the investment company, but it does not manage the portfolio. The board contracts with an outside investment manager to invest the funds. It is unlawful for any person to serve or act in the capacity of employee, officer, director, or investment adviser of any registered investment company, or principal underwriter for any registered open-end company, registered unit investment trust, or registered face-amount certificate company if that person, within the past 10 years, has been convicted of any felony or a misdemeanor involving the purchase or sale of any security.
THE SEC ACT OF 1934-All of the following statements regarding corporate insiders are true EXCEPT:
- purchases may not be made through the exercise of options. -A corporate insider, or affiliate, is defined as an officer, a director, a greater than 10% stockholder, or a family member of an insider. Insiders can purchase stock through the exercise of options. All of the other statements are true.
THE SEC ACT OF 1934-covers all of the following EXCEPT:
-issuance of corporate securities. -The Securities Exchange Act of 1934 regulates secondary trading or trading markets, including reporting requirements. The Securities Act of 1933 regulates the issuance of new, nonexempt securities.
The Securities Exchange Act of 1934-The Securities Exchange Act of 1934 granted the SEC the power to regulate all of the following EXCEPT:
-margin requirements. -The Securities Exchange Act of 1934 granted the Board of Governors of the Federal Reserve System the power to regulate margin requirements.
Powers of the SEC-The Securities Exchange Act of 1934 gives the SEC the power to do all of the following EXCEPT:
-set margin requirements. -The Securities Exchange Act of 1934 specifies that the Federal Reserve Board will have control over the issuance of credit when trading securities. The Securities Exchange Act of 1934 gives the SEC the power to make, amend, and rescind rules; issue cease and desist orders; administer oaths; conduct investigations; take evidence; and subpoena witnesses, books, and records. The Commission may seek temporary or permanent restraining orders (injunctions) from the courts, file civil suits, or refer evidence to the attorney general for criminal prosecution.
Investment Company Act of 1940-All of the following purchases are permitted in a mutual fund's portfolio EXCEPT:
-stock on margin. -Mutual funds may not purchase securities on margin. A fund is not prohibited from buying options, low quality bonds, or other mutual funds, if the purchase is in line with the fund's objectives.
Investment Company Act of 1940-To be in compliance with the Investment Company Act of 1940, it is permissible for the portfolio manager of an open-end investment company to buy all of the following securities EXCEPT:
-stock on margin. -The Investment Company Act of 1940 generally prohibits mutual funds from making purchases on margin. There are exceptions to this rule, such as in the case of hedge funds. A fund is not prohibited from buying options or low-quality bonds. A mutual fund may invest in other mutual funds so long as it does not acquire more than 3% of the outstanding shares of the other fund.
THE SEC ACT OF 1934-SEC has jurisdiction over all of the following EXCEPT:
-the Federal Reserve System. -The SEC has jurisdiction over the MSRB, FINRA, stock exchanges, and broker/dealers. The Federal Reserve is not under the jurisdiction of the SEC.
The Securities Exchange Act of 1934-The Securities Exchange Act of 1934 would consider it a fraudulent and prohibited business practice for an order ticket for a transaction in shares of a common stock to exclude all of the following EXCEPT:
-the customer's name. -Order tickets do not include the name of the customer. The account number is the appropriate identifier.
Investment Company Act of 1940- The NASAA Statement of Policy on Unethical and Dishonest Business Practices of Broker/Dealers and Agents contains an extensive list of prohibited practices, but concludes with the statement that the list is not inclusive. This means that even practices not specifically enumerated will be prohibited if they are in violation of the standards of ethical behavior. One such circumstance that may arise is an agent making an initial sale of shares of an open-end investment company in a quantity just below a breakpoint published in the fund's prospectus. In this case, the agent:
A breakpoint is that purchase level where there is a reduction in the fund's sales charge. Allowing a client to purchase a quantity just below that level without describing the benefits of investing a small amount of additional capital, or perhaps signing a letter of intent, would be a violation of the standards of ethical behavior.
Investment Company Act of 1940- Which of the following persons may legally open an account to trade on margin?
A corporation may open an account to trade on margin if provided for in the charter and authorized in the bylaws. Both UTMA and UGMA specifically prohibit custodians from either engaging in speculative trading or borrowing money or securities in the name of the minor through trading on margin. Mutual funds are also prohibited from trading on margin.
Powers of the SEC-To enforce the Securities Act of 1933, the SEC may:
A difference between the Uniform Securities Act and the Securities Act of 1933 is who enforces them. The Uniform Securities Act is enforced by the state Administrators, while the federal acts are enforced by the SEC. In complying with its enforcement responsibilities, the SEC may make, amend, and rescind rules, issue cease and desist orders, administer oaths, conduct investigations, take evidence, and subpoena witnesses, books, and records. The SEC may also seek temporary or permanent injunction from the courts, file civil suits, and refer evidence to the attorney general for criminal prosecution.
Investment Company Act of 1940-Under the Investment Company Act of 1940, which of the following qualify for a discount in a mutual fund's sales charge?
A husband and wife and all children under 21 qualify as a single person for the purposes of obtaining a quantity discount, as do corporations formed for a purpose other than obtaining such a discount and employee benefit plans. But other associations acting collectively, such as the members of an investment club, do not qualify as a single person for such a purpose. Discounts may also be made to directors, officers, partners, employees, or sales representatives of the fund, its investment adviser, or its principal underwriter.
Investment Company Act of 1940- Under the Investment Company Act of 1940, which of the following statements regarding the investment objective of a mutual fund are TRUE?
A majority of the outstanding shares must vote to approve any change in investment objective or policy. The investment adviser's job is to try to achieve the investment objective.
The Securities Exchange Act of 1934-Among the many definitions found in the Securities Exchange Act of 1934 is that of "associated person of a broker/dealer". Which of the following individuals would fall into that definition?
A person associated with a broker/dealer is any partner, officer, or director of the broker/dealer (or any person performing similar functions) including any employees of the broker/dealer, except that any person associated with a broker or dealer whose functions are solely clerical or ministerial (the receptionist), is not included in the meaning of the term.
Investment Company Act of 1940-Under the Investment Company Act of 1940, which of the following would be considered an affiliated person?
Affiliated persons are any investment company directors, officers, employees, or owners of 5% or more of the voting shares of stock, and/or any persons controlling or controlled by such persons.
Investment Company Act of 1940-Under the Investment Company Act of 1940, which of the following are considered affiliated persons of an investment company?
Affiliated persons include investment company directors, officers, most employees, or owners of 5% or more of the voting stock and/or any persons controlling or controlled by such persons. Although the custodian bank could be considered an affiliated person, clerical personnel employed by that custodian would not be.
Investment Company Act of 1940-Jasper Whitlock is considered an affiliated person of the Tahor Clean Energy Mutual Fund. Under the Investment Company Act of 1940, Mr. Whitlock is prohibited from
Affiliated persons may not have any dealings with the investment company (outside of contractual obligations and the purchase or redemption of shares of the investment company), such as buying securities, furniture, real estate, or other property from the company or selling such property to the company.
THE SEC ACT OF 1934-An agent for a broker/dealer member of FINRA may exercise his judgment as to which of the following without written authorization from the customer?
Agents (or any of the other securities professionals) have the authority to decide the timing and price of a trade. Under prevailing securities law, time and/or price does not constitute discretion. Decisions involving the quantity and security require written trading authorization from the client.
Investment Company Act of 1940- Under the Investment Company Act of 1940, which of the following statements about advisory contracts between an investment company and an outside adviser is TRUE?
All contracts between an investment company and an outside adviser must be in writing and must contain certain provisions; these include that the contract may not be unilaterally assigned to another adviser. The initial contract may be for two years, but it is subject to annual reapproval by a majority vote of the outstanding shares or the board of directors as well as a majority of the directors who are considered to be non-interested parties.
The Securities Exchange Act of 1934-The Securities Exchange Act of 1934 prohibits
Although investment advisers may act discretionarily for a period of 10 days after receiving oral authority, no such rule applies for broker/dealers. The written discretionary power must be received prior to taking control of the account. Even if the security is exempt from SEC registration, it is never exempt from the antifraud provisions of the law. Designated Market Makers (DMMs), formerly known as specialists, are exchange members who trade for their inventory, and buying and selling on two different exchanges to capitalize on a price disparity is a legal practice known as arbitrage.
The Securities Exchange Act of 1934-Which of the The Securities Exchange Act of 1934following would be considered when determining whether excessive trading has occurred in a client's account?
An agent is engaging in unethical conduct if she induced a client to trade securities too frequently in view of the financial resources, investment objectives, and character of the client's account. Frequent trading and trading in large amounts is not necessarily wrong. It is only wrong if the trades are not suitable for a particular client. Thus, the only factor listed that must be considered in determining whether trading is excessive is the nature of the client's financial objectives.
The Securities Exchange Act of 1934-Which of the following is considered an associated person of a broker/dealer?
An associated person is either an officer or a broker/dealer employee who represents the broker/dealer in soliciting the purchase or sale of securities. Associated person also includes any individual authorized to accept customers' orders for the broker/dealer.
The Securities Exchange Act of 1934-Under the Securities Exchange Act of 1934, which of the following would NOT be considered associated with XYZ Corp., a broker/dealer
An associated person of a broker/dealer includes any partner, branch manager, officer, or director of a broker/dealer, including outside directors. It also includes employees such as account executives or sales representatives who are not clerks or ministerial personnel, and anyone who controls, is controlled by, or is under common control with the broker/dealer.
The Securities Exchange Act of 1934-In order to come under the SEC's requirement to file a Form 13F, an institutional manager must have discretion over:
An institutional money manager, with at least $100 million in 13(f) securities under discretionary management, is required to file Form 13F.
The Securities Exchange Act of 1934-According to the Securities Exchange Act of 1934, a report of beneficial ownership must be filed with the SEC by interested persons when their ownership of a security registered on a national exchange exceeds what level?
An interested person is any person (including two or more persons acting together) who owns more than 5% of the outstanding equity securities of a registered issuer. Such persons are required to file reports of beneficial ownership on Schedule 13D with the issuer, the exchanges (if a listed security), and the SEC within ten days of exceeding the 5% level.
THE SEC ACT OF 1934-following statements regarding discretionary accounts is TRUE?
An order is discretionary only if an agent selects the size of the trade, the security, or whether to buy or sell. Selecting only price and/or time does not constitute discretion. Churning rules apply to discretionary accounts, and a principal must approve order tickets after the trades, not before.
THE SEC ACT OF 1934-term "discretionary" refers to an:
An order is discretionary when the broker/dealer's agent places it for a customer's account without the customer's express authorization for that order. Additionally, for the order to be considered discretionary, the agent must choose at least one of the following: the security, the number of shares (or dollar amount), or whether to buy or sell.
The Securities Exchange Act of 1934-When an agent submits an order ticket to purchase securities for a client, all of the following would appear EXCEPT:
Any order ticket submitted by an agent for execution at a broker/dealer will always include the agent's name and that of the B/D. All order details must be listed, e.g. the number of shares, limit or market, etc. but the current market price is never included.
Investment Company Act of 1940-According to the Investment Company Act of 1940, all of the following statements are true EXCEPT:
At least 40% of the board of directors must be noninterested persons. No more than 60% may be interested persons of the investment company.
Securities Exchange Act of 1934-Under the Securities Exchange Act of 1934, which of the following would NOT be grounds for disqualification of a broker/dealer's registration?
Being sued by a client is not grounds for disqualification. Items that would disqualify a registration include being currently under suspension, revocation, or injunction by any court, regulatory authority or SRO, domestic or foreign; currently employing a person statutorily disqualified; having been convicted in the past ten years of a felony or a securities or financially related crime; or falsifying an application for registration.
Investment Company Act of 1940- Starflier Mutual Fund, regulated under the Investment Company Act of 1940, wishes to change its investment policy. It may do so with approval of:
Changes in investment policy require a vote of the majority of outstanding shares for approval.
Investment Company Act of 1940- When shares of a closed-end investment company are purchased by an investor, the price paid is based upon the:
Closed-end investment company shares are priced based on supply and demand. The ask is the price that investors will pay for purchasing shares and the bid is what investors receive when selling. Investors will also pay a commission as this is what the broker charges for executing the transaction. Shares of open-end investment companies are bought and redeemed based on NAV, but that is not so of closed-end companies.
Investment Company Act of 1940- Section 15 of The Investment Company Act of 1940 spells out many of the specific requirements for the contract between a management investment company and its investment manager. Among those requirements is that:
Contracts between funds and their advisers may not be terminated with more than 60 days notice and these contracts must be in writing. The initial contract is for a 2-year period and then renewed on an annual basis. Whether or not the fund can trade on margin is not a function of the management contract.
Investment Company Act of 1940- Section 15 of the Investment Company Act of 1940 spells out many of the specific requirements for the contract between a management investment company and its investment manager. Among those requirements is that:
Contracts between funds and their advisers may not be terminated with more than 60 days notice and these contracts must be in writing. The initial contract is for a 2-year period and then renewed on an annual basis. Whether the fund can trade on margin is not a function of the management contract.
Securities Exchange Act of 1934-Which of the following qualifies as discretionary trading under the Securities Exchange Act of 1934?
Discretion indicates that someone other than the owner has authority to buy or sell securities on behalf of the owner without specific direction from the owner for each transaction. One who carries out instructions from the owner does not have discretion. If you have general agreement with a client over investment policy, but carry out transactions based on your own authority without the client's approval, you have discretion. Time and/or price is not considered discretion.
Securities Exchange Act of 1934-Under both federal and state law, the concept of a discretionary account is defined. It would be considered discretion when an agent:
Discretion is the ability to pick the Asset (the specific security), the Action (buy or sell) or the Amount (the number of shares or bonds). Time and price are not discretionary and nothing can take place until the proper papers have been received and documented.
Investment Company Act of 1940- Under the Investment Company Act of 1940, SEC Rule 12b-1 allows a fund to charge distribution and sales expenses to net assets as a percentage of the total assets. Normally, the cost of distribution of the shares is paid by the underwriter out of the sales load paid by the individual purchaser. For a fund to impose 12b-1 charges, which of the following conditions apply(ies)?
For the fund to impose 12b-1 charges, the distribution plan must be in writing and approved by a majority of the outstanding shares as well as a majority of the board of directors, including a majority of directors classified as outside directors.
THE SEC ACT OF 1934-regarding the SEC under the Securities Exchange Act of 1934 are TRUE?
I. It regulates the securities exchanges. II. It requires the registration of broker/dealers. III. It prohibits inequitable and unfair trade practices. IV. It regulates over-the-counter markets.
THE SEC ACT OF 1934-An agent receives an order from a client to purchase $20,000 worth of stock in whatever company looks good. In what type of account could the agent accept this type of order?
If the agent has the ability to make the decision with respect to the specific security, even though the client specified the action (buy) and the quantity ($20,000), discretionary authorization is required.
Powers of the SEC-Under the Investment Advisers Act of 1940, which of the following powers does the SEC have at its disposal to enforce the act?
In enforcing the Investment Advisers Act, the SEC may investigate, administer oaths, subpoena witnesses, books, and records, issue and make rules, issue stop orders, hold hearings, and seek court injunctions against persons who have violated or are about to violate any provisions of the act. The SEC may also file civil actions in the federal court system in enforcing the provisions of the act, or refer information to the U.S. Justice Department for criminal prosecution.
The Securities Exchange Act of 1934-An agent's client calls on Monday to discuss the current market situation. They discuss how 100 shares of Kapco common stock would be an appropriate addition to the client's portfolio. On Thursday, the client calls and tells the agent to place an order for the Kapco stock at whatever price the agent feels is best. The agent waits until Friday, purchasing the stock at a price $2 per share below Thursday's low. In this case the agent acted:
In this question, the client specified that the agent should determine the best price. Nothing other than oral permission is necessary in order for an agent to use discretion as to time and or price. However, time and/or price discretion are only good for that day - those are considered "day" orders, so the agent is able to use judgment, but the order must be placed during the day it was received.
Investment Company Act of 1940- Under the Investment Company Act of 1940, the reporting requirements investment companies must comply with include:
Investment companies must file audited reports with the SEC annually and send at least semiannual reports to shareholders. They are not required to notify shareholders of changes in the portfolio as they occur.
The Securities Exchange Act of 1934-Under the Securities Exchange Act of 1934, which of the following would result in statutory disqualification from association with a FINRA member broker/dealer?
Loss of a civil lawsuit, lack of experience, or being registered as an investment adviser does not cause statutory disqualification to be associated with a member of a self-regulatory organization such as FINRA. However, administrative sanctions, findings of criminal wrongdoing, court injunctions, etc., are cause for statutory disqualification.
The Securities Exchange Act of 1934-Under the Securities Exchange Act of 1934, which of the following are municipal bonds?
Municipal securities are debt-related securities issued by or guaranteed by any political entity that is not part of the federal government or a government agency. Treasury bonds are part of the federal government and do not qualify under the definition.
Investment Company Act of 1940-When an agent is discussing possible discounts related to the purchase of mutual funds shares, she would be referring to:
Mutual funds that carry a load will have a schedule of reduced sales charges when reaching specified quantity levels known as breakpoints.
Investment Company Act of 1940- Under the Investment Company Act of 1940, which of the following statements is (are) TRUE about an investment company that wishes to contract with an outside investment adviser to manage its portfolio?
One of the requirements of the Investment Company Act of 1940 is that the contract between a management investment company (open or closed-end) must be in writing. The initial contract must be approved by a majority vote of the outstanding shares and the "non-interested" members of the board of directors. It is renewed annually by either a majority vote of the outstanding shares or the board of directors as well as a majority of the directors who are considered to be non-interested parties.
Securities Exchange Act of 1934-Which of the following is TRUE of SEC Commissioners under the Securities Exchange Act of 1934?
Other than securities issued or guaranteed by the U.S. government, SEC commissioners are prohibited from investing during their term in office. The policies of the SEC are determined by five Commissioners appointed to staggered, 5- year terms by the President of the United States with the advice and consent of the Senate. No more than three may belong to the same political party, and Commissioners may not engage in any outside employment.
The Securities Exchange Act of 1934-Under the Securities Exchange Act of 1934, which of the following is a securities information processor?
Persons in the business of providing information on securities transactions or quotes of securities prices on a continuing basis through a computer network, wire service (ticker tape), or other publications, such as The OTC Markets Group Inc (Pink Sheets) are considered securities information processors. Excluded are newspapers, magazines, or other publications of a general and regular circulation, SROs, banks, broker/dealers, or others who provide such information as part of their normal activities.
The Securities Exchange Act of 1934-Under section 13(d) of the Securities Exchange Act of 1934, a person who acquires more than 5% of a class of securities registered under the act must, within ten days, file a report of beneficial ownership with:
Persons who own more than 5% of the outstanding equity securities of a registered issuer are known as interested persons under the act. These persons are required to file a Schedule 13D report of beneficial ownership with the issuer, the exchanges, and the SEC within ten days of reaching the greater than 5% level.
Investment Company Act of 1940- How often must an investment company file reports with the SEC as required by the Investment Company Act of 1940?
Registered investment companies are similar to other publicly registered entities in that an annual audited report must be filed with the SEC.
Securities Exchange Act of 1934-According to the Securities Exchange Act of 1934, who appoints the SEC Commissioners?
SEC Commissioners are appointed by the President of the United States, with the advice and consent of the Senate, to staggered 5-year terms, with one term expiring each year. There are five Commissioners, and no more than three may belong to the same political party. SEC Commissioners may not engage in any outside employment or securities transactions.
The Securities Exchange Act of 1934-Securities Exchange Act of 1934, SEC Commissioners
SEC Commissioners may have no other business or employment other than their commission seat. They must also refrain from any securities trading. However, experience as an attorney is not a qualification. Commissioners are not elected but are appointed by the president and confirmed by the senate. Political party affiliation is a consideration, since no more than 3 of the 5 Commissioners may belong to the same party.
The Securities Exchange Act of 1934-The XYZ corporation, listed on the NYSE, has 100 million shares of common stock outstanding. Mr. Warren Trump has owned 4 million shares since 1999. If Mr. Trump were to acquire 1.1 million additional shares, which of the following statements is CORRECT?
Section 13(d) of the Securities Exchange Act of 1934 requires filing of a Schedule 13D once a person becomes an owner of more than 5% of the outstanding voting shares of a reporting company. Form 144 is only filed when securities are sold.
The Securities Exchange Act of 1934-the SEC is granted the power to regulate the activities of:
Securities information processors (SIPs) and transfer agents are regulated by the SEC under powers granted by the Securities Exchange Act of 1934. The power to regulate federal covered investment advisers is found in the Investment Company Act of 1940 and the NSMIA.
Securities Exchange Act of 1934-The Securities Exchange Act of 1934 calls for the registration of many different entities involved in the securities business, such as exchanges and broker/dealers. The Act also requires registration of securities information processors such as
Securities information processors (SIPs) collect and disseminate trading and pricing information. TV stations, such as CNBC, and newspapers, such as IBD, obtain information from SIPs and then rebroadcast or reprint it.
Investment Company Act of 1940-If general interest rates increase, the interest income of a bond unit investment trust will probably:
Since the portfolio of a UIT is fixed, the income generated by that portfolio will not change. However, one would expect the value of the unit to decrease. Remember, a UIT does not have a portfolio manager.
Investment Company Act of 1940- If general interest rates increase, the interest income of a bond unit investment trust will probably:
Since the portfolio of a UIT is fixed, the income generated by that portfolio will not change. Remember, a UIT does not have a portfolio manager.
Insider Trading and Securities Fraud Enforcement Act of 1988 (ITSFEA)-Under the Insider Trading and Securities Fraud Enforcement Act of 1988, a person who has violated the prohibition against insider trading is liable for a civil penalty of:
The Insider Trading and Securities Fraud Enforcement Act of 1988 provides that the SEC may seek triple damages through the courts for violations of the insider trading rules. This means that the SEC may seek court action that imposes civil penalties of 3 times the profit gained or 3 times the loss avoided as a result of inside information.
Investment Company Act of 1940-Which of the following individuals would be considered a noninterested person in a mutual fund?
The Investment Company Act of 1940 defines an interested person as someone employed by or has a material business relationship with the fund, its adviser, or underwriter. Someone who owns 5% or more of the outstanding shares (an affiliated person) is also considered "interested". Merely sitting on the board does not make someone an interested person. Thus, a director with no other relationship with the fund qualifies as a noninterested person.
Investment Company Act of 1940- The Investment Company Act of 1940 does which of the following?
The Investment Company Act of 1940 requires all investment companies to register with the SEC as such and be regulated under the act. The companies are still subject to all the other applicable securities acts. However, the Investment Company Act of 1940 provides additional regulation to ensure investors are fully informed and fairly treated by the management of investment companies.
The Securities Exchange Act of 1934-Which of the following statements regarding SEC Commissioners are CORRECT?
The SEC consists of a maximum of 5 Commissioners serving staggered five year terms. At no point may there be more than 3 of the 5 from the same political party. They are appointed by the President of the United States (POTUS) with the advice and consent of the Senate, not the Supreme Court (SCOTUS) and, other than U.S. government securities, all positions must be placed into a blind trust.
The Securities Exchange Act of 1934-Under the Securities Exchange Act of 1934, which of the following is TRUE regarding the jurisdiction of the SEC over a person who violates the rules of the Municipal Securities Rulemaking Board?
The SEC is charged with administering the federal securities laws, under which the Municipal Securities Rulemaking Board (MSRB) exists. So the SEC has jurisdiction over the MSRB. However, financial institutions come under the jurisdiction of banking regulatory authorities.
Powers of the SEC-Under the Securities Exchange Act of 1934, the authority of the SEC to investigate violations of rules extends over:
The SEC may investigate any situation it believes may have violated federal securities laws, its own rules, and rules of the SROs (i.e., exchanges, FINRA, MSRB). The SEC does not enforce state securities statutes or state or federal banking laws.
Powers of the SEC-Under the Securities Exchange Act of 1934, which of the following statements is (are) TRUE about the authority of the SEC to investigate violations of securities laws?
The SEC may investigate violations of all federal securities acts, including the Acts of 1933 and 1934, and may also investigate violations of the rules of SROs.
Powers of the SEC-Under the Securities Exchange Act of 1934, which of the following is (are) TRUE regarding the authority of the SEC to suspend trading?
The SEC may suspend all trading on a specific exchange for up to 90 days with prior notification of the President of the United States and may summarily suspend securities trading in a registered security listed on a stock exchange for up to ten days. The SEC does not have the authority to suspend trading in exempt securities.
Powers of the SEC-Under the provisions of the Securities Exchange Act of 1934, the SEC may suspend trading on a national exchange by notifying the:
The SEC may suspend all trading on a specific exchange for up to 90 days with prior notification to the President of the United States and may summarily suspend securities trading in a registered security that is listed on a stock exchange for up to ten days if it believes such action to be in the public interest.
Securities Exchange Act of 1934-Which of the following statements is (are) TRUE regarding the jurisdiction of the SEC
The SEC was created by the Securities Exchange Act of 1934 and has the responsibility of administering all federal securities laws. The SEC has jurisdiction over exchanges, SROs, and all persons required to be registered under federal law. The SEC does not enforce state securities statutes, nor does it have jurisdiction over banks or savings and loans regarding their securities activities. Banking authorities, such as the Federal Reserve Board, the Federal Deposit Insurance Corporation, and others, regulate banks and savings and loans.
The Securities Exchange Act of 1934-Under the Securities Exchange Act of 1934, commissioners of the SEC:
The SEC was created by the Securities Exchange Act of 1934 with the power to enforce the Securities Act of 1933 and all subsequent federal securities acts. The policies of the SEC are determined by five commissioners appointed by the President of the United States, with the advice and consent of the Senate, to staggered 5-year terms (with 1 expiring each year). No more than three commissioners may belong to the same political party, and commissioners may not engage in any outside employment.
The Securities Exchange Act of 1934-Margin regulations are determined by the Board of Governors of the Federal Reserve System. The authority for them to do so is found in the:
The Securities Exchange Act of 1934 contains the authorization for the FED to regulate the use of credit in the securities business.
THE SEC ACT OF 1934-regulates or mandates
The Securities Exchange Act of 1934 created the SEC and regulates the secondary market. The Securities Exchange Act of 1934 does not address full and fair disclosure issues; the Securities Act of 1933 addresses such issues.
Insider Trading and Securities Fraud Enforcement Act of 1988 (ITSFEA)-Under the Insider Trading and Securities Fraud Enforcement Act of 1988, which of the following are insiders for purposes of insider trading?
The Securities Exchange Act of 1934 defines an insider as an officer, director, or stockholder owning more than 10% of a company's outstanding voting equity. The definition also includes anyone else who has or could have access to insider information, such as immediate family members. Merely being someone's neighbor does not automatically classify someone as an insider. Any professional who takes part in preparing the registration statement is automatically considered to have insider information.
The Securities Exchange Act of 1934-which of the following is a government security?
The Securities Exchange Act of 1934 defines government securities as those issued or guaranteed by the U.S. government or one of its agencies. Securities issued or guaranteed by a state, county, city, etc., or any agency of a nonfederal governmental unit are municipal securities.
Securities Exchange Act of 1934-Under the Securities Exchange Act of 1934, which body regulates the extension of credit for nonexempt securities?
The Securities Exchange Act of 1934 empowered the Federal Reserve Board (FRB) to set margin requirements and regulate the use of credit to purchase securities. The FRB determines what issues may be purchased on margin and what percentage of the purchase price must be deposited by the purchaser.
Powers of the SEC-Which of the following has the power to close a stock exchange for up to 90 days?
The Securities Exchange Act of 1934 granted the SEC the power to close any registered stock exchange for up to 90 days. All that is required is notice to the President of the U.S.
THE SEC ACT OF 1934-following acts requires publicly traded corporations to issue annual reports?
The Securities Exchange Act of 1934 mandates that public issuers file annual and quarterly reports with the SEC.
The Securities Exchange Act of 1934-Which of the following are regulated under the Securities Exchange Act of 1934?
The Securities Exchange Act of 1934 regulates broker/dealers and transfer agents. Investment advisers are regulated under the Investment Advisers Act of 1940 (and, to a certain extent, the Investment Company Act of 1940), whereas pension plans in the private sector are regulated under ERISA.
Securities Exchange Act of 1934-Which of the following statements is TRUE about sales of new issues under the Securities Exchange Act of 1934?
The Securities Exchange Act of 1934 specifically bars the use of credit in purchasing new issues for the first 30 days from the date of issue. In addition, it prohibits installment payments on issues that can be bought on margin. The Securities Exchange Act of 1934 also empowered the board of governors of the Federal Reserve Board (FRB) to set margin requirements, and the FRB determines which issues may be purchased on margin.
The Securities Exchange Act of 1934-Which of the following is (are) TRUE regarding the Securities Exchange Act of 1934?
The Securities Exchange Act of 1934 specifically bars the use of credit to purchase new issues and also prohibits installment payments when making such purchases. The act also prohibits any form of manipulation of securities prices or any practices that would influence the market price of a security. This includes wash trades, which are simultaneous purchases and sales that create the appearance of trading activity, and the use of rumors to induce others to trade.
Securities Exchange Act of 1934-purpose of the Securities Exchange Act of 1934?
The Securities Exchange Act of 1934 was designed to regulate securities transactions, securities markets, and securities firms that trade in the secondary market. The Securities Act of 1933 was designed to provide regulation in the new issue market. Unethical business practices are covered in NASAA's Statements of Policy on Unethical Business Practices. The Uniform Securities Act provides a model for the states.
Securities Exchange Act of 1934-Which of the following are regulated under the Securities Exchange Act of 1934?
The Securities Exchange Act of 1934 was designed to regulate securities transactions, securities markets, and the securities firms who do the trading. While the Securities Act of 1933 covers requirements relating to new issues, the Securities Exchange Act of 1934 covers almost everything else in the securities industry. Its greatest impact is on the securities firms and the people who sell securities (i.e., broker/dealers and their agents) in the secondary market. Of the choices listed, new issues would be regulated by the Securities Act of 1933.
Investment Company Act of 1940-Usually, the fee received by the management company, from an investment company, depends on the:
The adviser under contract to manage the fund receives a fee that is most commonly based on the amount of assets under management. It is true that the fee can be affected by the types of securities in the portfolio such as a lower fee for money market funds and a higher fee for small cap funds, but, in this case, the best answer is the one that applies universally.
Investment Company Act of 1940- Under the Investment Company Act of 1940, an investment company may initially retain the services of an investment adviser only with approval of:
The investment adviser's contract must be initially approved by a majority vote of the outstanding shares and a majority of the noninterested members of the board of directors. It is renewed annually by either a majority of the board or a majority of the outstanding shares. In addition, as with all contracts, initial and renewal, it requires a majority of the noninterested board members.
Investment Company Act of 1940-Among the restrictions placed on open-end investment companies by the Investment Company Act of 1940 are:
The minimum capitalization requirement for a new fund is $100,000 in net assets. A further restriction placed by the act is limiting one fund's holdings to a maximum of 3% of the voting shares of another fund. Since the shares of an open-end company are always considered a new issue, the shares may not be purchased on margin, but, as with other new issues, do have a loan value once owned at least 30 days. However, this restriction is part of the Securities Exchange Act of 1934, not the Investment Company Act of 1940.
The Securities Exchange Act of 1934-Mary bought 1,000 shares in the morning and sold 1,000 shares of the same security in the afternoon. Under the Securities Exchange Act of 1934's rules dealing with the regulation of the use of manipulative and deceptive devices, which of the following statements is TRUE?
The purchase and sale of the same security on the same day are permissible as long as the investor is not attempting to create the appearance of market activity.There is nothing in the act prohibiting "day-trading"; only trading made for the purpose of manipulating market prices.
The Securities Exchange Act of 1934-The Securities Exchange Act of 1934 requires written authority for a discretionary account, unless the securities professional's discretionary authority is limited to determining:
The securities professional's ability to determine the time and/or price at which a specific customer order will be executed does not constitute discretionary power and, therefore, does not require written authorization.
Investment Company Act of 1940- If you were describing an investment that trades on an exchange with a price set by supply and demand, rather than its underlying value, it would be a (an):
The stock of closed-end investment management companies trades on exchanges and, like any other exchange security, is priced based upon supply and demand. Although closed-end funds compute their NAV, it is market forces that determine price.
Insider Trading and Securities Fraud Enforcement Act of 1988 (ITSFEA)-During your training, you overhear your manager discussing the Chinese wall. This is probably referring to
The term "Chinese wall" is used to describe the separation of divisions within the firm, protecting sensitive information from leaking to the wrong people. For example, the investment banking arm of the company may be working with a client company on a merger. This information cannot be shared with the trading or sales department until it is public knowledge.
Investment Company Act of 1940- What are the 3 classifications used to identify investment companies?
There are 3 classes of investment companies listed in the Investment Company Act of 1940: face-amount certificate companies, which issue debt certificates; unit investment trusts, which issue trust units that provide the holder with a share of ownership in a fixed portfolio of securities; and management companies, which trade the securities in the investment portfolio to achieve the investment objectives of the company, and which are subclassified into open-end and closed-end companies.
Securities Exchange Act of 1934-The Securities Exchange Act of 1934 granted the SEC the authority to register a number of participants in the securities markets. One of those entities is a securities information processor (SIP). Which of the following statements best describes a SIP?
This answer is taken directly from the Act itself. There is a second part to the definition and that is that a SIP is also any person distributing or publishing (whether by means of a ticker tape, a communications network, a terminal display device, or otherwise) on a current and continuing basis, information with respect to such transactions or quotations.
The Securities Exchange Act of 1934-Under the rules of the Securities Exchange Act of 1934, trading in a client's account would be considered excessive if:
Trading is considered excessive if the agent induces a client to trade securities in transactions that are excessive in size or frequency in view of the financial resources, investment objectives, and character of the client's account.
Insider Trading and Securities Fraud Enforcement Act of 1988 (ITSFEA)-Under the Insider Trading and Securities Fraud Enforcement Act of 1988, a person who buys securities with material, privileged, nonpublic information may be subject to a civil penalty of:
Trading on inside information is prohibited under the Securities Exchange Act of 1934, and, under the Insider Trading and Securities Fraud Enforcement Act of 1988, the SEC is empowered to seek the greater of $1 million or treble damages through the courts for violations of the inside trading rules. The damages can amount to up to three times the profit gained or three times the loss avoided on the transaction. All persons who controlled the insider are also subject to these damages if improper supervision is proven.
Investment Company Act of 1940-The Investment Company Act of 1940 allows a majority vote of outstanding shares of a registered investment company to authorize the fund to:
Under the Investment Company Act of 1940, a vote of the majority of outstanding shares may approve borrowing money from a bank, changing the investment objectives of the fund, and deciding to cease to be an investment company. Shareholder approval is not necessary to authorize the fund to invest consistent with the fund's objectives.
The Securities Exchange Act of 1934-Seven years ago, Ivan was found guilty of embezzling securities from clients. He now wishes to join another brokerage firm. Which of the following statements is TRUE regarding this situation?
Under the Securities Exchange Act of 1934, there are a number of items that disqualify a person from becoming a member of, or from associating with, a member of a self- regulatory organization (SRO). The items include being currently under suspension, revocation, or injunction by any court, regulatory authority, or SRO (foreign or domestic); currently employing a person statutorily disqualified; having been convicted in the past 10 years of a felony or a securities- or financially-related crime; or falsifying an application for registration. Ivan cannot be employed by a brokerage firm, because he was convicted 7 years ago. Because the Securities Exchange Act of 1934 requires a broker/dealer to join one or more SROs, being statutorily disqualified eliminates the possibility of employment.
Investment Company Act of 1940- Under the Investment Company Act of 1940, which of the following statements regarding the renewal provisions of an investment adviser's contract is NOT true?
When an investment company employs an outside investment advisory firm to manage its portfolio, the act requires a written contract setting forth the adviser's compensation. The contract is for two years initially and must be renewed annually thereafter. The contract must be initially approved by a majority vote of the outstanding shares and the noninterested members of the board of directors and annually renewed by either a majority vote of the board of directors or of the outstanding shares as well as a majority vote of the noninterested members of the board. The contract must be terminable at any time, with a maximum of 60 days notice and with no penalty, upon a majority vote of the board of directors or of the outstanding shares, and it must terminate automatically if assigned.
Investment Company Act of 1940-As defined in the Investment Company Act of 1940, the term "investment company" would NOT include a:
-Holding companies are not included in the definition of investment company.
THE SEC ACT OF 1934-All of the following must register with the Securities Exchange Commission EXCEPT:
-state securities Administrators. -State securities Administrators are not registered with the SEC, but the SEC requires securities issuers, transfer agents, securities information processors, as well as major stock exchanges, and the Nasdaq Stock Market to be registered.
Investment Company Act of 1940- In 1940, Congress passed the Investment Company Act. Among the provisions of this sweeping law was the listing of the classifications of investment companies. Included in that listing would be all of the following EXCEPT:
Even though holding companies do many of the same things as investment companies (buy stock in other companies to try to make a profit), they are not included in the definition stated in the Investment Company Act of 1940
The Securities Exchange Act of 1934-"churning" means
Churning is conducting excessive transactions in a customer's account for the purpose of generating commissions and is prohibited.
Money Laundering- FinCEN Form 112, the Currency Transaction Report, is filed with the:
Currency transactions in excess of $10,000 are reported electronically on FinCEN Form 112 to the Department of the Treasury.
Money Laundering-Which of the following is responsible for administration of the Bank Secrecy Act?
Or FinCEN as it is more commonly printed.
Money Laundering-Currency transaction reports must be filed for cash transactions that exceed:
The Bank Secrecy Act requires every financial institution to electronically file with the Department of the Treasury a Currency Transaction Report (CTR) on FinCEN Form 112 for each cash transaction that exceeds $10,000. This report would include cash transactions used to pay off loans, electronic transfer of funds, and purchases of certificates of deposit, stocks, bonds, mutual funds, or other investments with cash.
Securities Exchange Act of 1934-The Securities and Exchange Commission does NOT have any regulatory jurisdiction over which of the following?
The Federal Reserve Board is not regulated by the SEC.
Money Laundering-The currency reporting threshold for cash and equivalent instruments is:
The currency reporting threshold for cash and equivalent instruments is over $10,000. These transactions must be reported on a CTR (currency transaction report) (FinCEN Form 112). The Form 112 is electronically filed with the Department of the Treasury.
Powers of the SEC-Under the Securities Exchange Act of 1934, the SEC may suspend all trading on an exchange:
To suspend all trading on an exchange, the SEC must first notify the President of the United States. The SEC may summarily suspend trading in any nonexempt security for up to 10 days without prior notice.