Unit 8 Checkpoint Exam - The Securities Exchange Act of 1943 & the Secondary Markets

Options Clearing Corporation

- clearing agent for listed options contracts - determines when new option contracts should be offered - designates options specifications (strike price, expiration months).

Fully Disclosed Firm (Introducing Broker-Dealer)

A broker-dealer that does not hold customers' money or securities. Instead, it introduces customer accounts to a clearing BD.

Which of these broker-dealers would most likely have correspondent firms? A fully disclosed broker-dealer A self-clearing firm A market maker An introducing broker-dealer

A self-clearing firm 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 those services, are known as its correspondents.

Carrying Firm

Carries customer accounts and accept funds & securities from customers. Can: execute trades, clear & settle transactions, take custody of customer funds & securities, and handle all back-office tasks (like sending trade confirmation statements) *note carrying customer funds and securities is inherently risky - and carrying firms have to have a higher net capital than that of firms that do not accept custody of funds or securities.

The three types of broker-dealer firms on the exam

Carrying firms (clearing firms) Fully disclosed firms (introducing firms) Prime brokers

Registrar

Firm that provides audit and overusing services for the transfer agents. They are always separate from the issuer and the transfer agent.

Depositories and clearing corporations (clearing agency)

Intermediary between the buy & sell side of a transaction. Receives & delivers payments and securities on behalf of both parties. (Any organization that fulfills this function is considered a clearing agency) In addition to BD's, banks, and corporations (set up for this purpose) can be considered (or practice as) clearing firms.

The worlds largest securities depository

The Depository Trust & Clearing Corporation (DTCC). - Member of the Federal Reserve System - not in retail banking business - provides custody for all securities except those subject to transfer or ownership restrictions (restricted securities).

Great Plains Securities, an OTC market maker, holds inventory and provides liquidity for Modulux Homes, an NYSE listed company. This is an example of:

The third market. When an exchange-listed security trades in the OTC market, it is being traded in the third market. The fourth market is composed of electronic communication networks and is primarily used by institutional investors. Primary markets are for raising capital.

A business entity that performs the function of receiving and delivering payments and securities on behalf of both parties to a securities transaction is called a

a clearing agency

A broker-dealer that concentrated its business efforts on proprietary trading would most likely be functioning as

a market maker

An institutional customer, such as a hedge fund, utilizes the services of a broker-dealer who provides custody of securities, as well as other back-office functions, while allowing the customer to establish relationships with other broker-dealers for the purpose of executing orders. This account would be known as a

a prime account

A central, physical, marketplace where securities are traded through a designated market maker is

an exchange

Secondary markets exist to do all of these except: decrease liquidity in the national markets. support the existence of primary markets. allow investors to easily liquidate securities. allow individual investors easy access to investment vehicles.

decrease liquidity in the national markets Secondary markets are focused on providing, not decreasing liquidity. Ultimately, a fair and orderly secondary market makes securities more attractive, supporting the functioning of the primary markets.

Electronic market centers designed primarily for institutional investors describes

the fourth market The market centers that operate through electronic communication networks are known as the fourth market. These centers were created to serve large institutional investors like mutual funds and pension plans. The fourth market reduces the transparency of trading activity by these organizations and allows them to trade more efficiently.

Both the individual and institutional investor are able to easily buy and sell securities to meet their objectives through

the secondary markets

Which of the following is not part of the secondary markets? Mutual fund market Over-the-counter market The exchanges Third market

mutual fund market

Transfer agent

responsible for: - ensuring securities are issued in the correct owners name - canceling old and issuing new certifications - maintaining records of ownership - handling problems of lost, stolen, destroyed certs