Unit 9 SIE Government Regulators
Securities Exchange Act of 1934
A federal law dealing with securities regulation that established the Securities and Exchange Commission to regulate and oversee the securities industry; provide fair marketplace for investors
The Uniform Securities Act (1956)
Act that provides a model for blue sky laws; a template for state securities laws. The Federal government requests that the state adopt the template in order to create uniform securities laws at the state level.
The Federal Deposit Insurance Corporation (FDIC) protects which of the following?
Bank depositors The FDIC protects bank depositors in the event the bank fails. It will cover up to $250,000 for each recognized separate account.
A broker-dealer and its associated persons may be subjected to sanctions for violations of the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) rules. Which of the following penalties can be levied against the associated persons?
Censure There are many ways a firm and its associated persons can be sanctioned by FINRA including censure. However, imprisonment and forced withdrawal from SIPC are not approved disciplinary actions.
SIPC coverage is best described by which of the following?
Covers up to $500,000 in cash and securities but no more than $250,000 in cash The maximum coverage is up to $500,000 in cash and securities but no more than $250,000 in cash.
Which of the following organizations was created to protect investors financially from a bank failure?
Federal Reserve Board (FRB) The FDIC provides deposit insurance guaranteeing the safety of a depositor's accounts in member banks up to $250,000 for each deposit ownership category in each insured bank.
The part of the federal government that acts as an independent central bank in order to manage monetary policy is the
Federal Reserve. This is a description of the duties of the Federal Reserve.
Which of these would not be fully covered by SIPC insurance?
Holding $250,000 in index funds, $200,000 in Treasury bonds, and $50,000 in gold Gold is not a security and is not covered by SIPC. Money markets, ETFs, mutual funds, and junk bonds are all types of securities.
A rep is a registered representative in State A. When would she be required to register in State B?
If she wished to sell securities to a resident of State B who was visiting State A In addition to their federal registration, individual registered representatives may also need to be registered under state securities laws. This action is typically required when a rep wishes to engage in a transaction with a customer of the member firm who is a resident of another state. These requirements are codified under the Uniform Securities Act (USA) and are often referred to as Blue-Sky Laws. Many firms are registered in all 50 states since they often have a national presence, but individual reps tend to only be registered where they have clients. There is no requirement for a rep to register in a state if an existing client is simply visiting that locale.
Which of the following companies was created by an act of Congress and provides securities investors limited financial coverage in the event that the investor's servicing broker-dealer fails financially?
Securities Investor Protection Corporation (SIPC) The Securities Investor Protection Corporation (SIPC) was created by Congress to meet customer claims in the event of a broker-dealer bankruptcy.
The primary regulatory body for the securities industry would be which of the following?
Securities and Exchange Commission (SEC) Created under the Securities Exchange Act of 1934, the overriding or primary securities industry regulatory body is the SEC.
Which of the following acts created the SEC?
The Securities Exchange Act of 1934 The Securities Act of 1933 requires the registration of most new issues; the Securities Exchange Act of 1934 created the SEC; the Securities Investor Protection Act of 1970 created the SIPC; the Securities Market Improvement Act of 1975 created the MSRB.
Internal Revenue Service (IRS)
The branch of the U.S. Treasury Department in charge of collecting taxes; investigates potential tax evasion; companies have to work with the IRS
If an associated person is barred from the securities industry, which of the following is true?
The individual may associate with another member firm with SEC permission. If the SEC bars an associated person, no broker-dealer may allow that person to associate with it in any capacity unless the SEC has granted express permission to do so.
FinCEN is a bureau of what department within the federal government?
Treasury Though it is an intelligence-gathering organization that watches for suspected criminal activity, FinCEN is part of the Treasury Department.
Financial Crimes Enforcement Network (FinCEN)
U.S. Treasury system in which Suspicious Activity Reports are sent to if a broker-dealer notices activity in accounts appearing suspicious or possibly related to fraud or money laundering activities.
Securities Investor Protection Corporation (SIPC)
a nonprofit corporation, created by Congress and subject to SEC and congressional oversight, that insures customer accounts against the financial failure of a brokerage firm
additional areas that fall under the 1934 act
regulation of insider trading, short sales, proxies regulation of client accounts customer protection rule net capital and financial responsibility for broker-dealers reporting requirements for issuers
Federal Deposit Insurance Corporation (FDIC)
the government agency that insures customer deposits if a bank fails; premiums are paid by all participating institutions during a failure: customer deposits and loans of the failed institution are sold to another institution, and the depositors become customers of the new institution
An investor opens an account with BNZ Government Securities, a broker-dealer limiting its transactions exclusively to securities issued by the U.S. government. The account holds $250,000 of Treasury bonds, $250,000 of Treasury notes, and $50,000 in cash. If BNZ's broker-dealer business should fail, the investor would receive Securities Investor Protection Corporation (SIPC) protection in the amount of
$0. Although the vast majority of broker-dealers are required to be members of SIPC, those who deal exclusively in U.S. government securities are exempt.
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 Securities Investor Protection Corporation (SIPC) coverage?
$400,000 Coverage under SIPC may not exceed $500,000 in cash and securities, of which up to $250,000 may be cash. In the cash account, his coverage is $300,000 in securities plus $40,000 in cash. In the long margin account, the coverage is only the equity, which is $60,000. Total: $300,000 + $40,000 + $60,000 = $400,000.
Darrell has an individual account at Seacoast Securities, Inc., an SIPC firm that holds $300,000 in cash; $100,000 in various stock; and $100,000 in the Seacoast Money Market Fund. If Seacoast Securities fails how much coverage does Darrell have?
$450,000 SIPC covers securities and cash at a broker-dealer up to a maximum of $500,000, but no more than $250,000 in cash. A money market fund is a type of security. Darrell is covered for $200,000 in securities and $250,000 in cash for a total of $450,000.
Cooper and Belle, spouses, have a checking account at Gloria City National Bank. The balance is $450,000. What is their protection from FDIC if Gloria City Bank fails?
$450,000—split evenly between the two people FDIC coverage is per person, per account, split evenly. A joint account with two owners would be covered up to $500,000.
Which of the following must be a member of the Securities Investor Protection Corporation (SIPC)?
A firm that deals only in over-the-counter (OTC) and exchange-listed stocks The Securities Investor Protection Act, which established SIPC, was passed in 1970 to protect persons with brokerage accounts from loss due to failure of their broker-dealer. Firms with such accounts are required to join, with the exception of dealers exclusively in government and municipal bonds and those involved only with investment company securities.
The Federal Reserve Act 1913
Created the Federal Reserve Bank as the central bank of the US, provides the nation with safer, more flexible, and more stable monetary and financial system
Which of these is not a division of the Treasury Department with some level of oversight for the securities industry?
Financial Industry Regulatory Authority The Financial Industry Regulatory Authority (FINRA) is not a government agency, so it is not part of the Treasury Department. FINRA is a nongovernmental organization that has received significant delegated authority from the SEC.
Which of the following pairs are not covered by the Federal Deposit Insurance Corporation (FDIC) at any level?
Mutual funds and annuities Investment products that are not deposits are not covered by the FDIC. This would include life insurance policies, mutual funds, annuities, and individual securities such as stocks and bonds. At any level means neither partially nor fully.
What is the name for the legal framework of state laws for broker-dealers, registered representatives, investment advisors and investment advisor representatives?
The Uniform Securities Act The Uniform Securities Act is a template for state securities laws in the United States.
According to the Uniform Securities Act, who is charged with enforcing state securities laws and regulations?
The administrator The administrator handles state securities laws. NASAA is an association of state administrators. The SEC and FINRA are both national level organizations.
Dewey Cheatham, a registered representative for Great Plains Securities, was found by the SEC to have committed fraud by stealing from the accounts of several elderly customers of the firm. The SEC has also found that Great Plains was negligent in its supervision of Dewey. The SEC might take all of these actions against Great Plains Securities except
arrest. A broker-dealer is a business. You can not really arrest a business. You can censure, suspend, or fine a business. Note that the SEC cannot arrest a natural person either (like Dewey Cheatham), but they can contact the Justice Department.
The Securities Investors Protection Corporation protects investors from the financial failure of
broker-dealers. The SIPC protects investors in the event of a collapse of their broker-dealer firm.
Federal Reserve Board
consists of 12 regional Federal Reserve Banks and hundreds of national and state banks that belong to the system determines monetary policy and takes actions to implement into policies; FRBs determine how much money is available for businesses and consumers to spend, its decisions are critical aspect of the US economy
The Federal Reserve Board (FRB) does all of the following except
enact fiscal policy. The FRB determines monetary policy (not fiscal) and takes actions to implement its policies, including but not limited to regulating the U.S. money supply and supervising the printing of currency.
The Securities Exchange Commission was authorized by
he Securities Exchange Act of 1934. Though the Securities Act of 1933 required registration for new securities with the SEC, the SEC was not authorized until passage of the Securities Exchange Act of 1934.
What happens when a BD does not comply with SEC?
it is subject to: Censure limits on activities and functions, or operations suspension of its registration revocation of registration fines
Securities and Exchange Commission (SEC)
monitors the stock market and enforces laws regulating the sale of stocks and bonds; is the securities industry's primary regulatory body
The SEC has regulatory authority over all of these entities except
municipalities. Though the SEC does oversee the MSRB, neither the SEC nor the MSRB regulates municipalities in the U.S. The SEC does oversee FINRA and the exchanges.
Deanfield and Chatham Investments, LLC has recently registered as a broker-dealer with the SEC and been accepted as a FINRA member firm. They update their website to prominently display this fact at the top of their site and include large images of both organizations' logos. This is
not allowed because it is a misrepresentation. This is a misrepresentation. Even if only stating a fact, the prominence suggests some greater affiliation or approval. Deanfield and Chatham is about to get a rather terse letter from these regulators, or worse.
A registered securities broker-dealer that does not comply with Financial Industry Regulatory Authority (FINRA) and Securities and Exchange Commission (SEC) rules and regulations is subject to each of the following sanctions except
reductions in Securities Investor Protection Corporation (SIPC) coverage. Broker-dealers that do not comply with SEC and FINRA rules and regulations are subject to censure, limits on activities, functions, or operations, suspension of its registration, revocation of registration, fines, and more
North American Securities Administrators Association (NASAA)
represents state and provincial securities regulators in the US, Canada, and Mexico. The association produces guidelines that the state administrators use in the enforcement of state regulations
Office of the Comptroller of the Currency
supervises nearly 1,400 national banks, federal savings associations, and federal branches and agencies of foreign banks operating in the US. their mission is to ensure that national banks and federal savings association operate in a safe manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations
All of the following are self-regulatory organizations (SROs) in the securities industry that are accountable for enforcing federal securities laws, as well as supervising securities practices within an assigned jurisdiction, except
the SEC. All SROs, including FINRA, the MSRB, and all listed exchanges, are accountable to the Securities and Exchange Commission (SEC). The SEC is the securities industry's primary regulatory body, not an SRO.
Broker-dealers who transact securities business with other broker-dealers or customers must be registered with
the Securities and Exchange Commission (SEC). Any entity such as a broker-dealer intending to do business with other broker-dealers or customers involving securities must be registered with the SEC.
Broker-dealers that transact securities business with customers or other broker-dealers must apply and be approved for registration with
the Securities and Exchange Commission (SEC). The SEC is the securities industry's primary regulatory body. Broker-dealers that transact securities business with customers or with other broker-dealers must apply and be approved for registration with the SEC.
The Hoffman Equipment company of Anaheim, California is preparing to sell share to the public in an IPO. They plan to sell exclusively to residents of the state of California and use the proceeds to build a new showroom in Long Beach, California. This offer would need to be registered with
the administrator of the state. This offer would be exempt from registration with the SEC as it meets the criteria under the Intrastate Offer Rule, but would still need to be registered with the state. MSRB makes rules for municipal securities.
