Securities Industry Essentials Exam
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 SIPC protection in the amount of
$0.00 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.
To arrive at M3, one would add to M2 which of the following?
$100,000 and larger time deposits and repurchase agreements
Securities and Exchange Commission
(SEC) created under the Securities Exchange Act of 1934, this is the security industry's primary regulatory body. Brokers/Dealers must apply and be approved for registration with the SEC. The SEC also regulates all exchanges and trading markets.
Self-Regulatory Organizations
(SROs) function under the SEC's oversight. Each SRO is accountable to the Commission for enforcing federal securities laws, and supervising securities practices within an assigned jurisdiction.
All broker/dealers registered with the SEC must be SPIC members except:
- banks that deal exclusively in municipal securities - firms that deal exclusively in U.S. government securities - firms that deal exclusively in redeemable investment company securities
What are FINRA's main purposes and objectives?
1. Promote the investment banking and securities business, standardize principles and practices, promote high standards of commercial honor, and encourage the observance of federal and state securities laws. 2. Provide a medium for communication among its members and between its members, the government, and other agencies. 3. Adapt, administer, and enforce rules designed to prevent fraudulent and manipulative practices as well as to promote just and equitable principles of trade. 4. Promote self-discipline among members and investigate and resolve grievances.
According to the U.S. Commerce Department, the economy is in a recession when a decline in real output of goods and services lasts
6 months or more
A broker-dealer that accepts funds and securities from customers and its correspondent member firms would most likely be which of the following?
A carrying firm
Which of the following must be a member of the Securities Investor Protection Corporation (SIPC)?
A firm that deals only in OTC and exchange listed stocks
Regarding a shelf registration filed with the SEC, which of the following statements are TRUE?
A supplemental prospectus must be filed before each sale and Portions of a shelf offering can be sold over a 3-year period without having to reregister the security
The transfer agent for a corporation is responsible for each of the following EXCEPT
Acting as an intermediary between the buy and sell sides of a transaction
A corporate issuer of common stock has decided that it wants an agreement that its underwriter must either raise all of the capital needed or cancel the underwriting. To best accommodate this the underwriting should be a(n)
All-or-none
A corporation needs to build a new manufacturing facility costing several hundred million dollars. In which of the following markets could this new capital be raised?
Capital market
Your broker-dealer executes trades for other broker-dealers and after execution settles those transactions for them. Your firm would be classified as which of the following?
Carrying firm
Industries that tend to be highly sensitive to inflation, deflation and the ups and downs of business trends would BEST be described as
Cyclical
Those industries that are LEAST affected by normal business cycles are
Defensive industries
Which of the following is an SRO?
FINRA
Which of the following would be the interest rate charged for overnight, uncollateralized loans negotiated between two money center banks?
Federal funds rate
The country's annual economic output of all of the goods and services produced within the nation, is known as
Gross domestic product
Federal Deposit Insurance Corporation (FDIC)
It is an independent agency of the Untied States federal government created during the Great Depression in response to widespread bank failures, and massive losses to bank customers. It also preserves public confidence in the banking system by insuring deposits on checking and savings accounts for up to$250,000. The funds are provided by premiums paid by all participating institutions. If a member financial institution fails, the customer deposits are sold to another institution.
All the following are exempt from the Securities Act of 1933 EXCEPT:
Limited partnership
A bank is likely to do which of the following when the Federal Reserve Board (FRB) eases the money supply?
Lower its prime rate, If the FRB eases the money supply (makes more money available to lend), banks can charge less for loans and will lower their lending rates.
Which of the following regulatory bodies regulates but has no enforcement powers?
MSRB
Match the following statement to the BEST expression: A well-controlled, moderately increasing money supply leads to price stability and a healthy economy.
Monetarist Theory
Which of the following regarding monetary or fiscal policy is TRUE?
Monetary policy is what the FRB engages in when it attempts to influence the money supply. Fiscal policy refers to governmental budget decisions enacted by the president and Congress to regulate federal spending and taxation, and those decisions impacting deficits and surpluses.
Which of the following securities is exempt from the Securities Act of 1933
Municipal note
Which of the following interest rates do large U.S. money center commercial banks charge their most creditworthy corporate borrowers for unsecured loans?
Prime rate
Regarding the registration of securities with the Securities Exchange Commission which of the following is TRUE?
Private securities offerings are generally exempt from registration.
A bank is likely to do which of the following when the Federal Reserve Board (FRB) tightens the money supply?
Raise its prime rate The prime rate and the broker call loan rate are set by banks for loans to corporate customers and broker-dealers, respectively. If the FRB tightens the money supply (makes less money available to lend), banks will need to charge more for loans and will raise their lending rates.
A registered securities broker-dealer that does not comply with FINRA and SEC rules and regulations is subject to each of the following sanctions EXCEPT:
Reductions in SIPC coverage.
When the economy shows high unemployment and is failing to expand as measured by a lack of consumer demand and business activity, but prices for goods and services are still rising, this could be described as what?
Stagflation
Money available to lend to corporations and consumers is impacted most in the United States by the policies of which of the following?
The Federal Open Market Committee (FOMC), it meets regularly to direct the Federal Reserve Board to either buy or sell Treasury securities in the open market. Purchases add money to the economy, making the money available to lend more plentiful, and sales take money out of the economy, making money available to lend less plentiful.
Which of the following regulatory authorities relies exclusively upon other examining authorities to enforce its rules?
The Municipal Securities Rulemaking Board (MSRB)
What happens if the SEC or any SRO finds indication that a broker-dealer is in financial difficulty?
The SPIC will be notified immediately, and if the SPIC determines that the member has failed or is in imminent danger of failing. The court will issue a protective decree if the broker-dealer is insolvent and will then promptly appoint a trustee for the liquidation of the broker-dealer's business, and the member is prohibited from engaging in business
IPO (initial public offering)
The first time that a company issues shares to the public
Which of the following would NOT be expected to be found in a tombstone advertisement for a new issue?
The intended purpose for which to use the sales proceeds
Regarding primary offerings, which of the following is TRUE?
There is no limit to the number of primary offerings a corporation can issue.
A firm that functions for the purpose of receiving and delivering payments and securities on behalf of both buyer and seller in a securities transaction is
a clearing agent
The Securities Act of 1933 requires that
a new issue, unless specifically exempted from the Act, be registered with the Securities and Exchange Commission (SEC) before public sale
A new registered representative receives a memo discussing the distribution of a "red herring." The RR knows that the memo is referencing
a preliminary prospectus, Some key information that would be found in a final prospectus, such as price, is not found in the preliminary prospectus.
When choosing to issue additional bonds to the general public in order to raise more capital, a corporate issuer is engaging in
a primary offering, which is one in which the proceeds raised go to the issuing corporation.
Broker-dealers must comply with SEC rules and regulations when conducting business. A broker-dealer that does not comply may be subject to all of the following EXCEPT
a prison sentence for principals of the firm ranging from 2 to 5 years
Deflation occurs during
a recession, coinciding with an economic contraction
A company is going public for the first time. Because it is already incorporated and has two key stockholders, the proceeds of the shares sold will go to those stockholders. This is
a secondary offering and an initial primary offering
An offering in which one or more stockholders in the corporation are selling all or a portion of their own shares to the investing public for the first time is known as
a secondary offering, the sale proceeds for these shares are paid to the selling stockholders rather than to the corporation.
Capital Market
a source of financing for corporations, municipalities, and governments.
Monetarist Theory
a well-controlled, moderately increasing money supply leads to price stability. Price stability allows business managers (considered to be more efficient allocators of resources than the government) to plan and invest, which in turn keeps the economy healthy.
A company with previously issued shares outstanding wants to issue more shares to the public. These new shares are issued in what is known as
an APO (additional public offering)
institutional investor
an entity that pools money to purchase securities and other investment assets. example: bank, insurance companies, pensions, hedge funds, and mutual funds
retail investor
an individual who makes investments such as the purchase of securities
clearing agent
an intermediary between the buy and sell sides of a transaction that receives and delivers payments and securities on behalf of both parties (not all broker/dealers are clearing agents)
A tombstone advertisement would be expected to include all of the following information EXCEPT
any inherent risks associated with the offering or the issuer offering the securities
What is the definition of a customer?
anyone who has cash or securities in the posession of a broker-dealer.
Tombstone ads
are permitted before the effective date, they are he only form of advertising that is permitted from the time the registration statement is filed with the Securities and Exchange Commission and the effective date of the offering. While they are not mandatory for new issues, they can be used as an announcement and description of the securities to be offered, showing only minimal information. They are not an offer to sell the securities.
All of the following are associated with being a carrying firm EXCEPT
being a fully disclosed firm
Internal Revenue Service (IRS)
bureau of the Department of the Treasury, its purpose is to collect taxes and enforce tax laws.
A clearing corporation agent or depository for securities transactions
can be a commercial bank
What is a broker/dealer subject to if they do not comply with SEC rules?
censure, limits on activities, functions, or operations, suspension/revocation of tis registration, or fine
All of the following are acceptable choices to function as a depository and intermediary for transactions between buyers and sellers of securities EXCEPT
credit unions
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
custodian
Economists refer to longer, more severe contractions in the economy as
depressions
The U.S. Department of Treasury (USDT)
executive department and the treasury of the United States federal government. The department is administered by the secretary of the treasury, who is a member of the cabinet. The department oversees the collection of taxes and enforcement of tax laws.
Downturns in the business cycle or economic contractions are characterized by all of the following EXCEPT
falling inventories
After the filing of a registration for a new issue with the SEC, and still in the registration's cooling-off period, broker-dealers may
give a red herring to prospective investors
When investors buy and sell securities to and from one another, these transactions occur
in the secondary market
Deflationary periods are characterized by all of the following EXCEPT
increased consumer demand (deflationary periods are categorized by; coinciding with recessions, rising unemployment, decline in prices)
a preliminary prospectus is used to solicit
indications of interest before the effective date, and cannot be distributed before the registration date
The prime rate is set by
individual banks
A deficit in the U.S. balance of payments can occur if
interest rates in foreign countries are higher than U.S. domestic rates and U.S. consumers are purchasing (importing) foreign goods
A surplus in the U.S. balance of payments can occur if
interest rates in foreign countries are lower than U.S. domestic rates and foreign consumers are purchasing (importing) U.S. goods
Securities Investor Protection Corporation (SIPC)
is a non-profit membership organization created under the Securities Investor Protection Act of 1970, this agency oversees the liquidation of insolvent brokerage firms and members pay assessments into a general insurance fund that is used to meet customer claims in the event of a broker-dealer bankruptcy.
A private securities transaction
is exempt from registration under the Act of 1933 and can be sold to individual accredited investors
A fully disclosed broker-dealer
is one that introduces its business to a carrying firm to clear transactions
Federal Reserve Board (FRB)
made up of 12 regional Federal Reserve banks and hundreds of national and state banks that belong to the system. They determine how much money is available for businesses and consumers to spend. Also determines the monetary policy and takes actions to implement its policies such as; - acting as an agent of the U.S. Treasury - regulating the U.S. money supply - setting reserve requirements for members - supervising the printing of currency - clearing found transfers throughout the system - examining members to ensure compliance with federal regulations
A preliminary prospectus (red herring)
may be used to gather indications of interest
What is the basic coverage under SPIC?
no more than $500,000 per separate customer, this includes no more than $250,000 in cash - cash and margin accounts for the same customer are combined when determining SPIC coverage - only the equity in a margin account is converted, not the full market value
Regarding the purchase of new equity issues (IPOs), restricted persons may
not purchase shares of a new issue
In the capital markets, securities such as stocks and bonds can be
offered by both public and private sector
An institutional investor selects a single FINRA/NYSE member firm to provide for financing and custody of securities, while orders to buy or sell are placed with executing brokers. This is an example of a(n)
prime brokerage account
To contract or slow economic growth U.S. fiscal policy should be to
raise taxes and cut government spending for programs and development
Municipal Securities Rulemaking Board (MSRB)
regulates (but cannot enforce) all matters related to the underwriting and trading of state and municipal securities. Also has no regulatory power over the municipalities who issue municipal securities.
Financial Industry Regulatory Authority (FINRA)
regulates all matters related to investment banking (securities underwriting), trading in the OTC market, trading in NYSE related securities, and the conduct of member firms.
Chicago Board Options Exchange (CBOE)
regulates all matters related to trading standardized options and related contracts listed on that exchange
The primary purpose of the Securities Act of 1933 is to
require full and fair disclosure in connection with the sale of securities to the public
If it finds that the registration statement needs revision, expansion, or to have corrections made, the SEC may suspend the review of the new issue and issue a deficiency letter. Once the issuer submits a corrected registration statement, the 20-day cooling-off period
resumes where it had left off
Notice filing for securities at the state level is for
securities that are deemed to be federally covered only
Carrying firms, those that carry customer accounts, must
segregate customer funds and securities from the firms' funds and securities.
When the Federal Reserve Board wants to contract (tighten) the money supply, it will
sell Treasury securities to banks in the open market
investor
someone who provides money or resources for an enterprise or corporation with the expectation of financial or other gain.
Economic growth has slowed to a halt with little consumer demand, but prices for goods and services are still rising. This is known as economic
stagflation
Economic reports show that there is a general rise in prices for consumer goods and a high unemployment rate occurring simultaneously. This combination can best be described as
stagflation
If the U.S. dollar is relatively strong against the Japanese yen, it can be assumed that
the U.S. dollar will buy more goods produced in Japan, while the Japanese yen buys fewer goods produced in the United States
The flow of money between the United States and other countries is known as
the balance of payments
The broker loan rate charged by banks is also known as
the call loan rate
When the Securities and Exchange Commission clears securities for sale to the investing public, this is
the effective date
A customer has a significant amount of money in bank deposit accounts: $225,000 in a savings account titled in the customer's name; $240,000 in a checking account titled jointly with a spouse; and $100,000 in an account where the customer is custodian for a grandchild. Should that bank fail, the Federal Deposit Insurance Corporation (FDIC) insurance would cover
the entire $565,000
A barometer of short-term interest rates and one that is therefore considered the most volatile interest rate in the U.S. economy is
the federal funds rate, the rate commercial money center banks charge each other for overnight loans of $1 million or more. A barometer of the direction of short-term interest rates, which fluctuate constantly, the federal funds rate is considered the most volatile rate in the U.S. economy.
When the Federal Reserve Board (FRB) utilizes the tools available to it, it is influencing
the money supply
FINRA regulates all matters related to investment banking, including
trading in the OTC marke
North American Securities Administrators Association (NASAA)
voluntary association whose members provide insight from their unique perspective to the SEC and SROs as they move forward in their rulemaking process. Also advocates pro-investor policies, provides investor education, and offers resources for the regulatory community and securities industry professionals.
