Regulatory Entities and Market Participants in the Securities Industry, Exams of Business Economics

Download Regulatory Entities and Market Participants in the Securities Industry and more Exams Business Economics in PDF only on Docsity! SIE Exam - Unit 1 Regulatory Entities, Agencies, and Market Participants Securities Act of 1933 - Governs the new issuance (primary) market, which involves the money-raising activities of issuers & requires issuers to register their securities when selling to the public. Securities Exchange Act of 1934 - Governs trading markets for existing securities and registration requirements of BDs, BD employees, and exchanges. Investment Company Act of 1940 - Governs the regulation of packaged products such as mutual funds, closed-end funds, and unit investment trusts. Investment Advisers Act of 1940 - Governs the regulation of firms that earn fees for providing investment advice Securities Investor Protection Act of 1970 (SIPA) - Covers the protection thresholds for customers in the event of a BD's bankruptcy. Insider Trading and Securities Fraud Enforcement Act of 1988 - Defines penalties for the misuse of material, nonpublic information by both firms and individuals The USA PATRIOT Act (Partially based on the Bank Secrecy Act of 1970) - Covers anti-money laundering (AML) policies and procedures that must be followed by financial firms Securities and Exchange Commission - The securities industry's primary regulatory body. BDs that transact securities business with customers or with other BDs must apply and be approved for registration with the SEC. Self Regulatory Organizations (SROs) - These are accountable to the commission for enforcing federal securities laws, as well as supervising securities practices within an assigned jurisdiction. Financial Industry Regulatory Authority (FINRA) - Regulates all matters related to investment banking (securities underwriting), trading in the over- the-counter (OTC) market trading in NYSE-listed securities, and the conduct of _______ member firms and associated persons. They 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. Conduct Rules - These rules establish the relationship between firms and their customers. These rules cover areas such as fair dealing with customers, compensation-related issues, standards for communications, and various sales practice violations. Uniform Practice Code (UPC) - These rules cover technical aspects of trading and payment for securities transactions. The Code of Procedure (COP) - Covers the enforcement of FINRA rules and details the punishment of members who incur rule violations. These decisions may be appealable to the SEC. The Code of Arbitration (COA) - A FINRA-run dispute resolution process to settle monetary disputes. The goal is to provide a faster and cheaper resolution versus going through the traditional court system. Chicago Board Options Exchange (CBOE) - Regulates all matters related to trading in standardized options and related contracts listed on that exchange. and who is not engaged in clerical or broker- age administration is subject to registration and exam licensing as a registered representative. Syn. Account executive; stockbroker. Related item(s): associated per- son of a member. Prime Account & Prime Broker - This type of account allows a customer - generally, an institution - to select one member firm (the prime broker) to provide custody and other services, while other firms - called executing brokers - handle all trade placed by the customer. The role is that of facilitating large, active trading operations such as hedge funds. This can be thought of as a sort of central broker, facilitating and coordinating extensive, complex trading in a variety of financial instruments. Municipal Advisors - Provides advice to or on behalf of a municipal entity with respect to municipal products or the issuance of municipal securities, including advice with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues OR undertakes a solicitation of municipal entity. Issuers - An entity, such as a corporation or municipality, might offer or propose of raising capital. Underwriters - Groups of BDs or investment bankers that work with an issuer to bring its securities to the market and sell them to the investing public. They help the issuer to structure capital raises, and at times, form syndicates with other underwriters to facilitate this money-raising process. Market Maker or Trader - Any entity, individual or institution willing to accept the risk of holding a particular security in its own account to facilitate trading and provide liquidity in that security. They generally stand ready to buy or sell (make markets) in securities with the ultimate goal of being profitable. Custodian - An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another. Trustee - An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another who has been legally appointed to do so. Transfer Agents - Responsible for: -ensuring that its securities are issued in the correct owner's name -canceling old and issuing new certificates -maintaining records of ownership -handling problems relating to lost, stolen, or destroyed certificates Clearing Agency - An intermediary between the buy and sell sides of a transaction. They receive and deliver payments and securities on behalf of both parties. Conceptually, this is similar to the way a bank clears checks between two parties. Depository Trust & Clearing Corporation (DTCC) - The world's largest securities depository. It provides custody services for virtually all securities except those subject to transfer or ownership restrictions, which are known as restricted securities. The federal regulatory body that governs the securities industry is a. the Financial Industry Regulatory Authority (FINRA) b. the Securities and Exchange Commission (SEC) c. the NYSE d. the Federal Reserve Board (FRB) - b. the Securities and Exchange Authority (SEC) A fully disclosed BD a. self-clears the transactions of its customers b. is known as a clearing agent c. is like the depository trust company in that it can take custody of funds and securities d. is an introducing firm clearing its transactions through a carrying firm - d. is an introducing firm clearing its transactions through a carrying firm An intermediary between the buy and sell sides of a transaction is known as a. a custodian b. a transfer agent c. a clearing agent d. a depository - c. a clearing agent For the Depository Trust & Clearing Corporation (DTCC), all of the following are true EXCEPT a. it is a member of the Federal Reserve System b. it acts as a retail bank servicing savings and checking accounts c. it serves for the purpose of providing custody of securities d. it is a worldwide clearing agent - b. it acts as a retail bank servicing savings and checking accounts Your BD acts as a prime broker for an institutional account. In this arrangement, your BD is likely to be providing which of the following services? a. execution of all transactions b. maintenance of a trading floor operation on an exchange c. ensuring that all exchange-trading rules are complied with d. clearing and transaction settlement services for executing brokers - d. clearing and transaction settlement services for executing brokers An individual or institution willing to hold securities positions in its own proprietary account for the purpose of providing liquidity to the marketplace is