CAIA - 34 - Regulation and Compliance Flashcards Preview

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Flashcards in CAIA - 34 - Regulation and Compliance Deck (55)
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1

The 3 key principles of financial regulations are:

 

1.

2.

3.

The 3 key principles of financial regulations are:

 

1. Transparency

2. Integrity and fairness

3. Social and Economic Protection through Law

2

The ___ ___ ___ ___ ___ ___ ___ governs trading of securities on the secondary market and regulates exchanges and broker-dealers in order to protect the investing public.

The U.S. Securities Exchange Act of 1934 governs trading of securities on the secondary market and regulates exchanges and broker-dealers in order to protect the investing public. 

3

The Securities Exchange Act of 1934 created the ___ and ___ ___ to enforce federal securities laws and industry regulation.

The Securities Exchange Act of 1934 created the Securities and Exchange Commission to enforce federal securities laws and industry regulation.

4

After the 1929 stock market crash, Congress enacted the ___ ___of ___ to regulate the offer and sale of securities to the U.S. public in the primary market.

After the 1929 stock market crash, Congress enacted the Securities Act of 1933 to regulate the offer and sale of securities to the U.S. public in the primary market.

5

The Securities Act of 1933 has two basic objectives:

 

1. Ensure ___ of ___ ___

2. Establish laws against ___ and ___ activities

The Securities Act of 1933 has two basic objectives:

 

1. Ensure transparency of financial statements

2. Establish laws against misrepresentation and fraudulent activities

6

The ___ ___ ___ of ___defines the role and responsibilities of investment advisers.

The Investment Advisers Act of 1940 defines the role and responsibilities of investment advisers.

7

Until ___, most investment advisors were subject to regulation by the SEC and at least one state regulatory agency. The Investment Advisors Act was amended in ___and ___so that small and mid-sized advisors are regulated by the ___and large advisers are regulated by the ___.

Until 1996, most investment advisors were subject to regulation by the SEC and at least one state regulatory agency. The Investment Advisors Act was amended in 1996 and 2010 so that small and mid-sized advisors are regulated by the state and large advisers are regulated by the SEC.

8

The ___-___Act was passed in ___to attempt to lower risk in parts of the U.S. financial system after the global financial crisis.

The Dodd-Frank Act was passed in 2010 to attempt to lower risk in parts of the U.S. financial system after the global financial crisis.

9

The ___ ___ ___ ___ monitors the performance of "too big to fail" companies.

The Financial Stability Oversight Council monitors the performance of "too big to fail" companies.

10

The ___ ___ ___ facilitates liquidation of large, complex financial institutions that are close to failing.

The Orderly Liquidation Authority facilitates liquidation of large, complex financial institutions that are close to failing.

11

The ___ ___ ___ provides money to assist with liquidation of large financial companies placed in receivership.

The Orderly Liquidation Fund provides money to assist with liquidation of large financial companies placed in receivership.

12

The ___ ___restricts commercial banks' investments in hedge funds, private equity funds, and proprietary trading strategies; and regulates derivatives trading.

The Volcker Rule restricts commercial banks' investments in hedge funds, private equity funds, and proprietary trading strategies; and regulates derivatives trading.

13

All 50 state securities commissions have ___ ___ ___ designed to protect state interests and prevent fraudulent activities within a state.

All 50 state securities commissions have blue sky laws designed to protect state interests and prevent fraudulent activities within a state.

14

Regulation of alternative investments focuses more on monitoring and controlling ___ ___than on ___ ___.

Regulation of alternative investments focuses more on monitoring and controlling systemic risks than on protecting investors.

15

Two core principles embody the U.S. regulatory scheme:

 

1. Eliminate or control ___

2. Discourage ___ ___

Two core principles embody the U.S. regulatory scheme:

 

1. Eliminate or control fraud

2. Discourage insider trading

16

Investors in 3c1 hedge funds should be an ___ ___with a net worth of $___ million or income of $___in each of the past two years or $___jointly with a spouse.

Investors in 3c1 hedge funds should be an accredited investor with a net worth of $1 million or income of $200,000 in each of the past two years or $300,000 jointly with a spouse.

17

Investors in 3c7 hedge funds should be a ___ ___, who is an individual investor with minimum investments of $___ million or an institutional investor with minimum investments of $___ million

Investors in 3c7 hedge funds should be a qualified purchaser, who is an individual investor with minimum investments of $million or an institutional investor with minimum investments of $25 million

18

Prior to Dodd-Frank, convicting an individual of aiding or abetting required the SEC to establish ___ and substantial ___. Now it merely has to show ___.

Prior to Dodd-Frank, convicting an individual of aiding or abetting required the SEC to establish knowledge and substantial assistance. Now it merely has to show recklessness.

19

Asset size for regulatory purposes is calculated as ___ ___ ___ ___.

Asset size for regulatory purposes is calculated as regulatory assets under management.

20

A hedge fund may register with only the state if it is between $___-___million, is located in a state that ___ ___and is subject to ___by the state.

A hedge fund may register with only the state if it is between $25-100 million, is located in a state that requires registration and is subject to examinations by the state.

21

Non-U.S. based hedge funds with more than ___ U.S. clients and investors with AUM of more than $___million must register with the SEC.

Non-U.S. based hedge funds with more than 15 U.S. clients and investors with AUM of more than $25 million must register with the SEC.

22

Once a hedge fund determines that it must register with the SEC, it completes and files ___ ___

Once a hedge fund determines that it must register with the SEC, it completes and files Form ADV

23

___ ___ of Form ADV provides information about the hedge fund, its manager, and all associated persons.

Part 1 of Form ADV provides information about the hedge fund, its manager, and all associated persons.

24

___ ___ of Form ADV requires information for the hedge fund's clients

Part 2 of Form ADV requires information for the hedge fund's clients

25

Rule ___ requires registered advisers to establish internal compliance programs, which includes having a chief compliance officer who develops compliance procedures and whose primary responsibility is overseeing and managing compliance issues.

Rule 206(4)-7 requires registered advisers to establish internal compliance programs, which includes having a chief compliance officer who develops compliance procedures and whose primary responsibility is overseeing and managing compliance issues.

26

The CCO is responsible for the following:

 

1. ___ and ___

2. Review of ___ ___

3. ___ ___

4. ___ ___

5. ___of ___

The CCO is responsible for the following:

 

1. Testing and reporting

2. Review of marketing materials

3. Record keeping

4. Annual review

5. Code of Ethics

27

There are 2 important compliance issues regarding marketing materials:

 

1. No ___ or ___

2. ___must be ___-___

There are 2 important compliance issues regarding marketing materials:

 

1. No testimonials or endorsements

2. Performance must be long-term

28

Marketing materials must include the following:

 

1. ___ or ___ ___ affecting performance

2. Performance ___-of-___

Marketing materials must include the following:

 

1. Market or economic conditions affecting performance

2. Performance net-of-fees

29

Gross performance (may/may not) be presented be presented with net figures.

Gross performance may be presented be presented with net figures.

30

Custodial fees (do/do not) need to be netted out of marketing materials.

Custodial fees do not need to be netted out of marketing materials.

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