Chapter 1 Flashcards
Securities Act of 1933
Paper Act
Regulates new issues of securities in the primary market.
Includes “registration statement” and the “prospectus”
Securities Exchange Act of 1934
People Act
Regulates the trading of securities on the SECONDARY market
Created the SEC
Maloney Act of 1938
Created SROs such as FINRA
Investment Company Act of 1940
Regulates investment companies (mutual funds)
Dodd-Frank Wall Street Reform and Consumer Protection Act (2010)
Protects consumers, restricts trade, regulates financial products.
SEC Roles
Primary: supervises the capital markets
- Enforces federal securities laws
- Protects investors, maintains fair markets and facilitates capital formation.
- Revoke broker/dealer registration
“Blue sky” laws
Intra-state securities regulation
——- writes regulation to enforce the SEC laws.
Self-regulatory organizations
And
Finras designated examining authority (DEA)
SRO inspection of broker/dealer
Within 6 months of granting initial registration and 12 months later.
FINRA basic characteristics
- NGO
- Ensures that the securities industry operates fairly and honestly.
- SEC has final authority
Municipal securities rulemaking board (MSRB)
regulates municipal securities
No enforcement authority
Enforcement authority comes from FINRA and SEC
Does not govern users
CBOE
- regulated by the SEC
- Owned by Cboe global markets
- Second largest stock exchange operator in the US
Department of treasury
Manages federal finances and enforces finance and tax laws.
IRS is the largest bureau of the department of treasury
Federal reserve
Central bank of the US
Promotes effective operation of the economy
Regulation T
The federal reserve board
Sets the initial margin requirement in a margin account at 50%
Requires investors to settle transactions in T +4 days
Hypothecation
Pledging securities as collateral for marginal loans
Securities investor protector corporation (SIPC)
Protects customers up tp 500,000 per separate account. $250,000 of which can be in cash/liquid
Fidelity bond coverage: SIPC members must have coverage for 120% of annual net capital
What happens when the T+4 rule is violated
Trade liquidated account frozen for the next 90 days. Any transaction made at that time must be made in cash.
FDIC
Protects customer in bank deposit accounts up to $250,000
“LATE” shows what professionals are exempt from registering as an investment advisor
L lawyers
A accountants
T teachers
E engineers
Underwriting agreements
Contacts between issues and managing underwriters that specify the terms of the sale of shares to public
Traders
Sell and buy securities from a broker, but does not provide quotes.
Custodian (mutual fund)
In charge of the safekeeping of all securities and cash held by the fund.
Market makers
Assume the risk of holding an inventory of shares of stock to provide liquidity and facilitate trading
