Securities Regulatory Organizations

Question 1

SEC

Answer 1

The U.S. Securities and Exchange Commission (SEC) is the major watchdog of the securities industry. Congress created the SEC to regulate securities markets and to protect investors from fraudulent and manipulative practices.

Question 2

The Securities Act of 1933

Answer 2

The Act of 1933 requires the full and fair disclosure of all material information about a new issue.

Question 3

The Securities Exchange Act of 1934

Answer 3

The Act of 1934, which established the SEC, was enacted to protect investors by regulating the over-the-counter (OTC) market and exchanges, such as the New York Stock Exchange (NYSE).

Answer 4

Extension of credit in margin account

Registration and regulation of broker-dealers

Registration of securities associations

Transactions by insiders

Customer accounts

Trading activities

Question 5

The Trust Indenture Act (TIA)

Answer 5

This act, formerly called the Trust Indenture Act of 1939, prohibits bond issues valued at more than $50 million (originally $5 million) from being offered to investors without an indenture. The trust indenture is a written agreement that protects investors by disclosing the particulars of the issue (the coupon rate, the maturity date, any collateral backing the bond, and so on).

Question 6

The Investment Company Act of 1940

Answer 6

This act regulates the registration requirements and the activities of investment companies.

Question 7

The Investment Advisers Act of 1940

Answer 7

This act requires the registration of certain investment advisers with the SEC. An investment adviser is a person who receives a fee for giving investment advice. Any investment adviser with at least $25 million of assets under management or anyone who advises an investment company must register with the SEC

Record-keeping responsibilities Advisory contracts Advertising rules Custody of customers’ assets and funds

Question 8

Self Regulatory Organizations

Answer 8

Although membership isn’t mandatory, most broker–dealers are members of one or more SROs. SRO rules are usually stricter than those of the SEC. The four types of SROs you need to know for the SIE are the FINRA, MSRB, NYSE, and CBOE:

Question 9

FINRA Responsibilities

Answer 9

FINRA is responsible for making sure that its members follow not only FINRA rules, but also the rules set forth by the SEC. Additionally, the FINRA is responsible for handling complaints against member firms and may take disciplinary action if necessary. FINRA is also responsible for administering securities exams such as SIE

Question 10

Financial Industry Regulatory Authority

Answer 10

FINRA is an SRO that’s responsible for the operation and regulation of the OTC market, investment banking (the underwriting of securities), NYSE trades, investment companies, limited partnerships, and so on.

Question 11

Municipal Securities Rulemaking Board (MSRB)

Answer 11

The MSRB was established to develop rules that banks and securities firms have to follow when underwriting, selling, buying, and recommending municipal securities

Question 12

Approve or Guarantee

Answer 12

Look at SIE questions with the words guarantee or approve in them very carefully. The FINRA, SEC, NYSE, and so on do not approve or guarantee securities.

Question 12

The North American Securities Administrators Association (NASAA)

Answer 12

The North American Securities Administrators Association (NASAA) is devoted to investor protection. It is a voluntary association which consists of 67 regulators. NASAA even predates the creation of the SEC.

Question 13

U.S. Department of Treasury

Answer 13

policy.

Question 13

U4 Form

Answer 13

Background checks must be performed, and the applicant’s employers for the previous three years must be called to verify the applicant’s employment history. The calls must be made within 30 days of the firm receiving the U4 form.

The U4 form also contains an arbitration disclosure, which states that disputes between the applicant and the member firm will be settled by arbitration (essentially, you won’t take the firm to court).

Question 13

non-Registered

Answer 13

the ten-year disqualification rule if an individual has been convicted of a felony or certain misdemeanors. In addition, if a registrant includes misleading information or omits information, her registration will be denied.

Nonregistered persons may not solicit customers or take orders. In addition, member firms are prohibited from paying commissions, fees, concessions, discounts, and so on to any person who is not registered. The failure of a member firm to register someone who should be registered will likely end in disciplinary action by FINRA.

Question 13

Statutorily Disqualified from FINRA

Answer 13

a felony criminal conviction or certain misdemeanor convictions within the last ten years.

temporary or permanent injunction (no matter what his age) issued by a court involving a long list of unlawful investment activities.

expelled, barred, or is currently suspended from membership or participation in another self-regulatory organization.

been denied or had his registration revoked by the CFTC, SEC, or any other appropriate authority or regulatory agency.

found that a member or person has made certain false statements in his application, in reports, or in proceedings before the SEC, SROs, or any other appropriate regulatory authority or agency.

If the SEC, CFTC, or any SRO finds that a person “Willfully” violated federal securities laws, “willfully” violated commodities laws, or “willfully” violated MSRB rules “Willfully” aided, commanded, induced, abetted, counseled, or procured violations as set forth in the preceding rule Failed to supervise another person who committed violations as set forth in rule number one

Question 14

Fingerprints for workers at firm

Answer 14

Making sales

Handling assets (cash and/or certificates)

Accessing original books and records

Supervising any of the preceding activities

Question 14

Central Registration Depository (CRD)

Answer 14

The Central Registration Depository’s (CRD’s) BrokerCheck allows investors access to vital information that they may need to help them pick the right firm and the right professional, like you.

Question 14

Member Firm Annual Meetings

Answer 14

Member firms must have annual meetings covering the services and strategies offered by the firm. In addition, the meeting must cover any recent regulatory developments, if any.

Question 15

Regulatory Element

Answer 15

All registered persons are required to take a computer-based training session covering FINRA regulations within 120 days of the registered person’s second anniversary and every three years after that. In the event that the training isn’t taken within the required period, the person’s securities license(s) will be deactivated until it’s completed.

Question 16

U5 Form

Answer 16

If you leave your firm for whatever reason, the member firm you were working for has to file a U5 form with the CRD within 30 days of the date you resigned or were terminated.

After a U5 form has been filed on your behalf, you have up to two years to get registered with another firm, or you’ll have to take your securities exams all over again.

Question 17

Exempt from FINRA Registration

Answer 17

Functions are solely clerical or ministerial

Municipal Securities

Commodity Securities

Question 18

Principal Signatures

Answer 18

• Opening new account
• Trades with an account
• Advertisements
• Sales literature
• Complaints

Question 19

Trade Date

Answer 19

The day the trade has been executed.

Owns the security after executed even if has not paid for it yet.

Question 20

Settlement Date

Answer 20

The day the issuer updates it’s records and delivers the certificates to the brokerage firm.

Question 21

Payment Date

Answer 21

The day the buyer of securities has to pay for the trade.

Question 22

Cash Trades

Answer 22

Same day settlements.

Payment and delivery of securities on the trade date

Question 24

Regulation S-P

Answer 24

Adopt written policies and procedures for administrative and technical information to be safeguarded

Question 25

Trade Confirmation

Answer 25

Sent to customer after trade has been completed. At or before the settlement date.

Question 26

Financial Exploitation

Question 27

Account Statements

Answer 27

Quarterly. Account activity, positions and balances

Question 28

Dividends - Declaration Date

Answer 28

The day the corporation officially announces the dividend to be paid

Question 29

Ex-Dividend Date

Answer 29

The day that the stock is reduced by the dividend amount.

On, or before this date the seller is due the dividend.

One day before the Record Date

Buyer is required to sign a “Due Bill” since the dividend won’t be paid for a month, or so.

Cash Dividend = Due Bill Check

Question 30

Due Bill

Answer 30

When the buyer is entitled to the dividend, but has not received the certificates of record.

Question 31

Record Date

Answer 31

The day the corporation inspects it’s records and determines who will be paid the dividend. To receive the dividend the investor must be in the records as stockholder

Question 32

Payment (payable) Date

Answer 32

The date the actual dividend is paid out.

Question 33

Stock sold short

Answer 33

Lender of the stock is entitled to the dividend.

Question 34

Code of Procedure