SIE Study Guide with complete solutions 2023 update

Section 1: Knowledge of Capital Markets The SEC purpose/mission when created jurisdiction authority protect investos, maintin fair orderly & efficient markets, facilitate capital formation by congress in 1934 US federal government enforce federal security laws & create laws that regulate securities industry enforces Securities act 1933/1934, trust indenture act 1939, investment company act 1940, investment advisors act 1940 SROs (Self-Regulatory Organizations) what is the largest SRO? organization formed to regulate certain professions & industires to create rules that promote order among businesses& orgs, supplemental to laws/gov FINRA CBOE jurisdiction? originated the VIX Chicago board options exchange 1st nationally recognized sec exchange listing and trading options. (lgest option market) SRO jurisdiction over all writing and trading of standardized options and related contracts listed on exchange FINRA government? Financial Industry Regulatory Authority license and regulate B/Ds license security dealer, audit dealers/associated firms, ensure compliance, write/enforce rules governing BDs, regulate trading equities corps bonds sec features options independent NONgovernmental largest SRO MSRB supports? Municipal Securities Rulemaking Board BOD oversee Us municipal & responsible for setting/governing rules support FINRA SRO Department of Treasury/IRS manage federal finances by collecting taxes and paying bills & managing currency/gov accs /public debt IRS- US gov agency responsible for collecting most federal taxes and for administering tax rules and regulations State Regulators state/local public service/utilities commission, insurance/annuity, banking, company info, consumer protection NASAA what is it? North American Securities Administrators Association oldest international investor protection organization (a state regulator) The Federal Reserve fiscal or monetary policy? composed of? when tighten policy? the central bank of the United States control inflation/encourage employment, responsible for clearing checks & supplying currency, most important to loan $ to other banks & set interest rates, make bank reserve requirements independent body (meaning looks after broader interests rather than for ones own political interests) lower rate= more money borrowed= more money in circulation BOG (board of governors), 12 fed reserve banks, fed open market committee (FOMC=set monetary policy) when inflation is too high SIPC oversees? Securities Investor Protection Corporation protects customers account in BD bankruptcy cash/securities up to 500,000, cash only 250,000 oversee liquidation of member firms nonprofit FDIC type of agency? why created? funded by? Federal Deposit Insurance Corporation insures depositors of insured banks independent agency created by congress to maintain stable financial system, make lg/complex fin institutions resolvable funded by premium banks and saving associations, not taxpayers backed by full faith and credit of US Market Participants and Their Roles Investors accredited institutional (ex) retail commit capital in expectation of receiving financial returns long term strategic position -knowledgeable to handle risks with unregistered securities -company/org must invest OBO ex) mutual funds, pensions, insurance companies, retirement funds... less restrictive regulations bc better educated...can buy a lot of shares in company to aquire voting rights in order to control -nonprofessional, invest thru trading or online brokerage in sm amts Broker Dealers introducing clearing prime brokers buy/sell securities for own acc or OBO customers broker(agent)- when execute orders OBO dealer(principal)- when trade 4 own acc -contacts w clearing firm tht handles execution of orders, has direct relationship w customer primary goal- customer service act as middle man -liason between investor and clearing corp, make sure trade settlement/transaction successful, responsible for paperwork associated w clearing/execution, maintain custody of acc holders sec/assets, clears own trades as well as others also called carrying broker -provide clearing,custody,servicing security agent between client and all brokers. central source 4 closing/servcicing assets. charges fee ex)goldmansacs Prime Broker invest manage open brokerage acc @ several clearing houses. process and have back office clearing/processing thru a single B/D Investment Advisors person/group making investment recommendations or doing security analysis for fee thru direct management of assets or written publications Municipal Advisors give advice to state/local gov (cities/counties/schools) on municipal products/issuance offer advice on municipalities bond offerings Issuers and Underwriters legal entity tht develops, registers, and sell securities 2 finance issuers can be governments, municipalities, corps, investment trusts assume risk of managing/selling Traders....vs investors cons of trading(2)? capitalize on short term trends vs long term hold less assets for shorter period capital gains taxing, commission to brokers Market Makers how does a market maker act? stand ready to buy/sell securities to maintain liquidity & fair/orderly market, will accomadate if noones selling what u want or buying what u have they will make bids/offers 2 accommodate orders that cant be matched in market buy low sel high 2 make profit thru a sm spread charge commission/fees to compensate 4 risk obligated to maintain and honor firm quotes during trading hours increase average daily trading volume, may pay other brokerage firms 2 direct trades in those issues 2 mkt maker 4 execution ("payment 4 order flow"= legal as long as there is a disclosure) think like a cars salesman (acts as principal)