SECURITIES INDUSTRY ESSENTIALS
EXAM 2024/2025
Securities and Exchange Commission - Precise Answer ✔✔(SEC)
created under the Securities Exchange Act of 1934, this is the security
industry's primary regulatory body. Brokers/Dealers must apply and be
approved for registration with the SEC. The SEC also regulates all
exchanges and trading markets.
What is a broker/dealer subject to if they do not comply with SEC rules?
- Precise Answer ✔✔censure, limits on activities, functions, or
operations, suspension/revocation of tis registration, or fine
Self-Regulatory Organizations - Precise Answer ✔✔(SROs) function
under the SEC's oversight. Each SRO is accountable to the Commission
for enforcing federal securities laws, and supervising securities practices
within an assigned jurisdiction.
Financial Industry Regulatory Authority (FINRA) - Precise Answer
✔✔regulates all matters related to investment banking (securities
underwriting), trading in the OTC market, trading in NYSE related
securities, and the conduct of member firms.
What are FINRA's main purposes and objectives? - Precise Answer
✔✔1. 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.
2. Provide a medium for communication among its members and
between its members, the government, and other agencies.
3. Adapt, administer, and enforce rules designed to prevent fraudulent
and manipulative practices as well as to promote just and equitable
principles of trade.
4. Promote self-discipline among members and investigate and resolve
grievances.
Chicago Board Options Exchange (CBOE) - Precise Answer
✔✔regulates all matters related to trading standardized options and
related contracts listed on that exchange
Municipal Securities Rulemaking Board (MSRB) - Precise Answer
✔✔regulates (but cannot enforce) all matters related to the underwriting
and trading of state and municipal securities. Also has no regulatory
power over the municipalities who issue municipal securities.
The U.S. Department of Treasury (USDT) - Precise Answer
✔✔executive department and the treasury of the United States federal
government. The department is administered by the secretary of the
treasury, who is a member of the cabinet. The department oversees the
collection of taxes and enforcement of tax laws.
Internal Revenue Service (IRS) - Precise Answer ✔✔bureau of the
Department of the Treasury, its purpose is to collect taxes and enforce
tax laws.
,North American Securities Administrators Association (NASAA) -
Precise Answer ✔✔voluntary association whose members provide
insight from their unique perspective to the SEC and SROs as they move
forward in their rulemaking process. Also advocates pro-investor
policies, provides investor education, and offers resources for the
regulatory community and securities industry professionals.
Federal Reserve Board (FRB) - Precise Answer ✔✔made up of 12
regional Federal Reserve banks and hundreds of national and state banks
that belong to the system. They determine how much money is available
for businesses and consumers to spend. Also determines the monetary
policy and takes actions to implement its policies such as;
- acting as an agent of the U.S. Treasury
- regulating the U.S. money supply
- setting reserve requirements for members
- supervising the printing of currency
- clearing found transfers throughout the system
- examining members to ensure compliance with federal regulations
Securities Investor Protection Corporation (SIPC) - Precise Answer
✔✔is a non-profit membership organization created under the Securities
Investor Protection Act of 1970, this agency oversees the liquidation of
insolvent brokerage firms and members pay assessments into a general
insurance fund that is used to meet customer claims in the event of a
broker-dealer bankruptcy.
, All broker/dealers registered with the SEC must be SPIC members
except: - Precise Answer ✔✔- banks that deal exclusively in municipal
securities
- firms that deal exclusively in U.S. government securities
- firms that deal exclusively in redeemable investment company
securities
What is the definition of a customer? - Precise Answer ✔✔anyone who
has cash or securities in the posession of a broker-dealer.
What happens if the SEC or any SRO finds indication that a broker-
dealer is in financial difficulty? - Precise Answer ✔✔The SPIC will be
notified immediately, and if the SPIC determines that the member has
failed or is in imminent danger of failing. The court will issue a
protective decree if the broker-dealer is insolvent and will then promptly
appoint a trustee for the liquidation of the broker-dealer's business, and
the member is prohibited from engaging in business
What is the basic coverage under SPIC? - Precise Answer ✔✔no more
than $500,000 per separate customer, this includes no more than
$250,000 in cash
- cash and margin accounts for the same customer are combined when
determining SPIC coverage
- only the equity in a margin account is converted, not the full market
value
EXAM 2024/2025
Securities and Exchange Commission - Precise Answer ✔✔(SEC)
created under the Securities Exchange Act of 1934, this is the security
industry's primary regulatory body. Brokers/Dealers must apply and be
approved for registration with the SEC. The SEC also regulates all
exchanges and trading markets.
What is a broker/dealer subject to if they do not comply with SEC rules?
- Precise Answer ✔✔censure, limits on activities, functions, or
operations, suspension/revocation of tis registration, or fine
Self-Regulatory Organizations - Precise Answer ✔✔(SROs) function
under the SEC's oversight. Each SRO is accountable to the Commission
for enforcing federal securities laws, and supervising securities practices
within an assigned jurisdiction.
Financial Industry Regulatory Authority (FINRA) - Precise Answer
✔✔regulates all matters related to investment banking (securities
underwriting), trading in the OTC market, trading in NYSE related
securities, and the conduct of member firms.
What are FINRA's main purposes and objectives? - Precise Answer
✔✔1. 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.
2. Provide a medium for communication among its members and
between its members, the government, and other agencies.
3. Adapt, administer, and enforce rules designed to prevent fraudulent
and manipulative practices as well as to promote just and equitable
principles of trade.
4. Promote self-discipline among members and investigate and resolve
grievances.
Chicago Board Options Exchange (CBOE) - Precise Answer
✔✔regulates all matters related to trading standardized options and
related contracts listed on that exchange
Municipal Securities Rulemaking Board (MSRB) - Precise Answer
✔✔regulates (but cannot enforce) all matters related to the underwriting
and trading of state and municipal securities. Also has no regulatory
power over the municipalities who issue municipal securities.
The U.S. Department of Treasury (USDT) - Precise Answer
✔✔executive department and the treasury of the United States federal
government. The department is administered by the secretary of the
treasury, who is a member of the cabinet. The department oversees the
collection of taxes and enforcement of tax laws.
Internal Revenue Service (IRS) - Precise Answer ✔✔bureau of the
Department of the Treasury, its purpose is to collect taxes and enforce
tax laws.
,North American Securities Administrators Association (NASAA) -
Precise Answer ✔✔voluntary association whose members provide
insight from their unique perspective to the SEC and SROs as they move
forward in their rulemaking process. Also advocates pro-investor
policies, provides investor education, and offers resources for the
regulatory community and securities industry professionals.
Federal Reserve Board (FRB) - Precise Answer ✔✔made up of 12
regional Federal Reserve banks and hundreds of national and state banks
that belong to the system. They determine how much money is available
for businesses and consumers to spend. Also determines the monetary
policy and takes actions to implement its policies such as;
- acting as an agent of the U.S. Treasury
- regulating the U.S. money supply
- setting reserve requirements for members
- supervising the printing of currency
- clearing found transfers throughout the system
- examining members to ensure compliance with federal regulations
Securities Investor Protection Corporation (SIPC) - Precise Answer
✔✔is a non-profit membership organization created under the Securities
Investor Protection Act of 1970, this agency oversees the liquidation of
insolvent brokerage firms and members pay assessments into a general
insurance fund that is used to meet customer claims in the event of a
broker-dealer bankruptcy.
, All broker/dealers registered with the SEC must be SPIC members
except: - Precise Answer ✔✔- banks that deal exclusively in municipal
securities
- firms that deal exclusively in U.S. government securities
- firms that deal exclusively in redeemable investment company
securities
What is the definition of a customer? - Precise Answer ✔✔anyone who
has cash or securities in the posession of a broker-dealer.
What happens if the SEC or any SRO finds indication that a broker-
dealer is in financial difficulty? - Precise Answer ✔✔The SPIC will be
notified immediately, and if the SPIC determines that the member has
failed or is in imminent danger of failing. The court will issue a
protective decree if the broker-dealer is insolvent and will then promptly
appoint a trustee for the liquidation of the broker-dealer's business, and
the member is prohibited from engaging in business
What is the basic coverage under SPIC? - Precise Answer ✔✔no more
than $500,000 per separate customer, this includes no more than
$250,000 in cash
- cash and margin accounts for the same customer are combined when
determining SPIC coverage
- only the equity in a margin account is converted, not the full market
value
