SEC Regulations and Broker-Dealers Quiz

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Questions and Answers

Which of the following statements comply with SEC rules on delivery of a prospectus for initial (IPO) and additional (APO) public offerings? (Select all that apply)

An APO of a stock that will not be listed nor quoted over Nasdaq requires delivery for a period of 40 days. (correct)

An APO of a stock listed on the NYSE requires delivery for a period of 25 days. (correct)

An IPO of a stock that will not be listed nor quoted over Nasdaq requires delivery for a period of 40 days.

An IPO of a stock to be listed on the NYSE requires delivery for a period of 25 days.

Which type of broker-dealer would most likely have correspondent firms?

Introducing

Market maker

Fully disclosed

Self-clearing (correct)

When placing a tombstone advertisement for a common stock offering, which would be least likely to appear?

The expected price range of the offering

The name of the issuer

The names of the investment bankers underwriting the issue (correct)

The total number of shares being offered

Regarding fiscal policy, which statements are correct? (Select all that apply)

Fiscal policy refers to governmental budget decisions enacted by our president and Congress. Signup and view all the answers

Which of the following is NOT an SRO registered with the SEC?

Depository Trust Company (DTC) Signup and view all the answers

An investment banker primarily engages in which of the following activities?

Helping issuers to raise capital through securities issuances Signup and view all the answers

If First Amalgamated Bank needs to increase its reserves, it could do which of the following?

Borrow from the FRB and pay the discount rate Signup and view all the answers

Which action would the Federal Reserve most likely engage in if it is concerned that the economy is slowing?

Pursue an easy money policy to lower interest rates Signup and view all the answers

Producers would generally report rising inventories during which period of the business cycle?

Contraction Signup and view all the answers

Assuming ABC Corporation completes its corrections after receiving a deficiency letter from the SEC, when will the sale of its shares become effective?

8 days Signup and view all the answers

Most economists would agree that rising employment would be found during periods of?

Inflation Signup and view all the answers

Who performs the enforcement of MSRB rules upon broker-dealers?

FINRA Signup and view all the answers

A broker-dealer that concentrated its business efforts on proprietary trading would most likely function as?

A market maker Signup and view all the answers

What is the account called that provides custody of securities while allowing an institutional customer to establish relationships with other broker-dealers?

A prime account Signup and view all the answers

An individual is defined by the SEC as an accredited investor if the individual has a net worth of?

Greater than $1 million, or has had an annual income of greater than $200,000 in each of the 2 most recent years Signup and view all the answers

Which statements about shelf registration are TRUE? (Select all that apply)

For securities offered via a shelf registration, a supplemental prospectus must be filed with the SEC before each sale. Signup and view all the answers

Which transaction represents the greatest potential risk to an investment banker?

A firm commitment offering Signup and view all the answers

What business entity receives and delivers payments and securities on behalf of both parties to a securities transaction?

A clearing agency Signup and view all the answers

All of the following would decrease the U.S. balance of payments deficit EXCEPT?

A decrease in purchases of U.S. securities by foreign investors Signup and view all the answers

What is generally agreed to be the most volatile interest rate in the U.S. economy?

The fed funds rate Signup and view all the answers

It would be reasonable to expect an increase in exports from the United States if?

The Swiss franc weakened against the dollar Signup and view all the answers

Which one of the following is NOT a tool used by the Federal Reserve Board (FRB) to impact the money supply?

Changing the prime rate Signup and view all the answers

The document associated with exempt securities that allows for informed investment decisions is?

An official statement or offering circular Signup and view all the answers

A corporation seeking to raise funds to expand its manufacturing capacity would do so in?

The capital market Signup and view all the answers

In most cases, the majority of private placements are sold to?

Institutional investors Signup and view all the answers

Study Notes

SEC Regulations and Offerings

The SEC mandates specific prospectus delivery periods for IPOs and APOs.
IPOs for NYSE-listed stocks require a 25-day delivery; stocks not listed or quoted over Nasdaq require 40 days.
APOs for NYSE stocks require a 25-day delivery; for stocks not listed over Nasdaq, the period is 40 days.
Compliance answers: Correct options are I and IV.

Broker-Dealer Types

Self-clearing broker-dealers often have correspondent firms, allowing them to process trades more efficiently.
Market makers, fully disclosed, and introducing types serve different functions in trading environments.

Tombstone Advertisements

In a tombstone advertisement, issuer details like the expected price range, total shares, and issuer name will appear.
Investment bankers’ names are typically omitted from such advertisements.

Fiscal Policy Insights

Fiscal policy is not considered efficient for addressing short-term economic issues.
It encompasses budgetary decisions made by the president and Congress.

Self-Regulatory Organizations

The Securities Exchange Act of 1934 enables SROs to enforce compliance among member firms.
The Depository Trust Company (DTC) is not recognized as an SRO by the SEC.

Investment Banking Functions

Investment bankers assist issuers in raising capital through the issuance of securities.

Federal Reserve Borrowing

A Federal Reserve System member bank like First Amalgamated Bank can borrow from the Fed at the discount rate or from another member bank at the federal funds rate.

Federal Reserve Actions

In a slowing economy, the Federal Reserve tends to implement easy money policies to reduce interest rates.

Business Cycle and Inventory

Rising inventories typically signal economic contraction.

Cooling-Off Period for SEC Filings

Following a SEC request for additional information during a cooling-off period, the issue may become effective in 8 days if no further issues arise.

Economic Conditions and Employment

Rising employment is generally associated with inflationary periods.

MSRB Rule Enforcement

FINRA is responsible for enforcing MSRB rules upon broker-dealers.

Proprietary Trading

Broker-dealers focusing on proprietary trading operate as market makers.

Prime Accounts

A prime account is utilized by institutional customers like hedge funds, offering custody and back-office functions.

Definition of Accredited Investor

An accredited investor is defined by the SEC as having a net worth exceeding $1 million or earning more than $200,000 annually for the past two years.

Shelf Registrations

Shelf registration allows issuers like GEMCO Oil and Gas to sell securities over a period without re-registration after an initial cooling-off period.
It requires a supplemental prospectus to be filed prior to each sale.

Risks for Investment Bankers

Firm commitment offerings present the highest risk to investment bankers compared to other types of offerings.

Clearing Agency Role

A clearing agency facilitates the receipt and delivery of payments and securities between parties.

Balance of Payments Deficit

A decrease in foreign purchases of U.S. securities does not reduce the balance of payments deficit.

Volatile Interest Rates

The fed funds rate is the most volatile interest rate in the U.S. economy.

Impact of Currency Value on Exports

Exports from the U.S. are expected to rise if the yen strengthens against the dollar or the dollar weakens against the British pound.

Tools of the Federal Reserve

The Federal Reserve can impact the money supply through changing the reserve requirements, discount rates, and open market operations, but not by changing the prime rate.

Disclosure for Exempt Securities

Documentation for exempt securities includes an official statement or offering circular to inform investors.

Capital Market Utilization

Corporations seeking to finance manufacturing expansion typically operate within the capital market.

Private Placements and Investors

The majority of private placements are sold to institutional investors rather than the general public.

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Description

Test your knowledge on SEC regulations regarding prospectus delivery periods for IPOs and APOs, as well as different types of broker-dealers and their functions. This quiz also covers the essentials of tombstone advertisements and insights into fiscal policy. Prepare to check your understanding of key concepts in investment banking and trading.