CSCP Securities Laws & Regulations 5 — Questions and Answers
Question 1: Under the USA PATRIOT Act, broker-dealers are required to establish Customer Identification Programs (CIP). At minimum, what information must be collected for individual customers?
- Name, address, and Social Security number only
- Name, date of birth, address, and identification number (Correct answer)
- Name, address, phone number, and employer
- Name, SSN, income, and net worth
Correct answer: Name, date of birth, address, and identification number
CIP rules require collection of name, date of birth, address, and identification number (e.g., SSN for U.S. persons) for individual customers.
Question 2: Which provision of the Securities Exchange Act requires any person acquiring more than 5% of a class of registered equity securities to file a Schedule 13D or 13G?
- Section 12
- Section 13(d) (Correct answer)
- Section 14(d)
- Section 16(a)
Correct answer: Section 13(d)
Section 13(d) of the Exchange Act requires beneficial owners of more than 5% of a registered equity class to file Schedule 13D (or 13G for passive investors) within 10 days.
Question 3: Regulation AC (Analyst Certification) requires research analysts to certify that their views expressed in research reports:
- Have been pre-approved by the issuer
- Accurately reflect their personal views and disclose any compensation tied to the recommendation (Correct answer)
- Are consistent with the firm's investment banking positions
- Have been reviewed by an independent compliance officer
Correct answer: Accurately reflect their personal views and disclose any compensation tied to the recommendation
Regulation AC requires analysts to certify that their recommendations accurately reflect their personal views and to disclose whether compensation is related to the specific recommendations.
Question 4: Under FINRA Rule 4512, customer account records for institutional accounts must be updated at minimum how frequently?
- Monthly
- Quarterly
- Annually
- Every 36 months (Correct answer)
Correct answer: Every 36 months
FINRA Rule 4512 requires broker-dealers to update customer account records for institutional accounts at intervals of not more than 36 months.
Question 5: The SEC adopted the Market Access Rule (Rule 15c3-5) to require broker-dealers with market access to implement which type of controls?
- Margin controls only
- Pre-trade risk management and supervisory controls (Correct answer)
- Post-trade reporting controls only
- Suitability controls for retail customers
Correct answer: Pre-trade risk management and supervisory controls
Rule 15c3-5 requires broker-dealers with direct market access to implement pre-trade risk management controls and supervisory procedures to prevent erroneous orders and financial exposure.
Question 6: Which anti-fraud provision of the Securities Act of 1933 imposes civil liability on sellers of securities for material misstatements or omissions in connection with a sale using any means of interstate commerce?
- Section 11
- Section 12(a)(1)
- Section 12(a)(2) (Correct answer)
- Section 17(a)
Correct answer: Section 12(a)(2)
Section 12(a)(2) imposes civil liability on any person who sells securities through a prospectus or oral communication containing a material misstatement or omission.
Question 7: Under the Securities Investor Protection Act (SIPA), SIPC protects customer accounts at failed broker-dealers up to what dollar amount for cash claims?
- $100,000
- $250,000 (Correct answer)
- $500,000
- $1,000,000
Correct answer: $250,000
SIPC protects customer accounts up to $500,000 total, with a sub-limit of $250,000 for cash claims, at failed SIPC-member broker-dealers.
CSCP Securities Laws & Regulations 5
Under the USA PATRIOT Act, broker-dealers are required to establish Customer Identification Programs (CIP).
At minimum, what information must be collected for individual customers?