SIE Regulatory Framework 2 — Questions and Answers
Question 1: Which self-regulatory organization (SRO) has primary responsibility for overseeing broker-dealers in the United States?
- MSRB
- FINRA (Correct answer)
- SIPC
- CFTC
Correct answer: FINRA
FINRA (Financial Industry Regulatory Authority) is the primary SRO responsible for regulating broker-dealers under SEC oversight.
Question 2: A broker-dealer that holds customer securities and cash is considered a:
- Discount broker
- Introducing firm
- Carrying firm (Correct answer)
- Market maker
Correct answer: Carrying firm
A carrying firm (also called a clearing firm) maintains custody of customer assets and handles settlement of trades.
Question 3: Under Regulation T, the Federal Reserve Board sets the initial margin requirement for purchasing equity securities at:
- 25%
- 50% (Correct answer)
- 75%
- 100%
Correct answer: 50%
Regulation T requires investors to deposit at least 50% of the purchase price of marginable securities at the time of purchase.
Question 4: The USA PATRIOT Act requires broker-dealers to implement a Customer Identification Program (CIP) primarily to:
- Reduce trading commissions
- Combat money laundering and terrorism financing (Correct answer)
- Increase market liquidity
- Standardize account fees
Correct answer: Combat money laundering and terrorism financing
The CIP requirement of the USA PATRIOT Act mandates identity verification of customers to prevent money laundering and terrorism financing.
Question 5: Which agency has jurisdiction over futures contracts on agricultural commodities?
- SEC
- FINRA
- CFTC (Correct answer)
- OCC
Correct answer: CFTC
The Commodity Futures Trading Commission (CFTC) regulates futures and options on commodities, including agricultural products.
Question 6: A registered representative who moves from one broker-dealer to another must:
- Surrender all licenses and start fresh
- Transfer registration via FINRA's CRD system (Correct answer)
- Wait 90 days before conducting business
- File a Form ADV with the SEC
Correct answer: Transfer registration via FINRA's CRD system
Registered representatives transfer their FINRA registrations through the Central Registration Depository (CRD) when changing firms.
Question 7: Which of the following is NOT a function of the Securities Investor Protection Corporation (SIPC)?
- Returning missing customer cash and securities
- Insuring against investment losses from market declines (Correct answer)
- Liquidating failed broker-dealers
- Providing up to $500,000 in coverage per customer
Correct answer: Insuring against investment losses from market declines
SIPC protects customers when a broker-dealer fails, but it does not protect against investment losses due to market fluctuations.
SIE Regulatory Framework 2
Which self-regulatory organization (SRO) has primary responsibility for overseeing broker-dealers in the United States?