SIE Regulatory Framework 4 — Questions and Answers
Question 1: Which of the following is required to be disclosed in a prospectus under SEC rules?
- Names of all institutional investors
- Risk factors associated with the investment (Correct answer)
- The underwriter's internal profit margins
- Specific investor suitability requirements
Correct answer: Risk factors associated with the investment
A prospectus must disclose material risk factors so investors can make informed decisions about the securities offering.
Question 2: The Securities Exchange Act of 1934 created the SEC and primarily regulates:
- New securities issuances
- Secondary market trading and broker-dealers (Correct answer)
- Commodity futures markets
- Insurance products
Correct answer: Secondary market trading and broker-dealers
The Securities Exchange Act of 1934 governs secondary market trading, broker-dealers, exchanges, and established the SEC.
Question 3: A customer who has a complaint against a broker-dealer may seek arbitration through:
- The Federal Trade Commission
- FINRA's dispute resolution forum (Correct answer)
- The Supreme Court only
- The Department of Justice
Correct answer: FINRA's dispute resolution forum
FINRA operates a dispute resolution forum where investors can bring arbitration or mediation claims against broker-dealers.
Question 4: Under Regulation S-P, broker-dealers must provide customers with a privacy notice:
- Only upon request
- Annually and at account opening (Correct answer)
- Every five years
- Only when information is shared with third parties
Correct answer: Annually and at account opening
Regulation S-P requires financial institutions to deliver privacy notices at account opening and annually thereafter.
Question 5: A tombstone advertisement for a new securities offering is permitted during the waiting period because it:
- Contains a full prospectus
- Is limited to basic factual information and directs investors to the prospectus (Correct answer)
- Solicits orders from investors
- Is filed separately with FINRA
Correct answer: Is limited to basic factual information and directs investors to the prospectus
Tombstone ads are permitted during the cooling-off period because they only provide limited factual information and direct readers to obtain a prospectus.
Question 6: Which entity sets the pattern day trader rule requiring a minimum equity of $25,000?
- The Federal Reserve Board
- FINRA (Correct answer)
- The SEC
- The Treasury Department
Correct answer: FINRA
FINRA Rule 4210 establishes the pattern day trader requirement of maintaining at least $25,000 in equity for accounts that day-trade frequently.
Question 7: The Municipal Securities Rulemaking Board (MSRB) has rulemaking authority over:
- Federal government bond dealers
- Municipal securities dealers and advisors (Correct answer)
- Corporate bond underwriters only
- All fixed-income securities markets
Correct answer: Municipal securities dealers and advisors
The MSRB creates rules for broker-dealers and municipal advisors who deal in municipal securities, though it relies on FINRA and the SEC for enforcement.
SIE Regulatory Framework 4
Which of the following is required to be disclosed in a prospectus under SEC rules?