Stock Broker Securities Regulations & Compliance 1 — Questions and Answers
Question 1: Under the Securities Exchange Act of 1934, what is the primary regulatory body overseeing broker-dealers in the US?
- FINRA
- SEC (Correct answer)
- CFTC
- OCC
Correct answer: SEC
The SEC (Securities and Exchange Commission) is the primary federal regulator overseeing broker-dealers under the Securities Exchange Act of 1934.
Question 2: Which rule requires broker-dealers to maintain records of all customer transactions for at least 3 years?
- Rule 17a-3 (Correct answer)
- Rule 144
- Rule 10b-5
- Regulation SHO
Correct answer: Rule 17a-3
SEC Rule 17a-3 mandates that broker-dealers maintain records of customer transactions, orders, and account information for a minimum of 3 years.
Question 3: What is the minimum net capital requirement concept that prevents broker-dealers from operating with excessive debt relative to assets?
- Liquidity ratio
- Net capital rule (Correct answer)
- Margin requirement
- Leverage ratio
Correct answer: Net capital rule
The net capital rule (SEC Rule 15c3-1) limits the amount of debt a broker-dealer may incur relative to its liquid assets.
Question 4: A broker-dealer that holds customer securities and cash must comply with which rule regarding segregation of customer assets?
- Rule 15c3-3 (Correct answer)
- Rule 10b-5
- Rule 144A
- Regulation T
Correct answer: Rule 15c3-3
SEC Rule 15c3-3 (the Customer Protection Rule) requires broker-dealers to segregate customer cash and securities from the firm's own assets.
Question 5: FINRA Rule 4370 requires member firms to maintain written business continuity plans addressing which scenario?
- Market crashes only
- Significant business disruptions (Correct answer)
- Cyber attacks only
- Regulatory investigations
Correct answer: Significant business disruptions
FINRA Rule 4370 requires all member firms to have written Business Continuity Plans (BCPs) that address how the firm will operate during significant business disruptions.
Question 6: Under Regulation Best Interest (Reg BI), broker-dealers must act in the best interest of which party when making a securities recommendation?
- The issuing company
- The retail customer (Correct answer)
- FINRA
- The broker-dealer firm
Correct answer: The retail customer
Reg BI requires broker-dealers to act in the best interest of the retail customer at the time a recommendation is made, prioritizing the customer over the firm's interests.
Stock Broker Securities Regulations & Compliance 1
Under the Securities Exchange Act of 1934, what is the primary regulatory body overseeing broker-dealers in the US?