Question 1

Which of the following is true of securities?
A) They have no value in and of themselves.
B) Since they are paper, they can be produced in limited numbers only.
C) They are easily regulated in terms of hazards or merchantability.
D) Since they are paper, they cannot be easily manipulated by their issuers.

Accepted Answer

Securities have no intrinsic value and derive their worth from the underlying assets or financial instruments they represent.

Question 2

Which of the following is true of the Securities Investor Protection Corporation (SIPC)?
A) It protects investors from losses up to $750,000 due to the financial failure of a brokerage firm.
B) It has the monitoring and bailout functions that the Federal Deposit Insurance Corporation (FDIC) has in banking.
C) It does not use trustees in any of its functions.
D) It supervises the liquidation of brokerage firms that are in financial trouble.

Accepted Answer

The Securities Investor Protection Corporation (SIPC) supervises the liquidation of brokerage firms that are in financial trouble. Option A is incorrect as the SIPC protects investors from losses up to $500,000 and not $750,000. Option B is incorrect as SIPC does not have the monitoring and bailout functions that the Federal Deposit Insurance Corporation (FDIC) has in banking. Option C is incorrect as SIPC uses trustees in its functions.

Question 3

The gives the Securities and Exchange Commission cease-and-desist powers and the power to impose substantial monetary penalties in administrative proceedings.
A) International Securities Enforcement Cooperation Act of 1990
B) Securities Enforcement Remedies and Penny Stock Reform Act of 1990
C) Private Securities Litigation Reform Act of 1995
D) Foreign Corrupt Practices Act of 1977

Accepted Answer

The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 gives the SEC cease-and-desist powers and the power to impose substantial monetary penalties in administrative proceedings. The other options listed are not directly related to these powers of the SEC.

Question 4

Which of the following was established by the Securities Investor Protection Act of 1970?
A) the Securities and Exchange Commission (SEC)
B) the Securities Investor Protection Corporation (SIPC)
C) the Federal Deposit Insurance Corporation (FDIC)
D) the Federal Savings and Loan Insurance Corporation (FSLIC)

Accepted Answer

The Securities Investor Protection Act of 1970 established the Securities Investor Protection Corporation (SIPC) to protect investors in the event that a brokerage firm fails. SIPC provides insurance coverage for up to $500,000 in securities and cash for each customer account in the event of broker-dealer insolvency. Choices A, C, and D are incorrect as they refer to other regulatory bodies and insurance corporations.

Question 5

Chapter 11 of the gives the Securities and Exchange Commission the authority to render advice when certain debtor corporations have filed for reorganization.
A) Private Securities Litigation Reform Act
B) Market Reform Act
C) Bankruptcy Abuse Prevention and Consumer Protection Act
D) Securities Enforcement Remedies and Penny Stock Reform Act

Accepted Answer

Chapter 11 of the Bankruptcy Code governs the reorganization of debtor corporations. Among other things, it provides for the appointment of a trustee, formulation of a plan of reorganization, and SEC review and advice on the debtor's disclosure statement.

Question 6

Which of the following factors resulted in the federal regulation of securities in Congress?
A) corporations playing off one state against another by limiting their securities sales to states that had less stringent regulations
B) corporations' ability to thwart state efforts at regulation rather easily
C) securities being easily manipulated by issuers
D) the collapse of the stock market in 1929

Accepted Answer

The collapse of the stock market in 1929 led to the establishment of federal regulation of securities in Congress, as it highlighted the need for increased oversight and regulation to protect investors and prevent another financial crisis.

Question 7

Which of the following acts requires all companies to set up a system of internal controls to provide reasonable assurance that the company's records accurately and fairly reflect its transactions?
A) the Foreign Corrupt Practices Act of 1977
B) the Private Securities Litigation Reform Act of 1995
C) the Market Reform Act of 1990
D) the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

Accepted Answer

The Foreign Corrupt Practices Act of 1977 requires companies to maintain accurate records and implement internal controls to ensure the integrity of financial reporting and prevent corruption.

Question 8

The Division of is responsible for setting and administering the disclosure requirements prescribed by the 1933 and the 1934 Securities Acts, the Public Utility Holding Company Act, and the Investment Company Act.
A) Market Regulation
B) Corporation Finance
C) Enforcement
D) Investment Management

Accepted Answer

The Division of Corporation Finance is responsible for setting and administering the disclosure requirements prescribed by the 1933 and the 1934 Securities Acts, the Public Utility Holding Company Act, and the Investment Company Act.

Question 9

The Market Reform Act of 1990 authorizes the Securities and Exchange Commission to regulate trading practices during .
A) issuance of new stock by existing corporations
B) periods in which stock prices have failed to fluctuate significantly for two consecutive calendar quarters
C) periods of extreme market volatility
D) initial public offerings

Accepted Answer

The Market Reform Act of 1990 authorizes the Securities and Exchange Commission to regulate trading practices during periods of extreme market volatility. This means that the SEC has the power to take measures to prevent market disruptions, such as circuit breakers, trading halts, or price limits, in the event of rapid and significant price movements.

Question 10

The Public Utility Holding Company Act of 1935 requires that public utility and holding companies .
A) set rates as low as possible without sacrificing a reasonable profit
B) register with the Securities and Exchange Commission and disclose information about their finances and operations
C) notify the Environmental Protection Agency before building new power facilities
D) elect board members at annual elections

Accepted Answer

The Public Utility Holding Company Act of 1935 requires public utility and holding companies to register with the Securities and Exchange Commission and disclose information about their finances and operations. This is intended to increase transparency and protect consumers from potential abuses of market power. The other options listed are not requirements under the act.

Question 11

The Investment Advisers Act of 1940 requires persons and firms giving investment advice to clients to .
A) attend education seminars
B) demonstrate expertise in economics and finance
C) impose administrative sanctions on securities buyers
D) register with the Securities and Exchange Commission

Accepted Answer

The Investment Advisers Act of 1940 requires all persons and firms giving investment advice to clients to register with the Securities and Exchange Commission (SEC). This includes individuals and firms who provide advice on securities, finances, and investment strategies for a fee. The registration process involves a thorough review of the adviser’s background and investment philosophy, as well as ongoing reporting requirements and periodic examinations by the SEC. The other choices (A, B, and C) are not accurate, as they do not reflect the requirements of the Investment Advisers Act of 1940.

Question 12

No more than three of the five commissioners of the Securities and Exchange Commission can be .
A) male
B) over the age of 60
C) from the same political party
D) stockbrokers

Accepted Answer

The Securities and Exchange Commission requires that no more than three of the five commissioners be from the same political party. This is to promote balance and prevent any one party from having too much influence over the commission's decisions. The other options (A) gender and (D) occupation are not relevant to the composition of the commission, and (B) age discrimination is illegal.

Question 13

The Division of supervises investigations and the initiation of injunctive actions.
A) Market Regulation
B) Corporation Finance
C) Enforcement
D) Investment Management

Accepted Answer

The Division of Enforcement is responsible for supervising investigations and the initiation of injunctive actions. The other options, Market Regulation, Corporation Finance, and Investment Management, do not have this specific responsibility.

Question 14

The Securities Act of 1933 regulates the initial offering of securities by public corporations by prohibiting an offer or sale of securities not registered with the Securities and Exchange Commission.

Accepted Answer

The Securities Act of 1933 does indeed regulate the initial offering of securities by public corporations and requires the registration of such securities with the SEC before they can be offered or sold to the public.

Question 15

The Trust Indenture Act of 1939 regulates the public issuance of in excess of $5 million.
A) commodity fixtures
B) preferred stock and other debt securities
C) bonds and other debt securities
D) stock dividends

Accepted Answer

The Trust Indenture Act of 1939 regulates the public issuance of "bonds and other debt securities" in excess of $5 million. It does not regulate commodity fixtures, preferred stock, or stock dividends.

Question 16

The Securities Act of 1933 regulates the .
A) prices on the New York Stock Exchange
B) initial offering of securities by public corporations
C) elections of boards of directors of closely held corporations
D) interest rates on bonds

Accepted Answer

The Securities Act of 1933 regulates the initial offering of securities by public corporations. It requires that companies selling securities to the public must disclose certain information about their business and financial operations in a registration statement filed with the Securities and Exchange Commission (SEC). This was enacted to prevent fraudulent activities in the sale of securities and to ensure that investors have access to accurate and timely information before investing.

Question 17

Which of the following is true of the Securities Litigation Uniform Standards Act of 1998?
A) It is a safe harbor from liability for companies that make statements to the public about future risk factors.
B) It gives the Securities and Exchange Commission cease-and-desist powers and the power to impose substantial monetary penalties in administrative proceedings.
C) It is an amendment to the Private Securities Litigation Reform Act of 1995.
D) It sets national standards for securities class action lawsuits involving nationally traded securities.

Accepted Answer

The Securities Litigation Uniform Standards Act of 1998 sets national standards for securities class action lawsuits involving nationally traded securities. It does not provide a safe harbor for companies, give new powers to the SEC, or amend the Private Securities Litigation Reform Act of 1995.

Question 18

Which of the following is true of the Division of Market Regulation?
A) Accountants, lawyers, financial officers, and underwriters all rely heavily on advice from this division.
B) This division reviews all registration statements, prospectuses, and quarterly and annual reports of corporations, as well as their proxy statements.
C) It can recommend to the full commission the suspension of an exchange for up to three years.
D) It seeks to discourage manipulation or fraud in the issuance, sale, or purchase of securities.

Accepted Answer

The Division of Market Regulation (now known as the Division of Trading and Markets) primarily focuses on maintaining fair, orderly, and efficient markets, which includes discouraging manipulation or fraud in securities transactions.

Question 19

The Private Securities Litigation Reform Act of 1995 .
A) enables private investors to sue public corporations for securities violations
B) enables the Securities and Exchange Commission to sue private corporations for securities violations
C) provides a safe harbor from liability for companies that make statements to the public about future risk factors
D) provides payment of punitive damages and attorney fees to successful plaintiffs in cases of securities litigation

Accepted Answer

The Private Securities Litigation Reform Act of 1995 provides a safe harbor from liability for companies that make statements to the public about future risk factors. This means that if a company makes a statement about a potential risk, and that risk materializes, the company may be protected from lawsuits as long as they made a good faith effort to provide accurate information to the public. The other choices are incorrect. A enables private investors to sue public corporations for securities violations, but this was already possible prior to the Act. B is incorrect because the Securities and Exchange Commission already had the power to sue private corporations for securities violations. D is incorrect because the Act limits the amount of punitive damages and attorney fees that can be awarded in securities litigation.

Question 20

Which of the following acts exempts all documents given to the Securities and Exchange Commission by foreign regulators from Freedom of Information Act disclosure requirements?
A) the Market Reform Act of 1990
B) the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
C) the Foreign Corrupt Practices Act of 1977
D) the International Securities Enforcement Cooperation Act of 1990

Accepted Answer

The International Securities Enforcement Cooperation Act of 1990 exempts all documents given to the Securities and Exchange Commission by foreign regulators from Freedom of Information Act disclosure requirements.

Quiz 23: Rules Governing the Issuance and Trading of Securities

Which of the following is true of securities?

Which of the following is true of the Securities Investor Protection Corporation (SIPC) ?

The gives the Securities and Exchange Commission cease-and-desist powers and the power to impose substantial monetary penalties in administrative proceedings.

Which of the following was established by the Securities Investor Protection Act of 1970?

Chapter 11 of the gives the Securities and Exchange Commission the authority to render advice when certain debtor corporations have filed for reorganization.

Which of the following factors resulted in the federal regulation of securities in Congress?

Which of the following acts requires all companies to set up a system of internal controls to provide reasonable assurance that the company's records accurately and fairly reflect its transactions?

The Division of is responsible for setting and administering the disclosure requirements prescribed by the 1933 and the 1934 Securities Acts, the Public Utility Holding Company Act, and the Investment Company Act.

The Market Reform Act of 1990 authorizes the Securities and Exchange Commission to regulate trading practices during .

The Public Utility Holding Company Act of 1935 requires that public utility and holding companies .

The Investment Advisers Act of 1940 requires persons and firms giving investment advice to clients to .

No more than three of the five commissioners of the Securities and Exchange Commission can be .

The Division of supervises investigations and the initiation of injunctive actions.

The Securities Act of 1933 regulates the initial offering of securities by public corporations by prohibiting an offer or sale of securities not registered with the Securities and Exchange Commission.

The Trust Indenture Act of 1939 regulates the public issuance of in excess of $5 million.

The Securities Act of 1933 regulates the .

Which of the following is true of the Securities Litigation Uniform Standards Act of 1998?

Which of the following is true of the Division of Market Regulation?

The Private Securities Litigation Reform Act of 1995 .

Which of the following acts exempts all documents given to the Securities and Exchange Commission by foreign regulators from Freedom of Information Act disclosure requirements?