Question 1

Which of the following is true of the Dodd-Frank Act with regard to regulating executive compensation?

Accepted Answer

The answer of Which of the following is true of...

Question 2

The Regulation Fair Disclosure (FD) required companies to ________.

Accepted Answer

The Regulation Fair Disclosure (FD) required companies to publicize all potentially market-moving data at the time the data become available. This was done in order to prevent selective disclosure of market-moving information to a privileged group of analysts or investors.

Question 3

Which of the following is true of a red herring prospectus?

Accepted Answer

A red herring prospectus can be distributed to potential buyers during the waiting period, which is the time between the SEC's receipt of the registration statement and the effective date of the registration statement. However, no sales can be finalized during this period. The purpose of the red herring prospectus is to provide potential investors with information about the offering before the registration statement is declared effective, so they can make an informed investment decision once the offering becomes available for sale.

Question 4

Which of the following is true of the Sarbanes-Oxley Act of 2002?

Accepted Answer

The answer of Which of the following is true of...

Question 5

Amendments to the Securities Exchange Act in 1975 required any exchange or over-the-counter market to ________.

Accepted Answer

The amendments required any exchange or over-the-counter market to obtain advance approval from the Securities and Exchange Commission prior to any rule changes.

Question 6

Which of the following is true of the Dodd-Frank Act with regard to derivatives?

Accepted Answer

The Dodd-Frank Act allows banks to continue trading derivatives in-house, particularly those based on interest rates and foreign exchanges, and for purposes of hedging risk. This provision was included to help banks manage their risk exposure while still imposing regulations on the derivatives market.

Question 7

Which of the following is a difference between an exchange market and an over-the-counter (OTC) market?

Accepted Answer

The key difference between an exchange market and an OTC market is that an exchange market provides a physical facility for the buying and selling of securities, whereas an OTC market has no physical facility. In an exchange market, buyers and sellers physically come to the exchange (or to a computer screen in a virtual exchange) to trade securities, whereas in an OTC market, securities are traded directly between buyers and sellers through a network of dealers or brokers, without a central exchange. The other options are incorrect because they are either unrelated to the difference between exchange and OTC markets or are incorrect statements about how these markets actually operate.

Question 8

Which of the following is a characteristic of the Public Company Accounting Oversight Board?

Accepted Answer

The Public Company Accounting Oversight Board is funded by publicly held companies that are overseen by the Securities and Exchange Commission. This funding is used to carry out the board's responsibilities of overseeing and regulating public accounting firms. Therefore, option D is the correct characteristic. Option A is incorrect as the board only regulates public accounting firms and not all financial service providers. Option B is incorrect as the board consists of five members, not six, and they have regulatory and disciplinary power, but not legislative power. Option C is incorrect as the board is required to have at least two members who are not associated with public accounting firms.

Question 9

Shelf registration under the Securities and Exchange Commission's Rule 415 allows ________.

Accepted Answer

Shelf registration allows a company to register securities, but sell them over a period of time rather than immediately. This can provide flexibility in timing and allow the company to take advantage of market conditions.

Question 10

The Securities Exchange Act of 1934 regulates the ________.

Accepted Answer

The Securities Exchange Act of 1934 primarily regulates the actions of brokers and dealers who trade in securities. It established the Securities and Exchange Commission (SEC) as the main regulatory body to oversee the securities industry and enforce federal securities laws. The act also requires companies that issue securities to disclose financial and other information to the public. B, C, and D are incorrect as they are not primarily regulated by the Securities Exchange Act of 1934.

Question 11

According to the Dodd-Frank legislation, Federal Deposit Insurance Corporation-insured institutions are allowed to have only ________ of their capital invested in hedge funds and private equity funds.

Accepted Answer

The Dodd-Frank Act, specifically the Volcker Rule, limits FDIC-insured institutions to investing no more than 3 percent of their capital in hedge funds and private equity funds.

Question 12

Which of the following is true of the Dodd-Frank legislation?

Accepted Answer

The Dodd-Frank legislation requires originators of mortgage securities to hold at least 5 percent of the credit risk involved, thereby ensuring that they have a vested interest in the performance of these securities. This was done to discourage the type of reckless lending that led to the financial crisis of 2008. None of the other options are correct. Option A is incorrect because Dodd-Frank prohibits FDIC-insured institutions from investing in hedge funds and private equity funds, but it does not require them to keep their interests in these funds. Option B is incorrect because investment banks are not required to set aside reserves to cover all forms of expenditure under Dodd-Frank. Option D is incorrect because Dodd-Frank prohibits banks from engaging in proprietary trading and buying or selling from their own accounts to hedge against other investments.

Question 13

The Securities and Exchange Commission recognizes an issuer that has reported continuously under the 1934 Securities Exchange Act for at least three years as a(n) ________.

Accepted Answer

The answer of The Securities and Exchange Commission recognizes an...

Question 14

The maximum penalty for securities fraud under the Sarbanes-Oxley Act is ________ in prison.

Accepted Answer

The Sarbanes-Oxley Act, enacted in 2002 in response to major corporate and accounting scandals, increased penalties for securities fraud, setting the maximum penalty at 25 years in prison.

Question 15

David, the CEO of a bank in the U.S., has been embezzling money from the bank's clients. In order to avoid being caught, David destroyed all the financial records. Due to these actions, David can be prosecuted under the ________.

Accepted Answer

The Sarbanes-Oxley Act of 2002 was introduced in response to financial scandals (such as Enron) where financial records were destroyed or falsified. It includes provisions for criminal penalties for executives who willfully destroy or falsify records. Therefore, David can be prosecuted under this act for destroying the financial records to hide his embezzlement.

Question 16

Under the Securities Act of 1933, ________ allows the Securities and Exchange Commission to exempt offerings not exceeding $5 million.

Accepted Answer

Section 3(b) of the Securities Act of 1933, also known as the "Regulation A+" exemption, allows the Securities and Exchange Commission to exempt offerings not exceeding $5 million within a 12-month period. This exemption is often used by small businesses and startups to raise capital without having to go through the full registration process required by larger offerings.

Question 17

Which of the following is true of registration of securities under the Securities Act of 1933?

Accepted Answer

The registration statement provides the use to be made of the funds garnered by a public offering of stock and the risks involved for investors. This is required by the Securities Act of 1933. Choices A, B, and D are incorrect. The act does not authorize the SEC to decide whether or not a public offering of stock is meritorious and pending lawsuits should be included in the prospectus. Part II of a registration statement is open for public inspection at the SEC.

Question 18

The Securities and Exchange Commission recognizes an issuer that is permitted to use Form S-03, thus disclosing even less detail in the 1933 Act registration, as a(n) ________.

Accepted Answer

Seasoned issuers are those with a sufficient track record of reporting under the Securities Exchange Act of 1934, allowing them to use simplified registration forms like Form S-3, which requires less detail than forms for newer issuers.

Question 19

The ________ regulates the trading in securities once they are issued.

Accepted Answer

The Securities Exchange Act of 1934 regulates the trading of securities once they are issued, including the operation of securities exchanges, brokers, and dealers. The Trust Indenture Act of 1939 regulates bond issues, the Securities Act of 1933 regulates the initial offering of securities, and the Investment Company Act of 1940 regulates investment companies.

Question 20

During the posteffective period, the registration statement usually becomes effective ________ after it is filed.

Accepted Answer

The registration statement usually becomes effective 20 days after it is filed, allowing the securities to be sold to the public after this period.

Quiz 23: Rules Governing the Issuance and Trading of Securities