CIC CIC - Certified Investment Counselor Securities Law and Regulatory Compliance Questions and Answers 1 — Questions and Answers
Question 1: Under the Investment Advisers Act of 1940, an adviser with assets under management of $110 million or more must register with:
- State securities regulators
- FINRA
- The SEC (Correct answer)
- The Federal Reserve
Correct answer: The SEC
Advisers managing $110 million or more in AUM are required to register with the SEC under the Investment Advisers Act of 1940.
Question 2: SEC Form ADV Part 2 is required to be delivered to clients primarily to:
- Register the adviser with the SEC
- Provide clients with a 'brochure' disclosing the adviser's business practices, fees, and conflicts (Correct answer)
- Report quarterly portfolio holdings
- File annual financial statements with regulators
Correct answer: Provide clients with a 'brochure' disclosing the adviser's business practices, fees, and conflicts
Form ADV Part 2 (the 'brochure') discloses material information about the adviser's services, fees, conflicts of interest, and disciplinary history to clients.
Question 3: The Securities Exchange Act of 1934 primarily regulates:
- The initial issuance of securities to the public
- The trading of previously issued securities in secondary markets (Correct answer)
- The registration of investment advisers
- The creation and sale of mutual funds
Correct answer: The trading of previously issued securities in secondary markets
The Securities Exchange Act of 1934 governs secondary market trading, broker-dealers, and established the SEC.
Question 4: Rule 10b-5 under the Securities Exchange Act of 1934 prohibits:
- Charging excessive fees to clients
- Fraud, misrepresentation, and insider trading in connection with securities transactions (Correct answer)
- Short selling of securities during market declines
- Margin lending above regulatory limits
Correct answer: Fraud, misrepresentation, and insider trading in connection with securities transactions
Rule 10b-5 is the SEC's primary anti-fraud rule, prohibiting any fraudulent, deceptive, or manipulative act in connection with the purchase or sale of securities.
Question 5: Under the Investment Company Act of 1940, a mutual fund is legally classified as a:
- Registered investment adviser
- Registered investment company (Correct answer)
- Broker-dealer
- Limited partnership
Correct answer: Registered investment company
Mutual funds are registered investment companies under the Investment Company Act of 1940, subject to its regulatory requirements.
Question 6: A 'no-action letter' from the SEC staff provides:
- A binding legal ruling on securities law questions
- Staff assurance that it will not recommend enforcement action if the described activities are conducted as stated (Correct answer)
- Formal regulatory approval of a new investment product
- An exemption from registration requirements
Correct answer: Staff assurance that it will not recommend enforcement action if the described activities are conducted as stated
An SEC no-action letter represents the informal opinion of SEC staff that they would not recommend enforcement, but it is not legally binding.
CIC CIC - Certified Investment Counselor Securities Law and Regulatory Compliance Questions and Answers 1
Under the Investment Advisers Act of 1940, an adviser with assets under management of $110 million or more must register with: