CSCP Securities Laws & Regulations 2 — Questions and Answers
Question 1: Under the Securities Exchange Act of 1934, which entity is primarily responsible for regulating securities broker-dealers?
- FINRA
- SEC (Correct answer)
- CFTC
- OCC
Correct answer: SEC
The SEC has primary regulatory authority over broker-dealers under the Securities Exchange Act of 1934, though it delegates day-to-day oversight to FINRA.
Question 2: The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created which new regulatory body?
- FINRA
- Financial Stability Oversight Council (FSOC) (Correct answer)
- OCC
- PCAOB
Correct answer: Financial Stability Oversight Council (FSOC)
Dodd-Frank created FSOC to identify and respond to systemic risks to the U.S. financial system.
Question 3: Which SEC rule requires broker-dealers to act in the best interest of retail customers when making investment recommendations?
- Rule 10b-5
- Regulation Best Interest (Reg BI) (Correct answer)
- Rule 144A
- Regulation D
Correct answer: Regulation Best Interest (Reg BI)
Regulation Best Interest, adopted in 2019, requires broker-dealers to act in the best interest of retail customers and disclose conflicts of interest.
Question 4: A company that fails to file required periodic reports with the SEC may face which consequence under the Exchange Act?
- Mandatory liquidation
- Suspension of trading in its securities (Correct answer)
- Automatic delisting from all exchanges
- Criminal prosecution of all board members
Correct answer: Suspension of trading in its securities
The SEC may issue a trading suspension of up to 10 days for companies that fail to meet reporting requirements under the Exchange Act.
Question 5: Which provision of the Sarbanes-Oxley Act requires CEOs and CFOs to personally certify the accuracy of financial statements?
- Section 302 (Correct answer)
- Section 404
- Section 806
- Section 1107
Correct answer: Section 302
Section 302 of SOX requires the principal executive and financial officers to certify the accuracy of periodic reports filed with the SEC.
Question 6: Under Regulation S-K, what is the purpose of the Management's Discussion and Analysis (MD&A) section of an SEC filing?
- To list all executive compensation details
- To provide management's perspective on financial condition and results of operations (Correct answer)
- To disclose all pending litigation
- To summarize the auditor's findings
Correct answer: To provide management's perspective on financial condition and results of operations
MD&A requires management to discuss the company's financial condition, results of operations, liquidity, and capital resources in plain English.
Question 7: The Investment Advisers Act of 1940 imposes a fiduciary duty on registered investment advisers, which means they must:
- Maximize client returns regardless of risk
- Act in the best interest of clients and disclose all material conflicts (Correct answer)
- Charge fees below a regulated maximum
- Obtain FINRA membership
Correct answer: Act in the best interest of clients and disclose all material conflicts
Investment advisers owe a fiduciary duty requiring them to act in clients' best interests and to make full and fair disclosure of all material conflicts of interest.
CSCP Securities Laws & Regulations 2
Under the Securities Exchange Act of 1934, which entity is primarily responsible for regulating securities broker-dealers?