Deck 32: Overview of the Securities Market: Definition, Categories, and Regulation

Question 1

Various securities regulations require registration and disclosures and prescribe certain procedures intended to give investors confidence in the value of a particular security and to prevent fraud.

Answer 1

True

Question 2

All securities offerings and transactions are subject to the full burden of the federal and state regulatory schemes.

Answer 2

False

Question 3

Issuers are those institutions and entities that sell securities to investors.

Answer 3

True

Question 4

Intermediaries are financial institutions that provide services for investors and issuers related to securities transactions.

Question 5

Stocks and bonds are the best-known types of securities that are regulated by federal law only.

Question 6

A security is any investment that involves a person giving something with an expectation of profit through the efforts of a third party.

Question 7

Equity instruments represent ownership interests whereby financial return on the investment is based primarily on the performance of the venture that issued the securities.

Question 8

An alternative form of equity that has less risk than preferred stock because it has certain quasi-debt features is common stock.

Question 9

The Securities Exchange Act of 1934 created the SEC and regulates the trading of previously issued securities primarily by setting out ground rules for the buying and selling of securities.

Question 10

The underlying premise of all securities regulation is exposure.

Question 11

As part of the Exchange Act, the President created the Securities and Exchange Commission (SEC) to be the federal administrative agency charged with rulemaking, enforcement, and adjudication of federal securities laws.

Question 12

The SEC's executive powers include the power to investigate potential violations of securities laws and regulations..

Question 13

The SEC's national clearinghouse for public corporation disclosures and filings required by federal securities laws through the SEC's computer database is known as HOOVER.

Question 14

A minority of states have adopted all or substantially all of the Uniform Securities Act.

Question 15

The risk capital test is a much more difficult standard to meet than the Howey test because it requires neither commonality nor that the profit be derived from the efforts of others.

Question 16

Issuing securities to the public markets for the first time is known as a/an __________.

A) minimum public offering
B) minor public offering
C) initial public offering
D) maximum public offering

Question 17

A company is said to "go public" when it sells its voting __________ shares for the first time to outside investors through use of public markets such as the New York Stock Exchange (NYSE).

A) common
B) uncommon
C) obligatory
D) None of the choices are correct.

Question 18

The first time sale of voting common share to outside investors is made through the use of a __________ registration statement that discloses important facts about the offering to potential investors.

A) factual
B) mandatory
C) theoretical
D) voluntary

Question 19

The federal laws, regulations, and exemptions governing the primary market are found in the Securities Act of __________.

A) 1931
B) 1932
C) 1933
D) 1934

Question 20

The secondary market is largely regulated through the Securities Exchange Act of __________.

A) 1931
B) 1932
C) 1933
D) 1934

Question 21

Investors seek a return from their investment based on the __________ of the security.

A) decline
B) improvement
C) status
D) value

Question 22

__________ investors hold securities directly or through a brokerage firm and __________ investors hold securities through pension funds and mutual funds.

A) Institutional, individual
B) Individual, nominal
C) Individual, institutional
D) Institutional, majority

Question 23

__________ are those institutions and entities that sell securities to investors.

A) Issuers
B) Buyers
C) Sellers
D) Observers

Question 24

__________ are financial institutions that provide services for investors and issuers related to securities transactions.

A) Sellers
B) Issuers
C) Intermediaries
D) None of the choices are correct.

Question 25

The most common type of __________ are brokerage firms, referred to as broker-dealers, that buy and sell securities on behalf of a client.

A) investors
B) issuers
C) intermediaries
D) state and local governments

Question 26

Suppose Jamie calls her stockbroker at Big Money Brokers and finds out that NewCo is raising capital by selling its stock to the public. She believes the stock is priced low and that she will make a profit in the future, so she orders her broker to purchase 3,000 shares. In that case, who is the investor?

A) NewCo
B) Jamie
C) Big Money Brokers
D) the stockbroker

Question 27

Suppose Jamie calls her stockbroker at Big Money Brokers and finds out that NewCo is raising capital by selling its stock to the public. She believes the stock is priced low and that she will make a profit in the future, so she orders her broker to purchase 3,000 shares. In that case, who is the issuer?

A) NewCo
B) Jamie
C) Big Money Brokers
D) the stockbroker

Question 28

State security laws are generally referred to as __________ laws.

A) green-sky
B) green-acre
C) black-acre
D) blue-sky

Question 29

__________ securities statutes define securities very broadly using a two-prong approach.

A) Federal
B) State
C) County
D) Local

Question 30

Securities statutes use a catchall definition of other __________ transactions in a more generic sense, including participation in profit-sharing agreements; collateral trust certificates; preorganization certificates or subscriptions; investment contracts; and a fractional, undivided interest in gas, oil, or other mineral rights.

A) obligatory
B) tender
C) investment
D) All of the choices are correct.

Question 31

Under the Howey test, there are __________ criteria used to determine whether something qualifies as a security.

A) two
B) three
C) four
D) six

Question 32

The United Housing case gave courts further guidance and expanded the definition of what constitutes a/an __________.

A) merchant
B) investor
C) securities offering
D) intermediary

Question 33

In Reves v. Ernst & Young, the Court adopted the __________ in order to determine whether a promissory note fell under the jurisdiction of securities laws.

A) family resemblance test
B) minimum contacts test
C) tender of promise test
D) None of the choices are correct.

Question 34

On a bond, the face amount is also called the __________.

A) principal
B) interest
C) goods
D) variable

Question 35

Payments made to common stockholders based on the profitability of the company are called __________.

A) acquisitions
B) dividends
C) prior understandings
D) None of the choices are correct.

Question 36

The federal securities laws are rooted in the stock market crash of __________ and represent one of the major reforms offered in the New Deal era.

A) 1928
B) 1929
C) 1930
D) 1931

Question 37

The Securities Act of __________ regulates the issuance of securities to public investors by requiring that companies file certain information intended to inform investors who are considering entering into a securities transaction.

A) 1931
B) 1933
C) 1934
D) 1936

Question 38

The Securities Exchange Act of 1934 created the __________ and regulates the trading of previously issued securities primarily by setting out ground rules for the buying and selling of securities.

A) Securities and Exchange Commission
B) Federal Trade Commission
C) Equal Opportunity Commission
D) None of the choices are correct.

Question 39

All securities regulation has the same rationale: to __________ investors and assure public confidence in the integrity of the securities market.

A) validate
B) initiate
C) protect
D) contemplate

Question 40

Securities laws are not meant to provide __________ for losses or to punish a venture's principals simply because the business does not earn a profit.

A) insurance
B) negotiation
C) All of the choices are correct.
D) None of the choices are correct.

Question 41

The underlying premise of all securities regulation is __________.

A) execution
B) discharge
C) possession
D) disclosure

Question 42

Securities law is primarily a matter of __________ statutes and regulations.

A) federal
B) state
C) county
D) municipal

Question 43

The issuance and trading of securities are regulated through laws that have been passed in response to various historical events in the __________ markets that have undermined public confidence in its institutions.

A) financial
B) delivery
C) merchant
D) seller

Question 44

The SEC's computer database, which maintains the national clearinghouse for public corporation disclosures, is known as __________.

A) EDGAR
B) JAMIE
C) JULIE
D) None of the choices are correct.

Question 45

Unlike many administrative agencies, the SEC is a/an __________ agency that does not have a seat in the president's cabinet and is not subject to direct control by the president.

A) independent
B) private
C) common
D) broad

Question 46

The Head of the SEC is known as __________ and is appointed by the president and subject to advice and consent approval by the Senate, compose the SEC.

A) the chairman
B) the commissioner
C) the secretary
D) the manager

Question 47

How many commissioners have been removed since the SEC was formed by Congress in 1934?

A) 0
B) 1
C) 2
D) 5

Question 48

The SEC's __________ powers include the power to investigate potential violations of securities laws and regulations.

A) legislative
B) judicial
C) executive
D) broad

Question 49

An example of an administrative enforcement mechanism the SEC maintains would be such as issuing:

A) a cease and desist order
B) tender and delivery order
C) warrant and withholding order
D) None of the choices are correct.

Question 50

The SEC's __________ authority is granted by Congress and allows the SEC to draft and publish securities regulations and interpretations of statutes, rules, and court decisions.

A) legislative
B) judicial
C) executive
D) broad

Question 51

Pursuant to its legislative powers, the SEC also issues __________ letters and no-action letters to advise the securities investment and trading community on how the SEC will treat a proposed transaction.

A) interpretative
B) issuer
C) intermediary
D) investor

Question 52

The SEC's __________ powers are primarily rooted in its role as a hearing tribunal for enforcing certain securities violations, including alleged indiscretions of brokers in their business dealings.

A) legislative
B) judicial
C) executive
D) broad

Question 53

The chairman of the SEC is one of __________ members of the President's Working Group on Financial Markets.

A) two
B) four
C) five
D) seven

Question 54

The highest-profile divisions are__________ because they are primarily responsible for investigation and enforcement action against violators.

A) Corporate Finance and Tax
B) Regulation and Corporation Finance
C) Enforcement and Corporation Finance
D) Enforcement and Regulatory Compliance

Question 55

In 1996 Congress limited the types of transactions that may be regulated by the states by passing the __________.

A) American Securities State Enforcement Act
B) National Securities States Improvement Act
C) National Securities Markets Improvement Act
D) American Securities Markets Improvement Act

Question 56

States are restricted from regulating __________ security(ies) listed on a stock exchange, mutual funds, or certain offerings that are exempt under federal securities law.

A) any
B) most
C) some
D) few

Question 57

Although a majority of states have adopted all or substantially all of the __________, some differences between state regulatory requirements still exist.

A) Multistate Securities Act
B) Uniform Securities Act
C) Comprehensive Securities Act
D) Restrictive Securities Act

Question 58

The risk __________ test addresses whether: (1) an investor's funds are subject to the risk of the business venture as a whole and (2) the investor has no control over the risks of the venture.

A) capital
B) delivery
C) analysis
D) benefit

Question 59

The risk capital test is a much easier standard to meet than the __________ test because it requires neither commonality nor that the profit be derived from the efforts of others.

A) Hover
B) Johnson
C) Howey
D) Jones

Question 60

In Bender v. Wind River Mining Project, a __________ appellate court held that "gold delivery certificates" were securities under the risk capital test.

A) West Virginia
B) Illinois
C) New York
D) California

Question 61

When the principals of a business venture wish to raise capital for its operations or expansion, one option is to turn to the securities market. How do business entities raise capital from investors via the public markets? Explain in detail

Question 62

Jamie calls her stockbroker at Big Money Brokers and finds out that NewCo is raising capital by selling its stock to the public. She believes the stock is priced low and that she will make a profit in the future, so she orders her broker to purchase 3,000 shares. Identify the parties and their specific roles in this transaction.