SIE Exam Chapter 2 Overview of Regulation

Regulation (4 Tiers)

• Federal Laws

• State Laws

• Self-Regulatory Organization (SRO)

• Firm - Specific (In-House) policies and procedures

Federal Regulation

Broker Dealers

• All of their capital, sales, trading, and operations activities are regulated

• Primary regulation comes from Laws (Acts) that are passed by Congress

• Enforced by SEC which is part of US Federal Government

Securities and Exchange Commission (SEC)

• An independent federal agency that protects investors, ensures fair and orderly markets, and facilitates capital formation in the primary market

Federal Regulators

• SEC

• Department of Tresury

• IRS

• The Federal Reserve Board (FRB) “the fed”

• The Federal Deposit Insurance Corporation (FDIC)

Department of Treasury

A federal agency responsible for managing the nation’s finances, including collecting taxes, paying bills, and issuing debt. It also oversees financial institutions and enforces economic sanctions.

IRS

A federal agency that administers tax laws, collects taxes, and enforces tax regulations.

Federal Reserve Board (FRB)

The central bank of the U.S., responsible for setting monetary policy, regulating banks, and maintaining economic stability.

FDIC (Federal Deposit Insurance Corporation)

A federal agency that insures bank deposits up to a certain limit, ensuring consumer confidence and protecting depositors if a bank fails.

SRO Regulation

Private organizations, like FINRA and NYSE, that set and enforce rules for their members in the securities industry, helping maintain market integrity and protect investors.

State (Blue Sky) Regulation

State laws that protect investors by regulating the sale of securities within each state to prevent fraud and ensure transparency.

North American Securities Administrators Association (NASAA)

An organization of state securities regulators that promotes uniformity in state laws and protects investors through collaboration and education.

Firm (In House) Rules

Rules set by a securities firm to govern the behavior of its employees and ensure compliance with regulations and ethical standards.

The Securities Act of 1933

The first major federal law regulating the securities industry, focusing on new issues of securities. It requires full disclosure of relevant information and includes antifraud provisions to protect investors.

The Securities Act of 1934

regulates broker-dealers and secondary market securities transactions.

The Maloney Act of 1938

Allowed self-regulation of securities industry through trade associations such as the National Association of Securities Dealers (NASD)

The Investment Company Act 1940

Regulates investment companies, such as mutual funds.

The Investment Advisers Act of 1940

focuses on people and organizations that seek to provide financial advice to investors and defines "investment adviser"

The Securities Investor Protection Act of 1970 (SIPA)

to protect clients of brokerage firms that are forced into bankruptcy. (up to 500,000 of cash and securities, of which no more than 250,000 may be in cash)

The Employee Retirement Income Security Act of 1974 (ERISA)

regulates private sector pensions and retirement plans.

The Insider Trading and Securities Fraud Enforcement Act of 1988

established criminal penalties to include fines as high as 5 million and or/up to 20 years imprisonment.

Insider Trading

the illegal trading of a company's stock by people using confidential company information

The Penny Stock Reform Act of 1990

Regulates the solicited sales of penny stocks (stocks under $5 per share) and establishes disclosure rules to protect investors.

The Federal Telephone Consumer Protection Act of 1991

any person with a profit motive who calls prospects must maintain a Do Not Call List (solicitation calls may only be called 8am-9pm)

The USA Patriot Act of 2001

to strengthen measures to prevent, detect and prosecute international money laundering and financing of terrorism.

Financial Industry Regulatory Authority (FINRA)

Self imposed regulation agency of NYSE NASDAQ and CFTC

Municipal Securities Rulemaking Board (MSRB)

A self-regulatory organization that regulates municipal securities issuance and trading under SEC supervision, but it has no enforcement powers.