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.

Accepted Answer

Securities regulations, such as those enforced by the U.S. Securities and Exchange Commission (SEC) and similar bodies worldwide, mandate registration and disclosure requirements for securities to protect investors and maintain market integrity, aiming to prevent fraud and ensure transparency in the valuation of securities.

Question 2

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

Accepted Answer

Not all securities offerings and transactions are subject to the full burden of federal and state regulatory schemes due to exemptions. For example, private placements under Regulation D of the Securities Act of 1933 allow certain offerings to be exempt from full registration requirements.

Question 3

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

Accepted Answer

Issuers are entities such as corporations or governments that offer securities for sale to investors to raise capital.

Question 4

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

Accepted Answer

Intermediaries, such as banks, brokers, and exchanges, facilitate transactions between investors and issuers by providing services like trading, investment advice, and access to financial markets.

Question 5

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

Accepted Answer

Stocks and bonds are indeed well-known types of securities, but they are regulated by both federal and state laws. Federal laws include regulations enforced by the Securities and Exchange Commission (SEC), while state laws, often referred to as "Blue Sky Laws," also play a crucial role in securities regulation.

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.

Accepted Answer

Securities are tradable financial assets such as stocks, bonds, and options, which involve an investment from individuals with the expectation of earning profits primarily through the efforts of others, such as companies or governments.

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.

Accepted Answer

Equity instruments, such as stocks, represent ownership interests in a company or venture. The financial return on these investments primarily depends on the performance of the issuing entity, as investors may receive dividends and can benefit from capital gains if the company's value increases.

Question 8

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

Accepted Answer

Preferred stock typically has less risk than common stock because it often has fixed dividend payments and priority over common stock in asset liquidation, whereas common stock does not have these quasi-debt features.

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.

Accepted Answer

The Securities Exchange Act of 1934 established the U.S. Securities and Exchange Commission (SEC) and introduced regulations for the trading of securities in the secondary market, focusing on transparency and fairness in transactions.

Question 10

The underlying premise of all securities regulation is exposure.

Accepted Answer

The underlying premise of all securities regulation is investor protection, ensuring that investors have access to essential information and are protected from fraud, manipulation, and abusive practices in the securities markets.

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.

Accepted Answer

The answer of As part of the Exchange Act, the...

Question 12

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

Accepted Answer

The U.S. Securities and Exchange Commission (SEC) has the authority to investigate companies and individuals for potential violations of securities laws and regulations, as part of its role in enforcing federal securities laws and protecting investors.

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.

Accepted Answer

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 EDGAR (Electronic Data Gathering, Analysis, and Retrieval system), not HOOVER.

Question 14

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

Accepted Answer

The answer of A minority of states have adopted all...

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.

Accepted Answer

The Howey Test is generally considered more challenging to meet because it requires an investment of money in a common enterprise with the expectation of profit derived from the efforts of others, which are broader criteria than those of the risk capital test. The risk capital test focuses on the risk to the investors' capital, not specifically on the efforts of others or commonality aspects.

Question 16

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

Accepted Answer

An Initial Public Offering (IPO) is the process by which a private company goes public by selling its stocks to the general public for the first time.

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).

Accepted Answer

When a company "goes public," it sells its common shares to outside investors for the first time, typically through public markets like the NYSE. Common shares usually come with voting rights.

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.

Accepted Answer

The correct choice is "mandatory" because when a company decides to go public and sell its voting common shares to outside investors for the first time, it is required by law to file a registration statement with the relevant regulatory body (such as the Securities and Exchange Commission in the United States). This registration statement is mandatory and must disclose important facts about the company and the offering to protect and inform potential investors.

Question 19

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

Accepted Answer

The Securities Act of 1933 is the correct answer because it was enacted to govern the primary market, which involves the issuance of new securities. This act requires companies to provide financial and other significant information to investors before issuing new securities, aiming to prevent fraud and deceit in the sale of securities.

Question 20

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

Accepted Answer

The Securities Exchange Act of 1934 is the primary legislation that governs the secondary market, focusing on the regulation of securities exchanges and the conduct of brokers, dealers, and listed companies.

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