Question 1

The underlying premise of all securities regulation is __________.

Accepted Answer

The underlying premise of all securities regulation is disclosure. This principle mandates that companies must provide potential investors with all material information about securities being offered for sale, so that investors can make informed decisions.

Question 2

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

Accepted Answer

Securities law is primarily governed by federal statutes and regulations, such as the Securities Act of 1933 and the Securities Exchange Act of 1934, which are enforced by the Securities and Exchange Commission (SEC).

Question 3

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.

Accepted Answer

The correct answer is "financial" because the issuance and trading of securities are activities that occur within financial markets. These markets are regulated through laws to maintain public confidence, especially in response to historical events that may have caused distrust or instability.

Question 4

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

Accepted Answer

EDGAR, which stands for Electronic Data Gathering, Analysis, and Retrieval system, is the SEC's computer database for maintaining a national clearinghouse for the submission of public corporation disclosures.

Question 5

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.

Accepted Answer

The SEC (Securities and Exchange Commission) is an independent agency, meaning it operates independently of the executive branch and is not directly controlled by the president. This allows it to regulate securities markets with a degree of autonomy from political influence.

Question 6

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.

Accepted Answer

The Head of the Securities and Exchange Commission (SEC) is known as the chairman. This position is appointed by the President of the United States and requires confirmation by the Senate.

Question 7

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

Accepted Answer

Since its formation in 1934, no commissioner of the SEC has been removed.

Question 8

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

Accepted Answer

The SEC (Securities and Exchange Commission) is primarily an executive agency, which means its powers include executing and enforcing laws, such as those related to securities and financial markets. Investigating potential violations is part of its enforcement (executive) role.

Question 9

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

Accepted Answer

The SEC (Securities and Exchange Commission) has the authority to issue a cease and desist order as an administrative enforcement mechanism to prevent further violations of securities laws.

Question 10

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.

Accepted Answer

The SEC's legislative authority is granted by Congress, allowing it to draft and publish regulations and interpretations related to securities laws.

Question 11

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.

Accepted Answer

Interpretative letters and no-action letters are tools used by the SEC to provide guidance to the securities investment and trading community. Interpretative letters explain how the SEC interprets or applies its rules to specific situations, offering clarity on regulatory requirements.

Question 12

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.

Accepted Answer

The SEC (Securities and Exchange Commission) acts in a capacity similar to a judicial body when it enforces securities violations, including overseeing the conduct of brokers, which aligns with the description of its "judicial" powers.

Question 13

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

Accepted Answer

The chairman of the SEC is one of four members of the President's Working Group on Financial Markets. This group also includes the Secretary of the Treasury, the Chairman of the Federal Reserve, and the Chairman of the Commodity Futures Trading Commission.

Question 14

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

Accepted Answer

The Enforcement and Corporation Finance divisions are typically the highest-profile because they handle investigation and enforcement actions against violators, as well as oversee corporate financial disclosures.

Question 15

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

Accepted Answer

In 1996, Congress passed the National Securities Markets Improvement Act (NSMIA), which aimed to streamline securities regulation by allocating more regulatory authority to the federal government, thus limiting the types of transactions states could regulate.

Question 16

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

Accepted Answer

States are restricted from regulating any securities listed on a stock exchange, mutual funds, or certain offerings that are exempt under federal securities law due to the preemption by federal securities laws, such as the Securities Act of 1933 and the Securities Exchange Act of 1934.

Question 17

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

Accepted Answer

The Uniform Securities Act is the model act that has been adopted in whole or in part by many states in the United States to guide their regulation of securities. It aims to standardize the state-level regulation of securities to protect investors from fraud, while still allowing for some differences between states.

Question 18

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.

Accepted Answer

The correct term is "capital risk test," which evaluates if an investor's funds are at risk in the business venture and if the investor lacks control over the venture's risks.

Question 19

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.

Accepted Answer

The correct answer is the Howey test. The Howey test is a standard derived from a Supreme Court case for determining whether a transaction qualifies as an "investment contract," and thus a security under federal law. It requires an investment of money in a common enterprise with an expectation of profits predominantly from the efforts of others. The risk capital test, by contrast, focuses on the risk to the capital invested, without necessarily requiring commonality or the effort of others for profit generation, making it a less stringent standard.

Question 20

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

Accepted Answer

The correct answer is California because the risk capital test is a legal standard used in California to determine whether an investment qualifies as a security.

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