STC Series 7 - Chapter 1 (Introduction
to the Securities Industry) Exam With
100% Correct Answers
Two types of capital markets: - CORRECT ANSWER✔✔1. Primary market
2. Secondary market
Primary Market - CORRECT ANSWER✔✔- Covers the sale of securities by issuers to investors
- The corporation is trying to sell its securities directly to investors in the form of stocks and
bonds
- Concerned with full and fair disclosure
- Investors are provided with the information they need to make informed investment decisions
- Provides rules for issuers and investment bankers who are hired by the investors
- E.g. IPOs, weekly auction of T-Bills by gov't
Securities Act of 1933 - CORRECT ANSWER✔✔The first federal regulation covering the securities
industry, mainly the primary market
Securities Exchange Act of 1934 - CORRECT ANSWER✔✔- Covers the secondary market where
investors trade amongst themselves
- E.g. NYSE and NASDAQ
- Created the SEC
- Gives power to the Federal Reserve Board by allowing them to oversee the extension of credit
in the securities industry
, Self Regulatory Organizations (SROs) - CORRECT ANSWER✔✔- Set own rules and regulations for
its own members (but within the framework of federal law and SEC)
- Responsible for maintaining fair and orderly securities markets, promoting best execution and
fair treatment of clients, and establishing rules and regulations that protect investors
Maloney Act of 1938 - CORRECT ANSWER✔✔- Enabled the creation of non exchanges
- Enabled the creation of the Municipal Securities Rulemaking Board (MSRB)
FINRA - CORRECT ANSWER✔✔- A merger in 2007between the regulation and enforcement
functions of NYSE and NASD
NASD - CORRECT ANSWER✔✔- Created in 1939 to act as a self regulatory organization for OTC
markets and NASDAQ stock market
- A SRO of the securities industry
- Also administrates exams for investment professionals (Series exams)
Trust Indenture Act of 1939 - CORRECT ANSWER✔✔- Gives bond investors more security
- Requires and agreement between the issuing corporation and a trustee (who would act for the
owners of the bonds just incase the company is liquidated)
Investment Company Act of 1940 - CORRECT ANSWER✔✔- Covers companies that are formed
to pool investors' money and invest that money in securities (such as Mutual Funds)
Investment Advisers Act of 1940 - CORRECT ANSWER✔✔- To regulate firms that sell their
investment advice for a fee.
- As a result, Mutual Funds must register with the SEC as an Investment Company and the firm
managing the assets of the mutual fund would need to register as an Investment Adviser.
- Exempts professionals who's investment advice is incidental to their profession.
- E.g. of investment advisers: portfolio managers of mutual funds, managers of wrap accounts
to the Securities Industry) Exam With
100% Correct Answers
Two types of capital markets: - CORRECT ANSWER✔✔1. Primary market
2. Secondary market
Primary Market - CORRECT ANSWER✔✔- Covers the sale of securities by issuers to investors
- The corporation is trying to sell its securities directly to investors in the form of stocks and
bonds
- Concerned with full and fair disclosure
- Investors are provided with the information they need to make informed investment decisions
- Provides rules for issuers and investment bankers who are hired by the investors
- E.g. IPOs, weekly auction of T-Bills by gov't
Securities Act of 1933 - CORRECT ANSWER✔✔The first federal regulation covering the securities
industry, mainly the primary market
Securities Exchange Act of 1934 - CORRECT ANSWER✔✔- Covers the secondary market where
investors trade amongst themselves
- E.g. NYSE and NASDAQ
- Created the SEC
- Gives power to the Federal Reserve Board by allowing them to oversee the extension of credit
in the securities industry
, Self Regulatory Organizations (SROs) - CORRECT ANSWER✔✔- Set own rules and regulations for
its own members (but within the framework of federal law and SEC)
- Responsible for maintaining fair and orderly securities markets, promoting best execution and
fair treatment of clients, and establishing rules and regulations that protect investors
Maloney Act of 1938 - CORRECT ANSWER✔✔- Enabled the creation of non exchanges
- Enabled the creation of the Municipal Securities Rulemaking Board (MSRB)
FINRA - CORRECT ANSWER✔✔- A merger in 2007between the regulation and enforcement
functions of NYSE and NASD
NASD - CORRECT ANSWER✔✔- Created in 1939 to act as a self regulatory organization for OTC
markets and NASDAQ stock market
- A SRO of the securities industry
- Also administrates exams for investment professionals (Series exams)
Trust Indenture Act of 1939 - CORRECT ANSWER✔✔- Gives bond investors more security
- Requires and agreement between the issuing corporation and a trustee (who would act for the
owners of the bonds just incase the company is liquidated)
Investment Company Act of 1940 - CORRECT ANSWER✔✔- Covers companies that are formed
to pool investors' money and invest that money in securities (such as Mutual Funds)
Investment Advisers Act of 1940 - CORRECT ANSWER✔✔- To regulate firms that sell their
investment advice for a fee.
- As a result, Mutual Funds must register with the SEC as an Investment Company and the firm
managing the assets of the mutual fund would need to register as an Investment Adviser.
- Exempts professionals who's investment advice is incidental to their profession.
- E.g. of investment advisers: portfolio managers of mutual funds, managers of wrap accounts
