Chapter 11 Answers and Explanations
1. C – Broker-dealers, agents, and the exchanges. The Securities Exchange Act of 1934 was designed to regulate individuals selling securities on behalf of broker-dealers, the broker-dealers themselves, and the exchanges the trades take place on. Issuers of securities are primarily regulated under the Securities Act of 1933. Investment companies are primarily regulated under the Investment Company Act of 1940. Investment advisers are primarily regulated under the Investment Advisers Act of 1940.
2. A – Broker-dealer charging a fee for investment advice. Broker-dealers are regulated under the Securities Exchange Act of 1934 and are exempt under the Investment Advisers Act as long as they do not charge a fee for giving investment advice that is incidental to the provision of their commission- or markup-based services. Publishers, lawyers, teachers, and engineers are all exempt if their advice is incidental to their primary job description.
3. D – They buy and sell securities. Whether an adviser must register under the Investment Advisers Act of 1940 comes down to whether or not someone answers yes to all three of the following questions.
- • Do they provide investment advice? First and foremost, does someone give advice relating to the purchase, sale, or management of investments?
- • Are they actually in the business of providing advice? Incidental advice, given in the course of offering other non-investment advice, does not require someone to register. The act specifically notes that lawyer