Chapter One Practice Question Answers
1. Answer: B. A number of securities are exempted from the registration requirements of the 1933 Act. Stocks, including American Depository Receipts (ADRs), are not exempted securities. The primary exempted securities include U.S. Treasury bills, notes, and bonds, municipal securities, agency securities, and securities issued by banks and credit unions.
2. Answer: B. The Securities Act of 1933 has two main purposes: (1) to require that companies publicly disclose all relevant financial information about their securities prior to offering them for sale and (2) to prohibit fraud and deceit in the marketing of securities. The Act requires that most securities be registered with the federal government prior to their sale, but there are securities that are exempt from registration. The Act regulates how securities are issued and first sold to the public.
3. Answer: A. The Securities Exchange Act of 1934 (the Exchange Act) is a landmark law that regulates the reselling of securities—the secondary market. The Exchange Act’s mandate to regulate the secondary market covers the financial markets and market participants. The Exchange Act also established the Securities and Exchange Commission (SEC), the body primarily responsible for the creation and enforcement of securities laws. The Act also requires all broker-dealers to be registered with the SEC and to become members of the Financial Industry Regulatory Authority (FINRA). The Securities Act of 1933 regulates how securities are registered, issued, and distributed to the public for the first time.
4. Answer: D. Today all broker-dealers that do business in the securities industry must register with FINRA. FINRA is a national securities association that, like the exchanges, must register with the SEC and devise its own rules under government guidelines. FINRA establishes and interprets the rules that govern the secondary markets, and it ensures industry compliance with th