Chapter 22
Securities Regulations

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1. The major securities laws in effect today are:

a. The Securities Act of 1933, the Securities Exchange Act of 1934, and the Securities and Exchange Commission Act.
b. The Securities Act of 1933 and the Securities Exchange Act of 1934.
c. The Securities Exchange Act and the Sherman Act.
d. The Securities and Exchange Act of 1934 is the only major securities law in effect today.

2. The Securities Act of 1933 required:

a. Disclosure of financial information.
b. Less rigorous requirements for firms.
c. New issues of securities had to be registered with the Securities and Exchange Commission (SEC).
d. All of the above.

3. The Securities Exchange Act of 1934:

a. Created the SEC.
b. Regulated secondary trading markets (stock exchanges, options, and bond markets).
c. Outlawed fraud.
d. Required self-regulatory organizations to register with the SEC.
e. All of the above.

4. The Office of Internet Enforcement was established:

a. To oversee the growing securities offerings.
b. To watch over trading and fraudulent scams on the Internet.
c. To investigate alleged violations.
d. a and b.
e. None of the above.

5. Blue Sky Laws are state statutes that regulate the issuance and sale of shares of stock and other securities.

a. True
b. False

6. The National Association of Securities Dealers (NASD):

a. Regulates both the NASDAQ and the New York Stock Exchange (NYSE).
b. Is one of the SROs that the SEC oversees.
c. Licenses brokers and dealers and operates NASDAQ.
d. b and c.

7. Which of the following is not administered by the SEC?

a. Gramm-Leach-Bliley Act.
b. Investment Advisors Act.
c. Securities Investor Protection Act of 1970.
d. Foreign Corrupt Practice Act (FCPA).
e. None of the above.

8. The following information is required to be in a prospectus:

a. Audited financial statements.
b. Five years of comparative financial information.
c. A description of the security being offered.
d. a and c only.
e. All of the above.

9. A prospectus must be filed with the SEC.

a. True
b. False

10. The stages of the IPO process used for companies going public are:

a. Prefiling, preconditioning, effective, and post-effective periods.
b. Prefiling, effective, and post-effective periods.
c. Prefiling, waiting, and post-effective periods.
d. Prefiling, filing, preconditioning, and effective periods.

11. Which one of the following is not a major way for securities to be traded in the secondary markets?

a. Trades between friends, colleagues, or employer/employee.
b. Over-the-counter between employees who trade from other holdings or other individuals.
c. Organized stock exchanges with physical trading floors and facilities.
d. None of the above.

12. A security is:

a. A tangible transaction or contract requiring the party to make payments or future performances to another party.
b. Considered safe and risk-free.
c. Any note, stock, treasury stock, bond, debenture, or voting trust certificate.
d. An employee's interest in a noncontributory and compulsory pension plan.

13. The intrastate exemption allows a complete relaxation of all registration requirements under state blue-sky laws.

a. True
b. False

14. Under which SEC Rule may initial purchasers resell exempt securities?

a. Rule 155.
b. Rule 167.
c. Rule 144.
d. Rule 142.

15. Rule FD, "Fair Disclosure", was issued by the SEC to:

a. Prohibit firms from the practice of convening small groups.
b. Prevent small groups of analysts to hear earnings forecasts.
c. Prevent large groups from hearing about major corporate events like new products or joint ventures.
d. All of the above.

16. Insider trading:

a. Is not considered a form of securities fraud.
b. Does not require corporate officers, directors, or other insiders to disclose their inside information before trading.
c. Has its roots in common law fraud and the fiduciary duty of loyalty.
d. Prohibitions do not apply to any outsiders.

17. Under SEC Rule 10b-5,:

a. All management employees of a corporation are required to disclose inside information before trading or otherwise refrain from trading all together.
b. An insider's trade will be presumed to be resulting from confidential inside information even if the insider's trades are done mechanically.
c. Does not apply to temporary insiders, such as accountants and lawyers.
d. Confidential, nonpublic information can come only from sources within the firm whose shares are traded.

18. Tipping liability exists where:

a. The tip involves confidential, non-public information.
b. The tippee knew or had reason to know the tip breached a fiduciary duty.
c. The tip was made for an improper purpose.
d. All of the above.
e. None of the above.

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