Rule 2 of 11 in this unit1.1.3

1.1.3 Other Regulators and Agencies

SIE outline 1.1.3

The SEC Cannot Approve a Security

Securities Act Section 23: filing or effectiveness of a registration statement is not a finding by the Commission that it is accurate, and does not mean the Commission has passed upon the merits of, or given approval to, the security. The section's last sentence makes the contrary representation unlawful. NOT 'the SEC reviewed it, so it cleared the offering as sound.' There is no merit review, and telling a prospective purchaser there was one is itself unlawful.

The method for this kind of question
  1. 1h45m ÷ 80 items = 78.75 seconds per item. A regulator item should cost you 30.
  2. Four cells decide these: what it regulates, what it cannot do, its statute, its number.
  3. “The SEC approved” is always wrong: Securities Act Section 23 makes the claim unlawful.
  4. MSRB + the word enforcement = the writer-versus-enforcer split. MSRB writes; FINRA enforces.
  5. Regulation T is the Fed's rule: 12 CFR Part 220, 50% floor at §220.12(a): never FINRA's.
  6. Firm failed → SIPC ($500,000 / $250,000 cash). Bank failed → FDIC ($250,000). Neither pays for a price drop.
  7. Next: SIE Practice Quiz #4: Capital Markets Mixed Set, weighted like the real exam.

Now answer

2 questions on this screen, from this outline item's own pool, so some will test a rule you met earlier in the unit. Pick an answer, say how sure you are, then reveal. Being sure and wrong is the most useful thing that can happen here, and the coach treats it that way.

Question 1Exam level

Regulation T is issued by which body?

How sure are you?

Correct: C. Regulation T, 12 CFR Part 220, is issued by the Federal Reserve's Board of Governors.
A. FINRA polices firm conduct once credit is already in play; it does not write Regulation T.
B. The SEC administers disclosure and registration, not margin credit rules.
D. The Treasury handles tax treatment and Treasury debt, not margin credit.

Unit: SIE outline 1.1.3

Question 2Above the exam

A broker tells a customer: "The SEC approved this stock, and if it drops in value your SIPC coverage will reimburse you for the loss." How many separate false claims does that sentence make, and what is each?

How sure are you?

Correct: B. Securities Act Section 23 makes the "SEC approved" claim false and unlawful to state, and SIPC's own coverage terms exclude a decline in the value of securities; the sentence contains two separate, independently false claims.
A. Undercounts the false claims; the SEC-approval statement is also false.
C. Both halves of the sentence are false under their respective sources.
D. Reverses which half is false; the SEC does not approve securities, and that error is the one it dismisses.

Unit: SIE outline 1.1.3

Next ruleMSRB Writes It, FINRA Enforces It

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