Rule 4 of 11 in this unit1.1.3

1.1.3 Other Regulators and Agencies

SIE outline 1.1.3

Regulation T Belongs to the Fed

Regulation T: 12 CFR Part 220, “Credit by Brokers and Dealers”: is issued by the Board of Governors of the Federal Reserve System, not by FINRA and not by the SEC. 12 CFR 220.12(a) sets required margin at 50% of current market value “or the percentage set by the regulatory authority where the trade occurs, whichever is greater”: so 50% is a floor. NOT 'FINRA sets margin requirements', and NOT 'Reg T is always exactly 50%'. The Board of Governors writes it, and §220.12(a) makes 50% the floor: a higher percentage set where the trade occurs wins. The arithmetic gets its own lesson.

The trick

Common trap: FINRA or the SEC wrote Regulation T. Correct: The Federal Reserve Board of Governors wrote it. Subject and author are not the same clue.

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

A firm fails holding $150,000 cash and $600,000 in securities for one customer. How much does SIPC pay?

How sure are you?

Correct: D. $500,000. The cash ($150,000) is under the $250,000 cash sub-limit, so it counts in full. Add the securities and the claim reaches $750,000, but the $500,000 overall cap binds first.
A. Tempts you into simply adding the two figures. SIPC caps the total at $500,000 regardless of how the $750,000 splits.
B. Pays only the cash portion, as if securities weren't covered at all. Both cash and securities count toward the same $500,000 cap.
C. Pays only the securities and drops the cash entirely. The cash is protected too, it just doesn't push the total past the cap.

Unit: SIE outline 1.1.3

Question 2Above the exam

A customer holds a $250,000 CD directly with a bank, and separately holds $400,000 in securities in a brokerage account at that bank's broker-dealer affiliate. The broker-dealer affiliate fails financially. The bank itself does not fail. What happens to the two holdings?

How sure are you?

Correct: A. The bank and the broker-dealer are legally separate entities. The bank did not fail, so the CD is unaffected; the brokerage failed, so SIPC applies to the $400,000 in securities, within its $500,000 cap.
B. SIPC only ever covers custody at a failed brokerage. A shared brand name does not extend SIPC's reach to a bank deposit.
C. The FDIC's excluded list names securities directly, and that exclusion does not change because the broker-dealer shares a parent with an FDIC bank.
D. FDIC insurance attaches to the deposit at the bank, not to the fortunes of an affiliated company. One entity's failure does not reach into the other's coverage.

Unit: SIE outline 1.1.3

Next ruleFINRA Rule 2266: Your SIPC Notice

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