Introducing, Clearing, Prime

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 charges its clients an annual fee of 1% of assets for continuing portfolio advice and places no trades at all. Under which statute does it register?

A. The Securities Exchange Act of 1934, as a broker-dealer B. The Investment Advisers Act of 1940, as an adviser C. The Securities Act of 1933, as an issuer D. The Investment Company Act of 1940, as a fund

How sure are you?

Sure Fairly sure Guessing

Correct: B. The firm is paid a continuing fee for advice, not for effecting transactions, which is the line the outline draws between an adviser and a broker-dealer.

A. Exchange Act Section 15 registers firms that effect transactions for others; this firm places none.

C. The 1933 Act registers issuers' offerings, not advisory businesses.

D. The Investment Company Act governs pooled vehicles; a fee on separate accounts pools nothing.

Unit: SIE outline 1.1.4

Question 2Above the exam

A broker-dealer executes a customer's order as agent for a commission on Monday. On Tuesday, the same firm underwrites a new issue on a firm-commitment basis. If some of Tuesday's new shares go unsold, whose problem is that, and was the firm still acting as an agent?

A. The issuer's problem; the firm was still acting as agent on both days B. The underwriter's own problem; in a firm-commitment deal it bought the issue outright and resells as principal, not as agent C. Nobody's problem; unsold shares in a firm-commitment deal are simply canceled D. The issuer's problem; underwriters are never at risk under any offering structure

How sure are you?

Sure Fairly sure Guessing

Correct: B. The same firm's capacity changes trade by trade: on Monday it acted as agent, on Tuesday, in a firm-commitment underwriting, it bought the issue outright and resells as principal, so unsold shares are its own risk, not the issuer's.

A. Ignores that a firm-commitment underwriter buys and resells as principal, not as agent, and that unsold-share risk sits with the underwriter, not the issuer.

C. Invents an automatic cancellation the source never describes; the underwriter owns the unsold shares.

D. Contradicts the very risk allocation a firm-commitment deal is defined by; the underwriter can carry real risk.

Unit: SIE outline 1.1.4

Now answer