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Difficulty: HardMarket Participants and Investor Classifications

Which of the following correctly pairs each capital market participant or investor classification with its corresponding regulatory threshold or primary functional role?

  • Qualified Institutional Buyer (QIB)An institution managing a discretionary portfolio of at least $100 million\$100\text{ million} in securities of non-affiliated issuers.
  • Accredited Investor (Natural Person Net Worth)An individual possessing a net worth exceeding $1,000,000\$1,000,000, excluding positive equity in a primary residence.
  • Broker-Dealer Acting in Agency CapacityA firm executing trades on behalf of customers as an agent, charging a commission while taking no principal risk.
  • Depository Trust Company (DTC)A central securities depository maintaining custody and book-entry settlement services for corporate and municipal securities.

Answer

Qualified Institutional Buyer (QIB) matches with managing a discretionary portfolio of at least $100 million\$100\text{ million} in non-affiliated securities; Accredited Investor matches with net worth exceeding $1,000,000\$1,000,000 excluding primary residence equity; Broker-Dealer in Agency Capacity matches with executing trades for clients charging commissions without principal risk; Depository Trust Company matches with central securities depository providing book-entry settlement and custody.
Each classification corresponds directly to its SEC or FINRA regulatory standard: QIBs manage at least $100 million\$100\text{ million} in non-affiliated securities; accredited individuals need net worth >$1,000,000\$1,000,000 excluding primary residence equity; agency brokers execute customer orders for commissions without inventory risk; and DTC acts as the primary securities depository for book-entry settlement.

Step-by-Step Solution

1
Analyze institutional investor eligibility under SEC Rule 144A.
Identify that Qualified Institutional Buyers (QIBs) require a minimum threshold of $100 million\$100\text{ million} in securities owned and invested on a discretionary basis.
SEC Rule 144A governs private resales of restricted securities exclusively to QIBs meeting the $100 million\$100\text{ million} portfolio benchmark.
2
Evaluate individual accredited investor net worth criteria under SEC Regulation D.
Match accredited natural person status to the standard requiring over $1,000,000\$1,000,000 in net worth excluding primary residence equity.
Federal securities regulations specifically disallow including primary residence equity when determining accredited investor net worth.
3
Differentiate agency capacity from principal capacity for broker-dealers.
Confirm that agency transactions involve acting as a broker for a commission without taking inventory positions.
Brokers act as agents for clients (charging commissions), whereas dealers act as principals (trading from inventory and charging markups/markdowns).
4
Distinguish central depository functions from clearinghouse netting operations.
Assign book-entry custody and depository servicing to the Depository Trust Company (DTC).
DTC serves as the central securities depository holding book-entry positions, while NSCC handles multilateral trade clearing and central counterparty netting.

Key Concept

Key functional roles of capital market participants and regulatory threshold standards for accredited and institutional investor classifications.
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Topics

Market Participants and Investor Classifications

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