A securities compliance analyst is conducting a training session on institutional classifications and market participant operating capacities under federal securities regulations. Which of the following statements accurately describe investor qualifications or broker-dealer execution capacities?
- An institutional entity must own and invest at least $100 million in securities of unaffiliated issuers to qualify as a Qualified Institutional Buyer (QIB) under SEC Rule 144A.Answer
- BA natural person with an individual net worth exceeding $5 million automatically meets the statutory qualification criteria to trade as a Qualified Institutional Buyer (QIB).
- A broker-dealer executing a customer order out of its own inventory acts in a principal (dealer) capacity and earns a mark-up or mark-down on the transaction.Answer
- DA firm acting in an agency (broker) capacity matches buyers and sellers in the market, trades directly against the customer from inventory, and charges a commission.
Answer
The statements correctly asserting that institutional entities require at least $100 million in unaffiliated securities to be QIBs under SEC Rule 144A, and that broker-dealers executing orders out of inventory act as principals charging a mark-up or mark-down, are correct.
The statement regarding the 100 million of unaffiliated securities. The statement describing proprietary inventory trading is also accurate because acting in a dealer capacity means trading as a principal and taking compensation via a mark-up or mark-down.
Step-by-Step Solution
Key Concept
QIB Thresholds and Broker-Dealer Capacity Rules