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Difficulty: Very hardMarket Participants and Investor Classifications

Match each market participant category or investor classification with its precise regulatory threshold or operational mandate.

  • Qualified Institutional Buyer (QIB)An entity acting on a discretionary basis that owns and invests at least $100 million in securities of unaffiliated issuers.
  • Accredited Investor (Natural Person)An individual maintaining a net worth exceeding 1million(excludingprimaryresidenceequity)orsingleincomeover1 million (excluding primary residence equity) or single income over 200,000 ($300,000 joint) in the two most recent years.
  • Carrying (Clearing) Broker-DealerA self-clearing financial entity that maintains custody of customer funds and securities while clearing trades directly through depositories.
  • Prime BrokerA specialized broker-dealer providing centralized trade clearance, securities lending, and margin financing to institutional clients executing trades across multiple executing firms.

Answer

Qualified Institutional Buyer (QIB) matches the entity owning/investing at least $100 million in securities; Accredited Investor matches the natural person meeting the income or net worth test; Carrying Broker-Dealer matches the entity maintaining customer custody and trade settlement; Prime Broker matches the entity offering centralized clearing and margin services across multiple executing brokers.
Each classification aligns precisely with SEC regulatory definitions: QIB requires $100M in securities owned/invested; Accredited natural persons require specific income or net worth hurdles; carrying broker-dealers handle direct customer custody; prime brokers aggregate multi-firm trade clearing, financing, and custody.

Step-by-Step Solution

1
Analyze institutional investor asset thresholds.
Identify that the $100 million discretionary securities threshold defines a Qualified Institutional Buyer under Rule 144A.
Rule 144A strictly requires institutional status and the $100 million investment threshold for non-bank entities.
2
Analyze individual investor wealth and income thresholds.
Identify that 1millionnetworth(excludingprimaryresidenceequity)or1 million net worth (excluding primary residence equity) or 200k/$300k income defines a natural person Accredited Investor under Regulation D.
Regulation D sets specific financial suitability criteria to allow participation in unregistered private placements.
3
Distinguish between carrying clearing duties and prime brokerage services.
Identify that carrying broker-dealers hold customer cash and securities directly, while prime brokers consolidate client clearing, leverage, and securities lending across external executing firms.
Institutional hedge funds utilize prime brokers to aggregate operations across distinct executing broker-dealers.

Key Concept

Market Participants and Investor Classifications
Estimated Time:2m 0s
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Market Participants and Investor Classifications

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