Examkin

Question

Difficulty: EasyMarket Participants and Investor Classifications

Match each market participant or investor classification with its corresponding regulatory criterion or operational capacity.

  • Qualified Institutional Buyer (QIB)An entity that owns and invests at least $100 million in securities of unaffiliated issuers under SEC Rule 144A.
  • Accredited InvestorAn individual meeting specific income or net worth thresholds (e.g., $1 million net worth excluding primary residence) under Regulation D.
  • Broker-Dealer acting in a Principal CapacityA firm buying or selling securities from its own inventory account, charging a markup or markdown.
  • Depository Trust & Clearing Corporation (DTCC)A national clearing agency providing centralized clearance, settlement, and custody for securities transactions.

Answer

Qualified Institutional Buyer (QIB) matches with the $100 million investment threshold entity; Accredited Investor matches with the individual Regulation D net worth/income criterion; Broker-Dealer acting in a Principal Capacity matches with the inventory trading dealer function; Depository Trust & Clearing Corporation matches with the centralized clearance, settlement, and custody entity.
Each participant is accurately mapped to its primary legal standard or operational role in U.S. capital markets: QIBs hold a minimum $100M securities threshold under Rule 144A; Accredited Investors meet income or net worth thresholds under Regulation D; Principal capacity represents inventory trading as a dealer; DTCC provides centralized post-trade clearing and depository services.

Step-by-Step Solution

1
Identify institutional threshold classifications.
QIB refers specifically to institutions holding at least $100 million in qualifying securities under Rule 144A.
Rule 144A governs resales of private placement securities to large institutional buyers.
2
Identify individual investor threshold classifications under Regulation D.
Accredited Investor status applies to high-net-worth or high-income individuals participating in exempt private offerings.
Regulation D sets qualification standards based on financial sophistication and capability to bear risk.
3
Distinguish between agency and principal trading capacities.
A firm operating in a principal capacity acts as a dealer executing trades through its proprietary inventory.
Dealers trade for their own account, charging markups/markdowns, whereas brokers act as agents for commissions.
4
Identify post-trade market intermediaries.
DTCC is the central depository and clearing agency for U.S. capital markets.
Clearing entities ensure smooth trade comparison, risk management, and book-entry settlement.

Key Concept

Market Participants and Investor Classifications
Rate this question

Topics

Market Participants and Investor Classifications

More questions from this topic