A compliance analyst at a financial institution is reviewing several transaction logs and account application files to verify investor classifications and intermediary roles under federal securities rules. Which of the following statements accurately describe the regulatory classification or operational capacity of these market participants? (Select all that apply.)
- An insurance company managing a portfolio of $150 million in securities of non-affiliated issuers meets the definition of a Qualified Institutional Buyer (QIB) under Rule 144A.Answer
- BAn individual investor with a net worth of $5 million (excluding primary residence) qualifies as a Qualified Institutional Buyer (QIB) for Rule 144A private placement purchases.
- A broker-dealer executing a customer buy order by locating a selling third party and executing the trade without taking the position into its proprietary account is acting in an agency (broker) capacity.Answer
- DThe Depository Trust Company (DTC) serves as the central clearing counterpart that nets trades and guarantees settlement for equity secondary market transactions.
Answer
The correct statements are that an insurance company managing $150 million in non-affiliated securities qualifies as a Qualified Institutional Buyer (QIB), and that a broker-dealer matching buyers and sellers without using proprietary inventory acts in an agency capacity.
The statements regarding the insurance company's QIB qualification and the broker-dealer's agency capacity are correct. Under SEC Rule 144A, institutional entities like insurance companies qualify as QIBs when they own and invest at least $100 million in securities of issuers not affiliated with the entity. Additionally, when a firm acts as a broker (agent), it matches buyers and sellers without trading out of its own inventory and charges a commission.
Step-by-Step Solution
Key Concept
Distinction between investor classifications (QIB vs. Accredited) and functional intermediary capacities (Broker/Dealer agency vs. DTCC clearing/custody roles).