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Question

Difficulty: EasyMarket Participants and Investor Classifications

Match each capital market participant or investor classification with its corresponding primary operational function or regulatory qualification threshold.

  • Qualified Institutional Buyer (QIB)An institution that owns and invests at least $100 million in securities of non-affiliated issuers under SEC Rule 144A.
  • Accredited Investor (Individual)An individual with an annual income exceeding 200,000(200,000 ( 300,000 joint) or net worth exceeding $1,000,000 excluding primary residence.
  • Broker-Dealer acting as Agent (Broker)A financial firm that matches buyers and sellers in secondary market transactions and earns a commission.
  • Depository Trust Company (DTC)A central securities depository that retains custody of securities certificates and facilitates book-entry trade settlement.

Answer

Qualified Institutional Buyer (QIB) matches with an institution that owns and invests at least 100millioninsecuritiesofnon−affiliatedissuersunderRule144A.AccreditedInvestor(Individual)matcheswithanindividualwithanannualincomeexceeding100 million in securities of non-affiliated issuers under Rule 144A. Accredited Investor (Individual) matches with an individual with an annual income exceeding 200,000 (300,000joint)ornetworthexceeding300,000 joint) or net worth exceeding 1,000,000 excluding primary residence. Broker-Dealer acting as Agent matches with a financial firm that matches buyers and sellers in secondary market transactions and earns a commission. Depository Trust Company (DTC) matches with a central securities depository that retains custody of securities certificates and facilitates book-entry trade settlement.
Each participant or classification directly aligns with its regulatory definition or core operational responsibility: QIBs meet the $100M securities threshold under Rule 144A; Accredited Investors meet Regulation D financial tests; Brokers act in an agency capacity for commissions; and DTC acts as the primary central book-entry depository.

Step-by-Step Solution

1
Identify the qualification threshold for Qualified Institutional Buyers under SEC rules.
QIB status requires an institution to own and invest at least $100 million in securities of non-affiliated issuers under SEC Rule 144A.
Establishes institutional size standards for restricted securities trading.
2
Determine the statutory financial criteria for individual Accredited Investors under Regulation D.
Individual accredited investors must have an annual income over 200,000(200,000 ( 300,000 with spouse) or a net worth over $1,000,000, excluding the primary residence.
Identifies investor protection exemptions in private offerings.
3
Distinguish between agency (broker) and principal (dealer) capacities in trade execution.
Acting in an agency capacity means bringing buyers and sellers together to execute a trade in exchange for a commission.
Clarifies functional firm roles during customer trade execution.
4
Identify the primary role of securities depositories in market infrastructure.
The Depository Trust Company (DTC) acts as the central depository, holding physical/electronic custody of securities to allow book-entry transfer.
Separates securities custody and settlement functions from clearing operations.

Key Concept

Market Participants and Investor Classifications
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Topics

Market Participants and Investor Classifications

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