Pair each market participant category with the primary regulatory threshold or functional … — FINRA SIE (Securities Industry Essentials)

Pair each market participant category with the primary regulatory threshold or functional capacity that defines it.

Accredited InvestorAn individual with an annual income exceeding $200,000 in each of the two most recent years
Qualified Institutional Buyer (QIB)An institutional entity that owns and invests at least $100 million in securities of unaffiliated issuers
Broker-Dealer acting as PrincipalA firm executing customer trades out of its own inventory while charging a mark-up or mark-down

Answer

Accredited Investor matches with an individual with annual income exceeding

200,000 for the two most recent years; Qualified Institutional Buyer (QIB) matches with an institutional entity managing at least

100 million in securities; Broker-Dealer acting as Principal matches with executing trades from inventory for a mark-up or mark-down.

Accredited Investor rules establish individual wealth standards (

200,000 annual income or

1 million net worth excluding primary residence). Rule 144A QIB rules require institutional investors to hold at least $100 million in securities. Broker-dealers acting in a principal capacity transact directly from inventory and charge mark-ups or mark-downs.

Step-by-Step Solution

Review the individual financial threshold for Accredited Investor status under Regulation D.

Accredited Investor criteria include an individual net worth over

1,000,000 (excluding primary residence) or an annual income exceeding

200,000 ($300,000 jointly) for the last two years.

This establishes eligibility for private placement offerings.

Identify the institutional threshold for Qualified Institutional Buyer (QIB) status under Rule 144A.

QIB status requires an institutional entity to own and invest at least

100 million in securities of non-affiliated issuers (or

10 million for registered broker-dealers).

This high threshold ensures the entity possesses sufficient financial sophistication to trade restricted securities.

Determine the operational capacity of a Broker-Dealer operating as a Principal.

A principal (dealer) buys and sells securities for its own inventory account and charges client mark-ups or mark-downs rather than commissions.

This distinguishes principal capacity from broker (agency) capacity, where orders are matched between clients for a commission.

Key Concept

Market Participants and Investor Classifications

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Step-by-Step Solution

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