A regulatory compliance officer is reviewing operational functions and investor classifications across the financial markets. Which of the following statements accurately describe these regulatory definitions and participant roles? (Select ALL that apply.)
- A broker-dealer that fills a customer order by selling securities out of its own inventory and assessing a mark-up is functioning in a dealer (principal) capacity.Answer
- BThe Depository Trust Company (DTC) serves as the automated clearinghouse primarily responsible for trade netting and clearance services for equity markets.
- An individual investor with a single or joint net worth exceeding $1,000,000, calculated by excluding the equity in their primary residence, meets the criteria for an accredited investor.Answer
- DA commercial entity owning and investing $60,000,000 in securities of unaffiliated issuers on a discretionary basis meets the asset threshold to be classified as a Qualified Institutional Buyer (QIB).
Answer
The correct statements are the one describing a broker-dealer selling from inventory as a dealer (principal) charging a mark-up, and the one identifying an individual with over $1,000,000 in net worth (excluding primary residence) as an accredited investor.
The statement regarding broker-dealer capacity accurately reflects that trading from inventory is a principal (dealer) function involving mark-ups. The statement regarding individual accredited investors accurately applies the $1,000,000 net worth threshold excluding primary residence equity under Regulation D.
Step-by-Step Solution
Key Concept
Distinguishing market participant capacities (broker vs dealer), clearing vs depository functions (NSCC vs DTC), and investor qualification thresholds (Accredited vs QIB)
Estimated Time:1m 30s