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Question

Difficulty: MediumMarket Participants and Investor Classifications

Match each market participant or investor classification on the left with its defining qualifying threshold or primary operational function on the right.

  • Qualified Institutional Buyer (QIB)An institution that owns and invests on a discretionary basis at least $100 million in securities of unaffiliated issuers.
  • Accredited Investor (Individual Natural Person)An individual earning over 200,000annually(200,000 annually ( 300,000 with spouse) in each of the past two years with a reasonable expectation of the same.
  • Introducing Broker-DealerA firm that accepts customer orders but contracts with a clearing firm to execute, clear, and carry customer accounts.
  • Depository Trust Company (DTC)A central securities depository providing custody and book-entry settlement services for equity and debt securities.

Answer

Qualified Institutional Buyer (QIB) matches with owning/investing at least 100millioninsecurities;AccreditedInvestor(Individual)matcheswithearningover100 million in securities; Accredited Investor (Individual) matches with earning over 200,000 annually ($300,000 joint) in each of the past two years; Introducing Broker-Dealer matches with contracting with a clearing firm to carry accounts; Depository Trust Company (DTC) matches with central depository providing book-entry settlement services.
Each participant/investor type is accurately paired with its regulatory definition: QIB requires 100Minsecuritiesinvested;AccreditedInvestor(individualincometest)requires100M in securities invested; Accredited Investor (individual income test) requires 200k individual/$300k joint income; Introducing Broker-Dealer relies on a clearing firm for custody and settlement; and DTC functions as the central depository providing book-entry settlement.

Step-by-Step Solution

1
Identify the threshold for Qualified Institutional Buyer (QIB)
QIB status under Rule 144A requires an institutional entity to own and invest at least $100 million in securities of unaffiliated issuers on a discretionary basis.
Rule 144A governs resales of restricted securities to institutions meeting the $100 million threshold.
2
Identify the income criterion for an individual Accredited Investor
Regulation D sets individual income qualification at >200,000individuallyor>200,000 individually or > 300,000 joint income for the past two years with expectation of continuity.
This establishes financial sophistication and risk-bearing capacity under SEC regulations.
3
Distinguish between introducing and clearing broker-dealers
An introducing firm contracts out backend trade clearance, settlement, and customer funds/securities custody to a carrying clearing firm.
Introducing broker-dealers do not hold customer funds or securities directly.
4
Define the role of the Depository Trust Company (DTC)
DTC serves as the central depository responsible for immobilizing physical certificates and handling electronic book-entry ownership changes.
DTC works alongside NSCC within the DTCC clearing and settlement infrastructure.

Key Concept

Distinguishing market participant roles (Introducing BDs vs Central Depositories) and investor eligibility thresholds (Accredited Investors vs Qualified Institutional Buyers).
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Topics

Market Participants and Investor Classifications

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