A FINRA compliance officer is reviewing account documentation and transaction workflows involving various capital market participants, investor classifications, and clearing entities. Based on SEC and FINRA regulatory frameworks, which of the following statements regarding investor classifications and clearing functions are CORRECT? (Select ALL that apply.)
- Under FINRA suitability rules, an institutional investor classification includes entities such as banks, savings and loan associations, insurance companies, or registered investment advisers with total assets of at least $50 million.Cevap
- The Depository Trust Company (DTC) functions primarily as a central securities depository providing asset custody and book-entry settlement, whereas the National Securities Clearing Corporation (NSCC) serves as the central counterparty for clearing and netting trades.Cevap
- CA natural person with an individual net worth exceeding $5 million automatically qualifies as a Qualified Institutional Buyer (QIB) under SEC Rule 144A.
- DWhen a registered broker-dealer executes a customer transaction acting in an agent (broker) capacity, it trades directly from its own inventory as a principal and charges a markup or markdown.
Cevap
The correct statements are that institutional investors under FINRA rules include entities with at least $50 million in total assets, and that the DTC handles custody/settlement while the NSCC provides clearing and trade netting.
The statements defining institutional investors ($50M+ total assets for entities under FINRA rules) and distinguishing clearing functions (NSCC acting as central counterparty for clearing/netting and DTC serving as central depository for custody/book-entry settlement) are accurate reflections of SEC and FINRA standards.
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Market Participants and Investor Classifications