12.1 Regulatory Framework & Acts
Federal securities acts provide the statutory bedrock of the financial industry. Knowing which act created which rule or agency is heavily tested on the Series 7.
Key FINRA Exam Takeaways
- Securities Act of 1933: Regulates primary market issuance (IPOs, prospectuses).
- Securities Exchange Act of 1934: Created the SEC; regulates secondary trading, exchanges, SROs, and broker-dealers.
- Trust Indenture Act of 1939: Protects corporate bondholders (> $50M debt).
- Investment Company Act of 1940: Regulates mutual funds, closed-end funds, and UITs.
- Investment Advisers Act of 1940: Regulates investment advisers managing client portfolios for a fee (fiduciary standard).
- Insider Trading Act of 1988: Civil penalties up to 3× profits gained/losses avoided (treble damages); criminal fines up to $5M and 20 years imprisonment.
Knowledge Checkpoint • Section 12.1
Under the Insider Trading and Securities Fraud Enforcement Act of 1988, what is the maximum civil penalty that can be assessed against an individual found guilty of illegal insider trading?