Other Regulators and Agencies

Beyond the SEC and SROs, several other entities play specific roles in regulating markets, protecting investors, and setting economic policy. Each has a distinct jurisdiction, and the exam tests whether you know the boundaries.

Key Regulators

The Federal Reserve and Regulation T

• The Federal Reserve sets Regulation T, which governs how much credit broker-dealers can extend to customers for purchasing securities
• Under Reg T, the initial margin requirement is 50%, meaning a customer must deposit at least half the purchase price when buying securities on margin
• Reg T sets the initial requirement; FINRA Rule 4210 sets ongoing maintenance margin requirements

Exam Tip: Gotchas

• The Federal Reserve sets initial margin (Reg T at 50%). FINRA sets maintenance margin (Rule 4210). Questions often test which regulator controls which requirement.

State Regulators and Blue-Sky Laws

• Blue-sky laws are state-level securities regulations. The name comes from early efforts to protect investors from speculative schemes with no more substance than "so many feet of blue sky"
• State regulators can:
  • Register securities offerings within their state
  • Register broker-dealers and investment advisers operating in their state
  • Investigate and take enforcement action against securities fraud
• NASAA (North American Securities Administrators Association) coordinates efforts among state regulators but is not itself a regulator

Exam Tip: Gotchas

• NASAA coordinates but does not regulate. Individual states are the actual regulators. NASAA is an association, not a government body.
• FDIC covers bank deposits only, never securities. If a question mentions a brokerage account, FDIC does not apply.

Investor Protection Organizations

SIPC - Securities Investor Protection Corporation

• SIPC protects customers of failed broker-dealers, created by the Securities Investor Protection Act of 1970 (SIPA)
• SIPC is a nonprofit membership corporation - it is not a government agency

Coverage limits:

• Each separate account capacity (individual, joint, IRA) is treated as a unique customer with its own $500,000 limit
• FINRA Rule 2266 requires broker-dealers to inform customers about SIPC coverage

What SIPC does NOT cover:

• Market losses or declines in portfolio value
• Bad investment advice or unsuitable recommendations
• Fraud (SIPC covers missing assets, not losses from fraud schemes)
• Commodity futures contracts
• Fixed annuities
• Investments held outside a broker-dealer

Exam Tip: Gotchas

SIPC protects against broker-dealer insolvency (when assets are missing because the firm failed). It does NOT protect against market losses. If a question describes a customer losing money because stock prices fell, SIPC does not apply. SIPC only applies when the broker-dealer itself fails and customer assets are missing.

FDIC - Federal Deposit Insurance Corporation

• The FDIC insures bank deposits (checking, savings, CDs, money market deposit accounts) - not securities
• Coverage: up to $250,000 per depositor, per insured bank

FDIC vs. SIPC Comparison