Quick Answer
Regulators beyond the SEC include the Federal Reserve, which sets initial margin under Regulation T; state regulators, which enforce blue-sky laws; and NASAA, which coordinates state regulators but does not enforce rules itself. SIPC and FDIC protect brokerage accounts and bank deposits from different types of failure.
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
| Entity | Role | Key Facts |
|---|---|---|
| The Federal Reserve | Central bank of the U.S. | Controls monetary policy, sets margin requirements (Regulation T), influences interest rates |
| Department of the Treasury / IRS | Tax collection and fiscal policy | Sets tax rules affecting investment returns (capital gains rates, dividend taxation, municipal bond tax exemptions) |
| State regulators | Regulate securities within state borders | Administer blue-sky laws; register securities, broker-dealers, and investment advisers operating in their state |
| NASAA | North American Securities Administrators Association | Coordinates among state regulators; does not itself have enforcement power |
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 sets ongoing maintenance margin requirements
Exam Tip: Gotchas
- The Federal Reserve sets initial margin (Reg T at 50%). FINRA sets maintenance margin. 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:
| Coverage Type | Limit |
|---|---|
| Total protection (securities + cash) | $500,000 per customer |
| Cash-only sublimit | $250,000 per customer |
- Each separate account capacity (individual, joint, IRA) is treated as a unique customer with its own $500,000 limit
- Broker-dealers must inform customers about SIPC coverage (mandatory written disclosure when accounts are opened and annually thereafter)
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
| Feature | FDIC | SIPC |
|---|---|---|
| Protects | Bank deposits | Brokerage accounts |
| Coverage limit | $250,000 per depositor | $500,000 total ($250,000 cash) |
| Protects against | Bank failure | Broker-dealer failure |
| Does NOT cover | Securities, mutual funds | Market losses, bad advice |
| Funded by | Bank premiums | Broker-dealer assessments |
| Type of organization | Federal government agency | Nonprofit membership corporation |
What Should You Check on Exam Day?
- Can you explain who sets initial margin versus who sets maintenance margin?
- Do you know what blue-sky laws are and who enforces them?
- Can you state the SIPC coverage limits for securities and cash?
- Do you know what SIPC does not cover, such as market losses?
- Can you explain the difference between what FDIC and SIPC each protect?