SIE Knowledge of Capital Markets Question 18: Answer and Explanation

Question: 18

Which is a true statement regarding the Securities Investor Protection Act of 1970 (SIPA)?

• A. It required filing a prospectus with the SEC.
• B. It encouraged investors to consider enhancing their returns by investing more in options and futures.
• C. It created the Securities Investor Protection Corporation including a Board of Directors, some of whom are appointed by the President.
• D. It added a guarantee that an investor's stock value would not fall more than twenty percent in a given trading day.

Correct Answer: C

Explanation:

C: Choice C is correct. Five out of the seven directors are appointed by the President. They must also be approved by the Senate. One is appointed by the Secretary of the Treasury. One is appointed by the Federal Reserve Board. Choice A is incorrect because prospectus filing is required by the Securities Act of 1933, not the SIPA. Choice B is incorrect because it was re-establishing the willingness of investors to buy securities by protecting them, with limits, from bankruptcy of their broker-dealer. Choice D is incorrect because it did not guarantee against loss of market value.