SIE Knowledge of Capital Markets Question 23: Answer and Explanation

Question: 23

What category of investors is defined by regulators as trading investments such as stocks and bonds without enough frequency to receive discounted fees?

• A. Ordinary
• B. Retail
• C. Accredited
• D. Institutional

Correct Answer: B

Explanation:

B: Choice B is correct because regulators make a distinction between investors who have limited experience, knowledge, and ability to sustain a large loss and those that have more experience, knowledge, and ability to sustain a large loss. Investors who do not trade frequently enough to obtain discounted fees are retail investors. Choice A is incorrect because ordinary is not a regulatory category for investors. Choice C is incorrect because, according to the SEC's Rule 501(a) of Regulation D, a firm, natural person, or two natural persons, who have adequate knowledge to investment reasonably, and have assets to sustain a loss more than a firm or person who does not meet the stated standards, is an accredited investor. Choice D is incorrect because an organization that has invested assets from other persons or firms and invests those funds on behalf of them is an institutional investor.