SIE Understanding Products and Their Risks Question 62: Answer and Explanation

Question: 62

In which of the following Acts was a direct participation program (DPP) described?

• A. Securities Act of 1933
• B. Securities Exchange Act of 1934
• C. Investment Company Act of 1940
• D. Investment Advisers Act of 1940

Correct Answer: A

Explanation:

A: Choice A is correct because the Securities Act of 1933 was concerned with the primary market, which includes direct participation programs, which allow pass-through to owners of the tax consequences of the program. Choice B is incorrect because the Securities Exchange Act of 1934 is focused on the secondary market, when issued securities are bought and sold away from the issuing firm. Direct Participation Programs are not as liquid as listed stocks and bonds, which were regulated by the 1934 Act, though sometimes a buyer can be found. Choice C is incorrect because the Investment Company Act of 1940 focused on the regulation of investment companies, also known as mutual funds. Choice D is incorrect because the Investment Advisers Act of 1940 regulated persons who charge for their advice regarding buying and selling investments.