14.E: Assessment Questions

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Explain a laissez-faire economic policy.

Answer: Laissez faire, as popularized by Scottish economist Adam Smith and British philosopher Herbert Spencer, describes an economic philosophy that markets function best when left to their own devices, i.e., without, or with minimal, government involvement or regulations.

The following are examples of self-regulatory organizations that the SEC oversees:
1. The New York Stock Exchange.
2. The National Association of Securities Dealers.
3. The Chicago Board of Options.
4. All of the above.
Which types of companies must register with the SEC?
1. Companies with over $500$ or more owners.
2. Companies with total assets of $\$10$ million.
3. Companies with total assets exceeding $\$10$ million and with $500$ or more owners.
4. None of the above.

Answer: c

Explain Blue Sky laws.
Distinguish between primary markets and secondary markets.

Answer: The Securities Exchange Act of 1934 governs secondary markets, or what is typically referred to as the “stock market.” In contrast to the primary market, which involves the initial sale of a security, such as through an initial public offering (IPO), secondary markets involve subsequent buyers and sellers of securities. One key difference is that primary market prices are set in advance, while secondary market prices are subject to constantly changing market valuations, as determined by supply and demand and investor expectations.

Define insider trading.
All of the following are considered reports required by the Securities Exchange Act of 1934 except:
1. Form 8k.
2. Form 10 k.
3. Form 10Q.
4. All of the above.

Answer: d

Corporate insiders include officers, directors, and beneficial owners who own _____ $\%$ of a class of securities registered under Section 12 of the Securities Exchange Act of 1934.
1. $5$
2. $10$
3. $15$
4. $20$
Explain Schedule 13D.

Answer: In 1968, the Williams Act amended the Securities Exchange Act of 1934 so that investors could have advance warning of possible corporate takeovers. If someone (individual/corporation) becomes the beneficial owner of more than $5\%$ of a company’s stock, that entity must file a Schedule 13D with the SEC within $10$ days of purchase. A beneficial owner is anyone with “voting and investment power over their shares.” There are a few exceptions that apply, such as qualified institutional investors—large investors who are deemed to have sophisticated knowledge of securities such that they do not need the same level of protection as general investors. Insurance companies, state employee benefits plans, and investment companies are examples of qualified institutional investors who are allowed to report their holdings at the end of the calendar year.

What’s the purpose of Proxy Statements?

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