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4) Maloney Act (1938)- meant to increase practice of self-regulationA) Established that members who voluntarily joined self-regulated associations would receive preferential business advantages.B) Forced OTC brokers and dealers to register with SEC-> Created National Association of Securities Dealers (NASD)- which was the self-regulator of the market-> later morphed into Financial Industry Regulatory Authority (FINRA)2.A goal of many parts of U.S. regulatory legislation has been to eliminate or minimize conflicts of interest between issuers, investment banks, and investors. Provide examples of conflicts of interest in the U.S. investment banking industry and the corresponding regulations that attempted to resolve those issues-conflicts of interest between auditors and investment bankers- auditors has incentive to give a clean audit-conflicts of interest between executives and investors- executives has incentive to make decisions in their best interest instead of in the interest of shareholdersSarbanes-Oxley Act (2002)-required SEC to adopt rules to minimize risk of investment bankers influencing equity analyst research reports by seperating stock analysis from underwriting activities.-Created the Public Company Accounting Oversight Board to reduce the influence of auditors on corporate decision making. It carefully defined auditors’ independence to avoid conflicts of interest-Loans to insiders were restricted and top executives were required to sign a statement personally certifying that information made available to investors was accurate.-conflicts of interest between equity analysts and Investment bankers- equity analysts might have incentive to give a positive report on a company who is a client of the Investment Banking division of a firm.-conflicts of interest between traders and executives- executives would get securities that were guaranteed to rise in valueGlobal Research Settlement (2003)Investment Banks paid regulators $1.4 billion and agreed to:A) Structural Reforms: restrictions on interactions between the two. No payment of compensation or influence on promotion.B) Enhanced Disclosures: regarding potential conflicts of interestC) Independent Research: I Banks would contract with third-party research firms to make their reports available to U.S. customers.
Restricted the allocation of securities in “hot” IPOs to certain company executives and directors (spinning)3.Disclosure of information to investors is another recurring theme in U.S. regulation of the securities industry. Provide examples of disclosure required by U.S. regulations-description of company’s properties and business-description of the security to be offered for sale-information about the management of the company-financial statements certified by independent accountants
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U.S. Securities and Exchange Commission, investment banks, investment bank