Other Regulators and Agencies
About This Lesson
The SEC and the SROs do most of the heavy lifting, but a cast of other agencies each owns a corner of the securities world. By the end of this chapter you will be able to match each regulator to its job, and you will know SIPC coverage cold, since it is one of the most reliably tested numbers on the exam.
What you'll cover
- the Fed, state regulators, the Treasury, the CFTC, and the Options Clearing Corporation, and what each one does
- SIPC: who it protects, the dollar limits, and the cash sub-limit that trips people up
- how SIPC differs from the FDIC
- the clean line between securities (SEC) and futures or commodities (CFTC)
This rounds out the regulators portion of the capital-markets material, roughly 16% of the SIE.
The Regulators Beyond the SEC
The SEC may be the primary securities regulator, but it does not work alone. A handful of other agencies and bodies each own a slice of the system, and the exam expects you to know who handles what. Most questions here are simple matching, so the goal is just to pair each regulator with its job.
The Federal Reserve Board (the Fed)
In the securities world, the Fed's headline job is setting margin requirements under Regulation T, the rule that caps how much credit a broker-dealer can extend for a securities purchase (currently 50% on an initial purchase). The Fed also runs national monetary policy and oversees bank holding companies. Reg T gets a full treatment in the trading module; for now, just connect "margin rules" to "the Fed."
State regulators and NASAA
Every state has its own securities regulator enforcing its blue-sky laws, the state-level registration and anti-fraud rules. The North American Securities Administrators Association (NASAA) is the umbrella group that coordinates them, writes model rules, and administers the Series 63, 65, and 66 exams.
The Treasury, FinCEN, and OFAC
The U.S. Treasury issues government securities (T-bills, T-notes, and T-bonds) and houses two bodies you will meet again under anti-money-laundering rules: FinCEN, the Financial Crimes Enforcement Network, which collects suspicious activity and currency transaction reports, and OFAC, the Office of Foreign Assets Control, which keeps the Specially Designated Nationals list of people and entities that firms are barred from dealing with.
The CFTC
The Commodity Futures Trading Commission is the SEC's counterpart for the commodities world. It is the primary regulator of futures and commodity derivatives, covering everything from agricultural products to energy and metals. The clean dividing line the exam wants: securities go to the SEC, futures and commodities go to the CFTC.
The OCC (Options Clearing Corporation)
The Options Clearing Corporation issues and guarantees every listed options contract. By standing in the middle of each trade, it makes sure contracts are honored and removes counterparty risk. Watch the abbreviation: this OCC is not the Office of the Comptroller of the Currency, the national-bank regulator that happens to share the same three letters.
Which regulatory agency has primary jurisdiction over futures contracts on agricultural commodities?
SIPC: Protection When a Brokerage Fails
SIPC, the Securities Investor Protection Corporation, is the safety net for one specific disaster: your brokerage firm going under. If a broker-dealer fails and customer securities or cash go missing, SIPC steps in to make customers whole, up to a limit. One point the exam tests right away: SIPC is not a government agency. It is a nonprofit funded by assessments on its member broker-dealers.
The coverage limit is the number to lock in: up to $500,000 per customer in total, of which no more than $250,000 may be cash. It covers missing stocks, bonds, and cash at a failed brokerage. It does not cover ordinary market losses, bad advice, or commodity futures. If your stock simply drops in value, that is your loss, not SIPC's concern; SIPC only acts when the firm itself fails and property goes missing.
SIPC is not the FDIC
Keep SIPC separate from its banking cousin. The FDIC insures bank deposits, including checking, savings, and CDs, up to $250,000 per depositor, per bank. The trap: the FDIC does not cover securities, mutual funds, or annuities, even when you buy them at a bank. Brokerage property is SIPC's job; bank deposits are the FDIC's.
SIPC vs. FDIC: The Full Comparison
This comparison appears on virtually every SIE exam:
| SIPC | FDIC | |
|---|---|---|
| Protects | Brokerage account customers | Bank depositors |
| Coverage limit | $500,000 per customer (max $250,000 cash) | $250,000 per depositor, per bank, per ownership category |
| Covers | Missing securities and cash when a broker-dealer fails | Deposits (checking, savings, CDs, money market deposit accounts) |
| Does NOT cover | Market losses, bad investment advice, fraud losses, commodities, futures | Stocks, bonds, mutual funds, annuities, life insurance |
| Type of entity | Non-profit, non-government corporation | Independent federal agency |
| Funded by | Assessments on member broker-dealers | Premiums from insured banks |
Critical distinction: SIPC does NOT protect against market losses. If your stock drops from $100,000 to $50,000, SIPC provides no coverage. SIPC only steps in when a broker-dealer becomes insolvent and customer assets are missing.
- SIPC ≠ FDIC. SIPC covers brokerage accounts when a broker-dealer fails. FDIC covers bank deposits when a bank fails.
- $500,000 total / $250,000 cash sub-limit per customer. Securities and cash together can't exceed $500K.
- SIPC does NOT cover market losses, bad investment advice, or commodity futures. Only missing securities and cash.
- When total assets exceed $500K, the customer bears the loss on the unprotected portion.
An investor's broker-dealer declares bankruptcy. The investor had $300,000 in securities and $200,000 in cash in their account. SIPC coverage would protect:
A customer's broker-dealer fails. The customer had $200,000 in securities and $300,000 in cash. How much will SIPC cover?
Chapter Essentials
This chapter is mostly a matching exercise, with each regulator owning one job. The Fed sets margin under Reg T. State regulators and NASAA run the blue-sky laws. The Treasury houses FinCEN and OFAC for anti-money-laundering. The CFTC takes futures and commodities, while the SEC keeps securities. The OCC, the Options Clearing Corporation, guarantees listed options.
The single most-tested fact, though, is SIPC coverage: up to $500,000 per customer, with cash capped at $250,000, paid only when a brokerage fails, never for market losses.
A few reliable gotchas in this chapter:
• SIPC does not cover market losses. If your stock falls from $100,000 to $50,000, SIPC pays nothing. It steps in only when the brokerage itself fails and your securities or cash go missing.
• SIPC is not a government agency, and it is not the FDIC. SIPC is a nonprofit funded by broker-dealers and covers brokerage property; the FDIC is a federal agency and covers bank deposits. Neither one covers what the other does.
• Run the SIPC cash sub-limit carefully. The total is $500,000 per customer, but no more than $250,000 of it can be cash. A customer with $200,000 in securities and $300,000 in cash is covered for $450,000, not $500,000, because the cash is capped at $250,000.
• Securities to the SEC, futures and commodities to the CFTC. A question about jurisdiction over agricultural, energy, or metals futures points to the CFTC, not the SEC.
• Two different OCCs. The Options Clearing Corporation guarantees options contracts. The Office of the Comptroller of the Currency regulates national banks. Same letters, unrelated jobs.
Test yourself with exam-style questions on this topic.