Regulations & ethics

The SEC is the federal agency responsible for overseeing securities transactions, exchanges, and financial professionals to prevent fraud and maintain fair markets. It does not regulate bank deposits (Option D), which are typically overseen by the FDIC, nor does it have authority over local zoning or state taxes.

Churning is the prohibited practice of a broker executing excessive trades in a client's account primarily to generate commissions rather than serve the client's investment objectives. Even if the trading happens to be profitable, it remains a serious ethical violation and is strictly forbidden by regulators.

Trading on material non-public information violates the anti-fraud provisions of SEC Rule 10b-5, which prohibits deceptive practices in connection with the purchase or sale of securities. A diagram for this topic isn't available yet — the worked example below walks the same reasoning step by step.

• !Option C is incorrect because insider trading is a securities fraud violation rather than a tax law infraction.
• !Option A is incorrect because 25% represents the standard SRO minimum maintenance margin requirement for long accounts, rather than the initial deposit requirement.

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