Securities Exchange Act

Definition

The Securities Exchange Act of 1934 is a federal law that regulates the secondary trading of securities (stocks, bonds, etc.) in the United States. It established the Securities and Exchange Commission (SEC) and gave it broad authority to oversee and enforce securities laws, promote transparency, and protect investors.

5 Must Know Facts For Your Next Test

1. The Securities Exchange Act of 1934 was enacted in the aftermath of the 1929 stock market crash to restore investor confidence and regulate the securities industry.
2. The Act requires public companies to register their securities with the SEC and disclose financial and other material information to the public on an ongoing basis.
3. It prohibits manipulative and deceptive practices in the securities markets, such as insider trading, market manipulation, and false or misleading statements.
4. The SEC has broad enforcement powers under the Act, including the ability to investigate violations, bring civil and criminal actions, and impose fines and other penalties.
5. The Act also regulates the activities of broker-dealers, investment advisers, and other securities professionals to ensure they act in the best interests of their clients.

Review Questions

• Explain how the Securities Exchange Act establishes liability for companies and individuals under the Securities Act.
  • The Securities Exchange Act works in conjunction with the Securities Act of 1933 to establish liability for companies and individuals involved in the sale of securities. Under the Exchange Act, public companies must register their securities with the SEC and provide ongoing disclosures about their financial condition and other material information. Failure to comply with these requirements can lead to liability under the Securities Act. Additionally, the Exchange Act prohibits insider trading, market manipulation, and other fraudulent practices that can give rise to liability for companies and individuals who engage in such activities.
• Describe the framework of securities regulation established by the Securities Exchange Act.
  • The Securities Exchange Act creates a comprehensive framework for the regulation of the securities industry in the United States. It established the Securities and Exchange Commission (SEC) as the primary regulatory agency responsible for overseeing the securities markets, enforcing securities laws, and protecting investors. The Act grants the SEC broad powers to register and regulate securities, broker-dealers, investment advisers, and other market participants. It also requires public companies to disclose financial and other material information to the public on an ongoing basis, promoting transparency and enabling informed investment decisions. This regulatory framework is designed to ensure the fairness, efficiency, and integrity of the securities markets.
• Analyze how the Securities Exchange Act's provisions on insider trading and market manipulation contribute to the overall framework of securities regulation.
  • The Securities Exchange Act's prohibitions on insider trading and market manipulation are central to the broader framework of securities regulation. These provisions aim to ensure a level playing field for all investors and maintain the integrity of the securities markets. Insider trading, which involves trading on material, non-public information, undermines investor confidence and fairness in the markets. Similarly, market manipulation, such as the dissemination of false or misleading information to influence stock prices, can distort the efficient pricing of securities. By empowering the SEC to investigate and enforce these prohibitions, the Exchange Act helps to deter such abusive practices and protect the investing public. These anti-fraud provisions, coupled with the Act's disclosure requirements and other regulatory measures, work together to create a comprehensive system of securities regulation that promotes transparency, accountability, and investor protection.

Related terms

Securities: Financial instruments that represent an ownership interest in a company (stocks) or the debt of an issuer (bonds, notes, etc.). Securities are regulated under the Securities Exchange Act.

Securities and Exchange Commission (SEC):

The federal agency created by the Securities Exchange Act to regulate the securities industry, enforce securities laws, and protect investors.

Insider Trading:

The illegal practice of trading securities based on material, non-public information. The Securities Exchange Act prohibits insider trading to ensure fair and transparent securities markets.