Securities Exchange Act

Definition

The Securities Exchange Act is a U.S. law enacted in 1934 that regulates the trading of securities in the secondary market, ensuring transparency and fairness in the securities markets. It established the Securities and Exchange Commission (SEC), which is responsible for enforcing the regulations that protect investors and maintain orderly markets. The act requires companies to provide accurate and timely financial information to investors, which ties closely to international accounting standards and practices as it influences how global companies report their financial data.

5 Must Know Facts For Your Next Test

1. The Securities Exchange Act was established to regulate the securities industry after the stock market crash of 1929, aiming to restore investor confidence.
2. One of the key provisions of the act is the requirement for publicly traded companies to file annual reports (Form 10-K) and quarterly reports (Form 10-Q) with the SEC.
3. The act also prohibits fraudulent activities and manipulative practices in the securities market, such as insider trading.
4. The SEC has the authority to enforce compliance with the act, imposing penalties and sanctions on companies or individuals who violate its provisions.
5. Internationally, many countries look to the principles established by the Securities Exchange Act when developing their own regulations around financial disclosures and investor protection.

Review Questions

• How does the Securities Exchange Act influence international accounting standards and practices?
  • The Securities Exchange Act plays a significant role in shaping international accounting standards by establishing requirements for transparency and accurate financial reporting. Companies operating globally often need to adhere to similar principles to meet both U.S. regulations and those of other countries. This creates a framework where consistent financial reporting practices are essential for cross-border investment and enhances investor confidence in global markets.
• What are the implications of non-compliance with the Securities Exchange Act for companies operating in international markets?
  • Non-compliance with the Securities Exchange Act can have severe implications for companies, including legal penalties, financial fines, and damage to reputation. For companies operating internationally, this may lead to increased scrutiny from regulators across different jurisdictions. Moreover, it can undermine investor trust not only in the specific company but also in the broader market, impacting cross-border investment opportunities.
• Evaluate how the establishment of the SEC under the Securities Exchange Act has changed the landscape of securities trading globally.
  • The establishment of the SEC has fundamentally changed the landscape of securities trading by introducing a regulatory framework focused on protecting investors and ensuring fair markets. Its influence extends beyond U.S. borders as many countries have adopted similar regulatory bodies inspired by the SEC's practices. This shift towards increased regulation has led to greater accountability among publicly traded companies globally, fostering an environment where investors can make informed decisions based on reliable financial information, ultimately contributing to more stable financial markets.

Related terms

Securities and Exchange Commission (SEC): The SEC is a U.S. government agency created by the Securities Exchange Act to oversee securities transactions, protect investors, and maintain fair and efficient markets.

Insider Trading: Insider trading refers to the buying or selling of securities based on non-public, material information about a company, which is illegal under the Securities Exchange Act.

Financial Reporting: Financial reporting involves providing financial statements and disclosures that reflect a company's performance, which must comply with regulatory standards established by laws like the Securities Exchange Act.