Securities Exchange Act of 1934

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The Securities Exchange Act of 1934 (SEA) is a federal law passed in 1934 created to regulate secondary securities markets. A separate act, the Securities Act of 1933, was created to regulate the primary market, meaning the original sale by the issuer of the securities. The secondary markets the SEA was created to regulate encompass subsequent sales between parties who are usually not related to the issuer. The SEA also created the Securities and Exchange Commission. The commission was charged with enforcing federal securities laws and drafting regulations for the securities industry. President Franklin D. Roosevelt signed the SEA into law on June 6, 1934.[1]

Background

The SEA and the Securities Act of 1933 were created in the wake of the 1929 stock market crash.[2] They require and regulate the disclosure of information about securities. Although some states had preexisting securities laws, the 1934 and 1933 acts created the first significant federal regulation of securities markets.[3]

The SEA also included prohibitions on fraud and misrepresentation in market transactions designed to protect investors. In order to enforce those prohibitions, the SEA's disclosure requirements, and establish additional regulations, the SEA also created the Securities and Exchange Commission (SEC), a federal government agency responsible for the regulation of the nation's securities industry. Originally created to enforce the SEA and the Securities Act of 1933, the SEC has since grown to enforce additional laws.

Provisions

Disclosure requirements

The SEA requires public disclosure of information in several circumstances. First, most brokers and dealers who sell and trade securities must register with the SEC. Second, companies with publicly held securities and companies that exceed certain size requirements must file regular reports with the SEC. Those reports include audited financial reports, reports on management, and future plans for the company. Reporting companies must also disclose information "at certain crucial points so that investors can make an informed decision before exercising ownership rights in stock."[4] Third, if a party makes a tender offer--an offer to buy a significant percentage of a company's stock--the party must disclose its identity, the terms of the offer, and a description of its history with the company. Finally, securities exchanges, like the New York Stock Exchange, must also register with the SEC.[2]

Creation of the SEC

See also: Securities and Exchange Commission

The SEA established the Securities and Exchange Commission (SEC). The SEC is the federal agency tasked with securities regulation. It enforces the SEA's disclosure requirements and may bring enforcement actions against companies that fail to meet the requirements or violate other securities regulations. It also promulgates regulations for the securities market.[4] Finally, the SEC oversees Self-Regulating Organizations (SROs). SROs are non-governmental organizations that are authorized to regulate parts of the market. SROs include groups like the Financial Industry Regulatory Authority (FINRA).[4]

Prohibitions and penalities

Lastly, the SEA prohibits fraud, misrepresentation, and insider trading. The SEC is empowered to bring civil and sometimes criminal actions against companies or traders who withhold or misrepresent relevant information, take advantage of non-public information to profit from stock sales, or illegally manipulate stock prices. Investors may also sue based on some of these provisions.[2][4]

Amending statutes

Below is a partial list of subsequent laws that amended provisions of the SEA:

  • Securities Acts Amendments of 1964
  • Williams Act (1968)
  • Domestic and Foreign Investment Improved Disclosure Act of 1977

See also

External links

Footnotes

  1. ↑ Securities and Exchange Commission, "The Laws That Govern the Securities Industry," accessed January 29, 2017
  2. ↑ 2.0 2.1 2.2 Findlaw, "Securities and Exchange Act of 1934," accessed January 24, 2018
  3. ↑ Legal Information Institute, "Securities law history," accessed January 24, 2018
  4. ↑ 4.0 4.1 4.2 4.3 Legal Information Institute, "Securities Exchange Act of 1934," accessed January 24, 2018
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