Securities regulation in the United States

Securities regulation in the United States is the field of U.S. law that covers various aspects of transactions and other dealings with securities. It includes both Federal and state level regulation by purely governmental regulatory agencies, most notably the Federal level United States Securities and Exchange Commission (SEC). There are also quasi-governmental organizations 'self regulatory organizations' (SRO's) such as the Financial Industry Regulatory Authority (FINRA) (formed by the merger of the enforcement divisions of the National Association of Securities Dealers, Inc. (NASD) and the New York Stock Exchange, Inc. (NYSE)). A significant influence is exerted by the availability of private rights of action under both state and Federal securities laws, as well as more generalized laws covering fraud. Futures and some aspects of derivatives are regulated by the Federal Commodity Futures Trading Commission (CFTC).

There are eight principal United States federal statutes in the area of securities regulation:

# The Securities Act of 1933
# The Securities Exchange Act of 1934
# The Public Utility Holding Company Act of 1935
# The Trust Indenture Act of 1939
# The Investment Company Act of 1940
# The Investment Advisers Act of 1940
# The Securities Investor Protection Act of 1970
# The Sarbanes-Oxley Act of 2002

There are also fairly extensive regulations under these laws, largely made by the SEC. One of these regulations, know by its citation 10b-5, is particularly notable because it creates and regulates federal civil liability in between private parties in transactions involving securities which are otherwise exempt from federal securities regulation.

State laws governing issuance and trading of securities are commonly referred to as blue sky laws.

History

Before the Wall Street Crash of 1929, there was little regulation of securities in the United States at the Federal level. The crash spurred the Congress to hold hearings, known as the Pecora Commission, after Ferdinand Pecora,

After holding hearings on the abuses, Congress passed the Securities Act of 1933. It regulates the interstate sales of securities and made it illegal to sell securities into a state without complying with the state law. It requires companies which want to sell securities publicly to file a registration statement with the U.S. Securities and Exchange Commission. The registration statement provides a lot of information about the company and is a matter of public record. The SEC does not approve or disapprove the issue, but lets the statement "become effective" if sufficient required detail is provided, including risk factors. Afterward, the company can begin selling the stock issue, usually through investment bankers.

The following year, Congress passed the Securities Exchange Act of 1934, which regulates the secondary market (general-public) trading of securities. Initially, the 1934 Act applied only to stock exchanges and their listed companies (as the word "Exchange" in the Act's name implies). In the late 1930s, the Act was amended to provide regulation of the over-the-counter (OTC) market (i.e., trades between individuals with no stock exchange involved). In 1964, the Act was amended to apply to companies traded in the OTC market.

In October 2000, the Securities and Exchange Commission ratified Regulation Fair Disclosure (Reg FD), which required publicly traded companies to disclose material information to all investors at the same time. Reg FD helped level the playing field for all investors by helping to reduce the problem of selective disclosure.

External links

* [http://www.sec.gov The Securities and Exchange Commission] Official site
* [http://www.seclaw.com The Securities Law Home Page]
* [http://www.seclaw.com/seclaw.htm Introduction to the Federal Securities Laws]