An Outline of Federal Securities Laws
Two laws enacted in response to the 1929 stock market crash – the Securities Act of 1933 and the Securities Exchange Act of 1934 – remain the principal federal laws concerning issuance and trading of securities such as corporate stock. Other laws with a role in governing the securities industry include 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, and the Sarbanes-Oxley Act of 2002.
The Securities Act of 1933 requires that important information regarding securities must be provided in the offer and sale of those securities to the public. The act prohibits deceit, misrepresentation, or fraud in the offer and sale of securities.
The Securities Exchange Act of 1934 gives the Securities and Exchange Commission regulatory authority over the securities industry. The Act also gives the Commission authority to discipline regulated securities industry businesses if those businesses engage in certain types of conduct. Finally, the Act allows the Commission to require companies with publicly traded securities to provide periodic reporting of information.
The Public Utility Holding Company Act of 1935 regulates interstate holding companies with operating companies in the electric utility and natural gas industries. Securities and Exchange Commission regulations govern the structures of the utilities and the transactions among the companies within each holding company.
The Trust Indenture Act of 1939 sets up standards for trust indentures that are formal agreements between the issuer of bonds and the bondholders. Unless such trust indentures are entered into, the bonds may not be offered for sale to the public.
The Investment Company Act of 1940 regulates companies such as mutual funds that trade in securities and then offer their own securities to the public. The Act requires disclosure of the financial condition and investment policies of the investment companies or mutual funds in order to reduce conflicts of interest.
The Investment Advisers Act of 1940 regulates investment advisers. Those companies or individuals receiving fees for their advice concerning security investments must register with the Securities and Exchange Commission and abide by regulations designed to protect investors. The law applies to advisers who have at least $25 million of assets under management or who advise a registered investment company.
The Sarbanes-Oxley Act of 2002 created the Public Company Accounting Oversight Board to review activities of the auditing profession. The Act also included various provisions designed to increase corporate responsibility, provide greater financial disclosures, and lessen corporate and accounting fraud.
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