Securities Exchange Act of 1934
Securities Exchange Act of 1934 (also called the Exchange Act, '34
Act, or 1934 Act) (Pub.L. 73–291, 48 Stat. 881, enacted
June 6, 1934, codified at 15 U.S.C. § 78a et seq.) is
a law governing the secondary trading of securities (stocks, bonds,
and debentures) in the United States of America. A landmark of
wide-ranging legislation, the Act of '34 and related statutes form the
basis of regulation of the financial markets and their participants in
the United States. The 1934 Act also established the Securities and
Exchange Commission (SEC), the agency primarily responsible for
enforcement of United States federal securities law.
Companies raise billions of dollars by issuing securities in what is
known as the primary market. Contrasted with the Securities Act of
1933, which regulates these original issues, the Securities Exchange
Act of 1934 regulates the secondary trading of those securities
between persons often unrelated to the issuer, frequently through
brokers or dealers. Trillions of dollars are made and lost each year
through trading in the secondary market.
1 Securities exchanges
2 Securities associations
3 Self-regulatory organizations (SRO)
4 Other trading platforms
6 Antifraud provisions
7 Exemptions from reporting because of national security
9 See also
11 External links
One area subject to the '34 Act's regulation is the physical place
where securities (stocks, bonds, notes of debenture) are exchanged.
Here, agents of the exchange, or specialists, act as middlemen for the
competing interests in the buying and selling of securities. An
important function of the specialist is to inject liquidity and price
continuity into the market. Some of the more well known exchanges
include the New York
Stock Exchange, the
NASDAQ and the NYSE American.
The '34 Act also regulates broker-dealers without a status for trading
securities. A telecommunications infrastructure has developed to
provide for trading without a physical location. Previously these
brokers would find stock prices through newspaper printings and
conduct trades verbally by telephone. Today, a digital information
network connects these brokers. This system is called NASDAQ, standing
for the National Association of Securities Dealers Automated Quotation
Self-regulatory organizations (SRO)
In 1938 the Exchange Act was amended by the Maloney Act, which
authorized the formation and registration of national securities
associations, which would supervise the conduct of their members
subject to the oversight of the SEC. That amendment led to the
creation of the National Association of Securities Dealers, Inc. –
the NASD, which is a Self-Regulatory Organization (or SRO). The NASD
had primary responsibility for oversight of brokers and brokerage
firms, and later, the
NASDAQ stock market. In 1996 the SEC criticized
the NASD for putting its interests as the operator of Nasdaq ahead of
its responsibilities as the regulator, and the organization was split
in two, one entity regulating the brokers and firms, the other
NASDAQ market. In 2007 the NASD merged with the NYSE
(which had already taken over the AMEX) and the Financial Industry
Regulatory Authority (FINRA) was created.
Other trading platforms
In the last 30 years, brokers have created two additional systems for
trading securities. The alternative trading system, or ATS, is a quasi
exchange where stocks are commonly purchased and sold through a
smaller, private network of brokers, dealers, and other market
participants. The ATS is distinguished from exchanges and associations
in that the volumes for ATS trades are comparatively low, and the
trades tend to be controlled by a small number of brokers or dealers.
ATS acts as a niche market, a private pool of liquidity. Reg ATS, an
SEC regulation issued in the late 1990s, requires these small markets
to 1) register as a broker with the NASD, 2) register as an exchange,
or 3) operate as an unregulated ATS, staying under low trading caps.
A specialized form of ATS, the Electronic Communications Network (or
ECN), has been described as the "black box" of securities trading. The
ECN is a completely automated network, anonymously matching buy and
sell orders. Many traders use one or more trading mechanisms (the
exchanges, NASDAQ, and an ECN or ATS) to effect large buy or sell
orders – conscious of the fact that overreliance on one market for a
large trade is likely to unfavorably alter the trading price of the
While the '33 Act recognizes that timely information about the issuer
is vital to effective pricing of securities, the '33 Act's disclosure
requirement (the registration statement and prospectus) is a one-time
affair. The '34 Act extends this requirement to securities traded in
the secondary market. Provided that the company has more than a
certain number of shareholders and has a certain amount of assets (500
shareholders, above $10 million in assets, per Act sections 12, 13,
and 15), the '34 Act requires that issuers regularly file company
information with the SEC on certain forms (the annual 10-K filing and
the quarterly 10-Q filing). The filed reports are available to the
public via EDGAR. If something material happens with the company
(change of CEO, change of auditing firm, destruction of a significant
number of company assets), the SEC requires that the company issue
within 4 business days an 8-K filing that reflects these changed
conditions (see Regulation FD). With these regularly required filings,
buyers are better able to assess the worth of the company, and buy and
sell the stock according to that information.
While the '33 Act contains an antifraud provision (Section 17), when
the '34 Act was enacted, questions remained about the reach of that
antifraud provision and whether a private right of action—that is,
the right of an individual private citizen to sue an issuer of stock
or related market actor, as opposed to government suits—existed for
purchasers. As it developed, section 10(b) of the 1934 Act and
SEC Rule 10b-5 have sweeping antifraud language. Section
10(b) of the Act (as amended) provides (in pertinent part):
It shall be unlawful for any person, directly or indirectly, by the
use of any means or instrumentality of interstate commerce or of the
mails, or of any facility of any national securities exchange [. . .]
(b) To use or employ, in connection with the purchase or sale of any
security registered on a national securities exchange or any security
not so registered, or any securities-based swap agreement (as defined
in section 206B of the Gramm–Leach–Bliley Act), any manipulative
or deceptive device or contrivance in contravention of such rules and
regulations as the Commission may prescribe as necessary or
appropriate in the public interest or for the protection of investors.
Section 10(b) is codified at 15 U.S.C. § 78j(b).
The breadth and utility of section 10(b) and Rule 10b-5 in the pursuit
of securities litigation are significant. Rule 10b-5 has been employed
to cover insider trading cases, but has also been used against
companies for price fixing (artificially inflating or depressing stock
prices through stock manipulation), bogus company sales to increase
stock price, and even a company's failure to communicate relevant
information to investors. Many plaintiffs in the securities litigation
field plead violations of section 10(b) and Rule 10b-5 as a
"catch-all" allegation, in addition to violations of the more specific
antifraud provisions in the '34 Act.
Exemptions from reporting because of national security
Section 13(b)(3)(A) of the
Securities Exchange Act of 1934
Securities Exchange Act of 1934 provides
that "with respect to matters concerning the national security of the
United States," the President or the head of an Executive Branch
agency may exempt companies from certain critical legal obligations.
These obligations include keeping accurate "books, records, and
accounts" and maintaining "a system of internal accounting controls
sufficient" to ensure the propriety of financial transactions and the
preparation of financial statements in compliance with "generally
accepted accounting principles."
On May 5, 2006, in a notice in the Federal Register, President Bush
delegated authority under this section to John Negroponte, the
Director of National Intelligence. Administration officials told
Business Week that they believe this is the first time a President has
ever delegated the authority to someone outside the Oval Office.
The Small Cap
Liquidity Reform Act of 2013 (H.R. 3448; 113th Congress)
would amend the
Securities Exchange Act of 1934
Securities Exchange Act of 1934 to establish a
liquidity pilot program for securities of emerging growth companies
(EGC) with total annual gross revenues of less than $750 million,
under which those securities shall be quoted using either: (1) a
minimum increment of $0.05, (2) a minimum increment of $0.10, or (3)
the increment at which the securities would be quoted without regard
to such minimum increments. The bill was scheduled to receive a
vote on the House floor on February 11 or 12, 2014.
Securities regulation in the United States
Commodity Futures Trading Commission
List of financial regulatory authorities by country
Regulation D (SEC)
1933 – Securities Act of 1933
Temporary National Economic Committee (establishment)
1939 – Trust Indenture Act of 1939
1940 – Investment Advisers Act of 1940
1940 – Investment Company Act of 1940
Williams Act (Securities Disclosure Act)
1975 – Securities Acts Amendments of 1975
1982 – Garn–St. Germain Depository Institutions Act
1999 – Gramm-Leach-Bliley Act
2000 – Commodity Futures Modernization Act of 2000
2002 – Sarbanes–Oxley Act
Credit Rating Agency Reform Act of 2006
2010 – Dodd–Frank Wall Street Reform and Consumer Protection Act
^ Lin, Tom C. W. (2012-04-16). "A Behavioral Framework for Securities
Risk". Seattle University Law Review. Rochester, NY. 34: 325 – via
Social Science Research Network.
^ Cox, James D.; Hillman, Robert W.; Langevoort, Donald C. (2009).
Securities Regulation: Cases and Materials (6th ed.). Aspen
Publishers. p. 11.
^ "Intelligence Czar Can Waive SEC Rules". BusinessWeek. May 23, 2006.
Archived from the original on May 25, 2006. Retrieved October 9,
^ "H.R. 3448 - Summary". United States Congress. Retrieved February
^ Lebrecht, Brian (November 21, 2013). "Want More Liquidity? Choose to
Increase the Spread". ClydeSnow Securities Blog. Archived from the
original on February 24, 2014. Retrieved February 10, 2014.
^ "Week of February 10, 2014" (PDF). Leader's Weekly Schedule. House
Majority Leader's Office. Archived from the original (PDF) on February
22, 2014. Retrieved February 10, 2014.
United States Securities and Exchange Commission (SEC) – Official
Introduction to the Federal Securities Laws
Securities Lawyer's Deskbook – Securities Exchange Act of 1934.
University of Cincinnati College of Law.
Public Law 73-291, 73d Congress, H.R. 9323: Securities Ex