Securities and Exchange Act of 1934
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The Securities Exchange Act of 1934 (also called the Exchange Act, '34 Act, or 1934 Act) (, codified at et seq.) is a law governing the secondary trading of securities (
stock In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...
s, 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 The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
(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 The Securities Act of 1933, also known as the 1933 Act, the Securities Act, the Truth in Securities Act, the Federal Securities Act, and the '33 Act, was enacted by the United States Congress on May 27, 1933, during the Great Depression and after ...
, 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.


Securities exchanges

One area subject to the 1934 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 The Nasdaq Stock Market () (National Association of Securities Dealers Automated Quotations Stock Market) is an American stock exchange based in New York City. It is the most active stock trading venue in the US by volume, and ranked second ...
and the NYSE American.


Securities associations

The 1934 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 The Nasdaq Stock Market () (National Association of Securities Dealers Automated Quotations Stock Market) is an American stock exchange based in New York City. It is the most active stock trading venue in the US by volume, and ranked second ...
, standing for the National Association of Securities Dealers Automated Quotation System.


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. These groups would supervise the conduct of their members subject to the oversight of the SEC. The Maloney Act 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 regulating the
NASDAQ The Nasdaq Stock Market () (National Association of Securities Dealers Automated Quotations Stock Market) is an American stock exchange based in New York City. It is the most active stock trading venue in the US by volume, and ranked second ...
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 target security.


Issuers

While the 1933 Act recognizes that timely information about the issuer is vital to effective pricing of securities, the 1933 Act's disclosure requirement (the registration statement and prospectus) is a one-time affair. The 1934 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 1934 Act requires that issuers regularly file company information with the SEC on certain forms (the annual 10-K filing and the quarterly
10-Q Form 10-Q, (also known as a 10-Q or 10Q) is a quarterly report mandated by the United States federal Securities and Exchange Commission, to be filed by publicly traded corporations. Pursuant to Section 13 or 15(d) of the Securities Exchange A ...
filing). The filed reports are available to the public vi
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 Form 8-K is a very broad form used to notify investors in United States public companies of specified events that may be important to shareholders or the United States Securities and Exchange Commission. This is one of the most common types of for ...
filing that reflects these changed conditions (see
Regulation FD Regulation FD (Fair Disclosure),
Retrieved January 25, 2011.
ordinarily referred to as Regula ...
). 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.


Antifraud provisions

While the 1933 Act contains an antifraud provision
Section 17
, when the 1934 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 corresponding SEC Rule 10b-5 have sweeping antifraud language. Section 10(b) of the Act (as amended) provides (in pertinent part): Section 10(b) is codified at . 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 Insider trading is the trading of a public company's stock or other securities (such as bonds or stock options) based on material, nonpublic information about the company. In various countries, some kinds of trading based on insider information ...
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 1934 Act.


Exemptions from reporting because of national security

Section 13(b)(3)(A) of the 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 The ''Federal Register'' (FR or sometimes Fed. Reg.) is the official journal of the federal government of the United States that contains government agency rules, proposed rules, and public notices. It is published every weekday, except on feder ...
, President Bush delegated authority under this section to
John Negroponte John Dimitri Negroponte (; born July 21, 1939) is an American diplomat. He is currently a James R. Schlesinger Distinguished Professor at the Miller Center for Public Affairs at the University of Virginia. He is a former J.B. and Maurice C. Sha ...
, the
Director of National Intelligence The director of national intelligence (DNI) is a senior, cabinet-level United States government official, required by the Intelligence Reform and Terrorism Prevention Act of 2004 to serve as executive head of the United States Intelligence Commu ...
. 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.


Amendments


Proposed

The
Small Cap Liquidity Reform Act of 2013 (H.R. 3448; 113th Congress) The Small Cap Liquidity Reform Act of 2013 () was a bill that was intended to increase the liquidity on the stock market of stocks belonging to emerging growth companies. It would allow small companies to choose a tick size of $0.05 or $0.10 inst ...
would amend the Securities Exchange Act of 1934 to establish a liquidity pilot program for securities of
emerging growth companies ''Emerging'' is the title of the only album by the Phil Keaggy Band, released in 1977 on NewSong Records. The album's release was delayed due to a shift in record pressing plant priorities following the death of Elvis Presley. The album was re ...
(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.


See also

* Securities regulation in the United States *
Commodity Futures Trading Commission The Commodity Futures Trading Commission (CFTC) is an independent agency of the US government created in 1974 that regulates the U.S. derivatives markets, which includes futures, swaps, and certain kinds of options. The Commodity Exchange Ac ...
* Securities commission *
Chicago Stock Exchange NYSE Chicago, formerly known as the Chicago Stock Exchange (CHX), is a stock exchange in Chicago, Illinois, US. The exchange is a national securities exchange and self-regulatory organization, which operates under the oversight of the U.S. Sec ...
*
Financial regulation Financial regulation is a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the stability and integrity of the financial system. This may be handled ...
* List of financial regulatory authorities by country *
NASDAQ The Nasdaq Stock Market () (National Association of Securities Dealers Automated Quotations Stock Market) is an American stock exchange based in New York City. It is the most active stock trading venue in the US by volume, and ranked second ...
* New York Stock Exchange *
Stock exchange A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for th ...
*
Regulation D (SEC) In the United States under the Securities Act of 1933, any offer to sell securities must either be registered with the United States Securities and Exchange Commission (SEC) or meet certain qualifications to exempt them from such registration. R ...
;Related legislation * 1933 –
Securities Act of 1933 The Securities Act of 1933, also known as the 1933 Act, the Securities Act, the Truth in Securities Act, the Federal Securities Act, and the '33 Act, was enacted by the United States Congress on May 27, 1933, during the Great Depression and after ...
* 1938 –
Temporary National Economic Committee The Temporary National Economic Committee (TNEC) was established by a joint resolution of the United States Congress on June 16, 1938 and operated until its defunding on April 3, 1941. The TNEC's function was to study the concentration of economic p ...
(establishment) * 1939 –
Trust Indenture Act of 1939 The Trust Indenture Act of 1939 (TIA), codified at , supplements the Securities Act of 1933 in the case of the distribution of debt securities in the United States. Generally speaking, the TIA requires the appointment of a suitably independent and ...
* 1940 – Investment Advisers Act of 1940 * 1940 –
Investment Company Act of 1940 The Investment Company Act of 1940 (commonly referred to as the '40 Act) is an act of Congress which regulates investment funds. It was passed as a United States Public Law () on August 22, 1940, and is codified at . Along with the Securities Exc ...
* 1968 –
Williams Act The Williams Act (USA) refers to 1968 amendments to the Securities Exchange Act of 1934 enacted in 1968 regarding tender offers. The legislation was proposed by Senator Harrison A. Williams of New Jersey. The Williams Act amended the Securities ...
(Securities Disclosure Act) * 1975 –
Securities Acts Amendments of 1975 The Securities Acts Amendments of 1975 is an act of Congress. It was passed as a United States Public Law () on June 4, 1975, and amended the Securities Act of 1933 ( ''et seq.'') and the Securities Exchange Act of 1934 ( ''et seq.''). The Securiti ...
* 1982 –
Garn–St. Germain Depository Institutions Act The Garn–St Germain Depository Institutions Act of 1982 (, , enacted October 15, 1982) is an Act of Congress that deregulated savings and loan associations and allowed banks to provide adjustable-rate mortgage loans. It is disputed whether the a ...
* 1999 – Gramm-Leach-Bliley Act * 2000 – Commodity Futures Modernization Act of 2000 * 2002 – Sarbanes–Oxley Act * 2006 –
Credit Rating Agency Reform Act The Credit Rating Agency Reform Act () is a United States federal law whose goal is to improve ratings quality for the protection of investors and in the public interest by fostering accountability, transparency, and competition in the credit ra ...
of 2006 * 2010 – Dodd–Frank Wall Street Reform and Consumer Protection Act


References


External links

* Securities Exchange Act of 1934, as amended, i
HTMLPDFdetails
in the
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br>Statute Compilations collectionUnited States Securities and Exchange Commission (SEC)
– Official site
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 Exchange Act of 1934
{{authority control United States federal criminal legislation U.S. Securities and Exchange Commission 1934 in American law United States federal securities legislation 73rd United States Congress