Securities Exchange Act Of 1934

The Securities Exchange Act of 1934 is to provide regulation for the securities exchanges, and for the over-the-counter (OTC) markets, which operate in interstate, and foreign commerce, to prevent unfair financial practices in such securities exchanges, and markets. The Securities and Exchange Act of 1934 (Exchange Act) is United States legislation that regulates securities trading on the secondary market, stock exchange markets, and the participants involved to protect investors.

Securities Exchange Act Of 1934

Securities Exchange Act Of 1934

With this Act, Congress created the Securities and Exchange Commission (SEC). The Act empowers the SEC with broad authority over the securities industry. It includes the power to register, regulate, and oversee brokerage businesses, transfer agents, and clearing agencies. The various securities exchanges, such as the New York Stock Exchange, the NASDAQ Stock Market, and the Chicago Board of Options are SROs.

The Act prohibited certain activities and provided the Commission with powers over regulated companies. The Act empowers the Securities Exchange Act Of 1934 to require periodic reporting by companies related to publicly traded securities. According to the Securities Exchange Act Of 1934, it shall be unlawful, directly or indirectly, by the use of any means or the mails, or of any facility of any national securities exchange or 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, to manipulate or share incorrect information to the potential investor.

Manipulative And Deceptive Devices

The manipulative and deceptive devices prohibited under section 10 (b) and the Rule 10b-5 include, the purchase or sale of a security of the issuer, based on non-public information of the security, in breach of duty of confidence by the issuer of the security.

Regarding the use of manipulative, and deceptive devices, the Securities Exchange Act Of 1934 states that 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 any facility of any national securities exchange: 

  • To employ any device, scheme, or artifice to defraud, 
  • To make any untrue statement of a material fact or to omit to state a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading, or 
  • To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

The Securities Exchange Act Of 1934 requires a variety of market participants to register with the Commission, including exchanges, brokers and dealers, transfer agents, and clearing agencies. Registration for these organizations involves filing disclosure documents that are updated regularly.

Transactions

Transactions in securities as commonly conducted upon securities exchanges and over-the-counter markets are affected by a national public interest which makes it necessary to provide for regulation and control of such transactions and of practices and matters related thereto, including transactions by officers, directors, and principal security holders, to require appropriate reports, and to impose requirements necessary to make such regulation and control reasonably complete and effective, to protect interstate commerce, the national credit, the Federal taxing power, to protect and make more effective the national banking system and Federal Reserve System, and to insure the maintenance of fair and honest markets in such transactions: 

  • are carried on in large volume by the public generally and in large part originate outside the States in which the exchanges and over-the-counter markets are located and/or are effected using the mails and instrumentalities of interstate commerce; 
  • constitute an important part of the current interstate commerce; 
  • involve in large part the securities of issuers engaged in interstate commerce; 
  • involve the use of credit, directly affect the financing of trade, industry, and transportation in interstate commerce, directly affect and influence the volume of interstate commerce; and affect the national credit. 

The prices established and offered in such transactions are generally disseminated and quoted throughout the United States and foreign countries and constitute a basis for determining and establishing the prices at which securities are bought and sold, the amount of certain taxes owing to the United States and the several States by owners, buyers, and sellers of securities, and the value of collateral for bank loans. 

The Securities Exchange Act Of 1934 requires the disclosure of important information by anyone seeking to acquire more than 5 percent of a company’s securities by direct purchase or tender offer. Such an offer often is extended to gain control of the company. As with the proxy rules, this allows shareholders to make informed decisions on these critical corporate events.

Final Thoughts

The Securities Exchange Act Of 1934 (SEA) was enacted to govern securities transactions on the secondary market after they were issued, resulting in greater financial transparency and accuracy, as well as less fraud and manipulation.

The Securities and Exchange Commission (SEC), the SEA’s regulatory arm, was established by the Securities Exchange Act Of 1934. The SEC has the authority to regulate securities (stocks, bonds, and over-the-counter securities), markets, and the behavior of financial professionals such as brokers, dealers, and investment advisors. It also keeps track of the financial reports that publicly traded companies are required to submit.

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