Five Laws that rule the Securities Industry

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Five Laws that rule the Securities Industry

There is a set of security laws in the U.S, each having its importance. The first five laws starting from 1933 to 1940, among the various security laws that rule the security industry, are as follows:

  • Securities Act of 1933
  • Securities Exchange Act of 1934
  • Trust Indenture Act of 1939
  • Investment Advisers Act of 1940
  • Investment Company Act of 1940

Given below is a brief description of each of the laws that are listed above.

  • Securities Act of 1933 

This law is also known as “truth in securities” law. There are two main objectives of the Securities Act of 1933, which include:

  • The requirement for investors getting financial as well as other crucial information regarding the securities that are offered for the public sale,
  • Prohibiting misrepresentations, deceit as well as other fraud in securities sale.

Registration Purpose 

One of the main reasons for goal accomplishment is the essential financial information disclosure with the securities registration. It will not allow the government, but the investors, to make proper judgments regarding purchasing the company’s safety.

Registration Process

Generally, the securities that are sold in the U.S. should be registered. Companies file for the registration forms gives essential facts and minimizes the expense and burden of compliance with the law. Generally, the registration forms need the following:

  • Company’s business and properties description
  • Security description that is being offered for sale
  • Company’s management information
  • Financial statements that are certified by independent accountants.
  • Securities Exchange Act of 1934

Congress established a commission for Securities and Exchange with the Securities Exchange Act of 1934. It recognizes and prevents specific conduct types in the market and gives the Commission its disciplinary powers over the associated individuals and regulated entities with them. SEC is also empowered through this Act to need periodic information reporting by companies with publicly traded security.

  • Trust Indenture Act of 1939

The Trust Indenture Act of 1939 applies to debt securities, like debentures, notes, and bonds, provided for public sale. The securities of these kinds are registered under the Securities Act, even then might not be provided for public sale unless there is a formal agreement between the bondholder and the bond issuer, known as Trust Indenture, which conforms to this Act’s standards.

  • Investment Advisers Act of 1940

As the name suggests, Investment advisers are regulated by this law. Along with some exceptions, the Act needs the sole practitioner or firm to guide others about the securities investment to be registered with SEC and conform to the designed regulations to protect the investors.

  • Investment Company Act of 1940

This Act regulates investment companies, which are companies that primarily engage in investing, trading in securities, reinvesting and whose securities are given to the public that is investing. Investment companies include mutual funds and closed-end funds. This Act focuses on investing public’s disclosure of information regarding the funds, the objectives of investing, and the operation and structure of the investment company. Hedge funds, private equity funds, and venture capital funds are generally structured in order to avoid the application of the Investment Company Act, because the Act’s requirements are complex and expensive to comply with.

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