Things to know about the U.S. securities laws before trading

TutorialsJune 7, 2022

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The US stock market is known as the largest and most vibrant globally. Therefore, US securities law is always a topic many people are interested in learning about. In particular, other stock markets and emerging markets often refer to the US securities law to develop their own set of laws. The following article covers the essential information you need to know about this topic.

What is the US securities law?

The US securities law includes laws that regulate and manage the stock market in the US, including Stocks, foreign exchange (forex), bonds, investment funds, and stock futures contracts… Securities regulations U.S. securities are issued and regulated by the laws and government of the United States, including at the federal and state levels, or by Stock Exchanges and financial industry regulatory agencies.

US securities law helps regulate securities-related transactions, helps parties avoid disputes and lawsuits, ensures transparency and fairness, and avoids frauds and abuses that negatively impact the US stock market. Market participants who fail to comply with securities laws may be subject to criminal liability.

History of securities law. Learn important US securities laws. The SEC strictly regulates the current US securities laws

Under the US Securities Act of 1933 and the US Securities Exchange Act of 1934, the US Securities and Exchange Commission (SEC) has the following powers:

Summon witnesses, take testimonies or testify under oath;
Collect evidence, and request any documents or records that the SEC considers relevant to the case;
Request agencies and organizations to cooperate in verifying, clarifying, and collecting information.

History of the US securities law

When the stock market was newly formed in the US, securities laws were not enacted. At that time, the laws governing the stock market were enacted and regulated by the states.

History of securities law. Learn important US securities laws. The SEC strictly regulates the current US securities laws
The “Black Thursday” incident occurred on October 29, 1929

The “Black Thursday” incident occurred on October 29, 1929, and the entire stock market collapsed, leading to a great crisis in the stock market and the global economy. After the above event, the market fell for many years, and the US Congress found the causes of the crash and prompted Congress to hold hearings, and finally enact the US Securities Act of 1933.

Then, in 1934, the US Securities Exchange Act continued to regulate securities trading activities on the public market (secondary market). The Securities Exchange Act was further revised to apply to companies operating in the OTC market in 1964.

Throughout the US stock market history, the government has continued to regulate and implement reforms to the security of transactions in the US stock market. And in October 2000, the SEC issued Reg FD (fair disclosure) regulation to ensure that all investors receive essential information fairly at the same time. In 2010, the US government passed consumer protection and Wall Street reform legislation after the 2007–08 financial crisis.

Most of the global stock markets, especially emerging markets, refer to US securities laws.

Learn important US securities laws

Since its inception, there have been several essential laws mentioned in many documents, including:

  • Securities Act of 1933 – regulating the distribution of new securities
  • Securities Exchange Act of 1934 – holds the purchase and sale of securities, brokers, and exchanges
  • Trust Indenture Act 1939 – debt securities regulation
  • Investment company Act 1940 – mutual fund regulation
  • Investment Advisors Act 1940 – regulation of investment advisors
  • Sarbanes-Oxley ActDodd-Frank Wall Street Reform and Consumer Protection Act of 2002 – regulating corporate responsibilities
  • Dodd-Frank’s Consumer Protection and Wall Street Reform Act of 2010 – regulation of commerce, credit ratings, corporate governance, and corporate transparency
  • Jumpstart Our Business Startups Act of 2012 – regulates capital market requirements.

Securities Act of 1933

The 1933 securities law is known as the “truth in securities” law. This Act has two primary goals:

  • Investors are entitled to receive financial and other important information relating to securities offered to the public;
  • And it is strictly forbidden to commit fraud, misrepresentation, and other fraudulent acts in the sale of securities.

Specifically, the content of the law regulates the registration of a public offering of securities with the US Securities and Exchange Commission, the information disclosed in the registration dossier, and the Commission’s authority in case of disapproval of the registration dossier. The Commission’s head in case of detecting violations in the registration dossier and sanctioning sanctions.

Securities Exchange Act of 1934

With this Act, Congress established the Securities and Exchange Commission (SEC). The Act empowers the SEC with authority over the securities industry, including the power to register, regulate, and supervise brokerage firms, transfer agents, clearinghouses, and self-regulatory organizations securities (SRO) of the country. Various stock exchanges, such as the New York Stock Exchange, the NASDAQ Stock Exchange, and the Chicago Board of Options, are SROs. The Financial Industry Regulatory Authority (FINRA) is also an SRO.

The Act also identifies and prohibits certain types of conduct in the marketplace and provides the Commission with disciplinary powers over regulated entities and those associated with them.

The act also empowers the SEC to require periodic reporting of information about companies whose securities are publicly traded.

Conclusion

Above is some basic information about US securities laws. It is an extensive and well-researched topic in the global stock market. The SEC strictly regulates the current US securities laws and helps the market operate openly, transparently, and limit risks for participants.

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