Characteristics, Uses and Taxation of Investments - Securities Regulation



b.
Regulation - regulation is extensive in the securities industry, both at the federal and state levels.

  1. The 1933 Act - applies to the required disclosure for the issuance of new securities. Issuers of non-exempt securities must file a registration statement with the SEC. Anyone purchasing a new, non-exempt issue must receive a prospectus.
    1. Exempt securities include US government securities; municipal bonds; commercial paper and banker's acceptances with maturities of less than 270 days; insurance policies and fixed annuities; national and state bank securities; savings and loan securities and charitable, religious, educational and non-profit association issues.
    2. Exempt transactions include Regulation A: corporate offerings of less than $5M; Regulation: Private Placements; Rule 147: securities offered and sold exclusively intrastate and Rule 144 (control securities owned by directors, officers or persons owning or controlling 10% or more of an issuer's voting stock/restricted securities: acquired through other than a public offering, e.g. private placement), 144a (the sale of non-registered foreign and domestic securities to qualified institutional buyers e.g. with a minimum of $100M in assets and 145.
  2. The 1934 Act - the people act, it regulates the secondary market which comprises outstanding securities, trading and the participants in it. The act created the Securities and Exchange Commission (SEC). The act requires registration of all firms and persons trading securities on the exchanges and over the counter, registration of the exchanges and the OTC market, regulation of credit by the Federal Reserve Board (FRB), regulation of trading activities, regulation of insider transactions, proxies and short sales, regulation of client accounts, the customer protection rule, net capital requirements of broker/dealers and issuers' reporting requirements.
  3. The Public Utility Holding Company Act of 1935
  4. The Maloney Act of 1938 - amended the 1934 Act to allow the SEC to create self-regulatory organizations (SROs) or designated examining authorities (DEAs) to monitor broker/dealers not affiliated with a stock exchange. It was here that the National Association of Securities Dealers (NASD) was chartered as the SRO of the OTC market.
  5. The Federal Bankruptcy Act of 1938
  6. The Trust Indenture Act of 1939 - is applicable to corporate bonds with an issue size of more than $5 million within twelve months and with a maturity exceeding nine months. The purpose of the act is to protect bondholders. The issuer is required to appoint a trustee to ensure that the terms of the trust indenture-the series of promises between the issuer and trustee-are fulfilled for the bondholders' benefit.
  7. The Investment Company Act of 1940 - defines and regulates investment companies. Such companies must register with the SEC prior to issuing any shares to the public; set forth clearly their investment objectives in the registration statement and prospectus; have a minimum $100,000 net worth, have at least 100 shareholders, comply with pricing, sale and reporting standards.
  8. The Investment Advisors Act of 1940 - regulates investment advisors, defined as anyone who offers investment advice for compensation as part of their business. Broker/dealers fitting the definition must register under the act, investment advisor representatives must register as well and pass the Series 65 (Series 66 if Series 7 licensed) unless a particular advanced certification exempts them from doing so in the state where they register (e.g. Chartered Financial Analysts and Certified Financial Planners may be exempt from the exam requirements, depending on the state in which they practice).
  9. The Securities Investor Protection Act of 1970 - the goal of this act is to protect investors from broker/dealer insolvency or failure. The Securities Investor Protection Corporation is independent and government sponsored. Membership is compulsory for broker/dealers registered with the SEC who pay an annual assessment that funds a pool to meet potential claims for customers from a failed broker/dealer.
    Coverage requirements - customer accounts are covered to a $500,000 maximum, of which the cash coverage may not exceed $100,000. Note that the coverage amounts are per customer, not per account. The order of events in a liquidation is as follows.
    1. Securities held in the customer's name are delivered to registered owners.
    2. Cash and street name securities are distributed pro rata.
    3. SIPC funds are paid out to meet any remaining claims up to the per customer maximum.
    4. Customers with claims exceeding the limits become general creditors of the broker/dealer.
  10. The Securities Acts Amendments of 1975 - these established the Municipal Securities Rulemaking Board (MSRB) which regulates the issuance and trading of all manner of municipal securities.
Sample Questions 1 - 7


Related Articles
  1. Professionals

    A. Introduction: Securities Industries Rules and Regulations

    Federal and state securities laws, as well as industry regulations, have been enacted to ensure that all industry participants adhere to a high standard of just and equitable trade practices.
  2. Professionals

    THE SECURITIES EXCHANGE ACT OF 1934

    Federal and state securities laws, as well as industry regulations, have been enacted to ensure that all industry participants adhere to a high standard of just and equitable trade practices. ...
  3. Professionals

    Investment Company Registration, Regulations and Rules

    FINRA Series 6: Section 10 Investment Company Registration, Regulations and Rules. In this section: The Investment Company Act of 1940 and The Securities Act of 1933.
  4. Professionals

    Introduction

    The Securities Act of 1933 was the first major piece of securities industry regulation that was brought about largely as a result of the stock market crash of 1929. Other major laws were also ...
  5. Professionals

    Federal Covered Securities

    FINRA/NASAA Series 66 - Federal Covered Securities. This section explains federal covered securities and sample exam questions.
  6. Professionals

    The Securities Investor Protection Corp. (SIPC)

    The Securities Investor Protection Corp. (SIPC)
  7. A. Introduction: Securities Industries Rules and Regulations

    Federal and state securities laws, as well as industry regulations, have been enacted to ensure that all industry participants adhere to a high standard of just and equitable trade practices. ...
  8. Professionals

    The Securities Act of 1933

    FINRA Series 6 Exam Study Guide - The Securities Act of 1933. This section discusses the securities act of 1933 including definitions and penalties under the act.
  9. Professionals

    Securities Regulation

    FINRA/NASAA Series 65 - Securities Regulation. In this section securities registartion exemptions and registering a security.
  10. Professionals

    Introduction

    The Securities Act of 1933 was the first major piece of securities industry regulation that was brought about largely as a result of the stock market crash of 1929. Other major laws were also ...
RELATED TERMS
  1. Securities Exchange Act Of 1934

    The Securities Exchange Act of 1934 was created to provide governance ...
  2. Regulation A

    An exemption from the registration requirements mandated by the ...
  3. Covered Security

    A class of securities, created by the National Securities Market ...
  4. Security

    A financial instrument that represents an ownership position ...
  5. Investment Company Act Of 1940

    Created in 1940 through an act of Congress, this piece of legislation ...
  6. Uniform Securities Act

    An act created as a starting point for state-level securities ...
RELATED FAQS
  1. What financial regulation exist to control the secondary market?

    Examine a brief characterization of financial regulation in the secondary market, including self-regulatory organizations ... Read Answer >>
  2. Do financial advisors need to be approved by FINRA?

    Learn about whether a financial advisor may be required to be approved by FINRA, and what exams a financial advisor needs ... Read Answer >>
  3. How are investment banks regulated in the United States?

    Read about the extensive regulations placed on investment banks in the United States, beginning with the Glass-Steagall Act ... Read Answer >>
  4. How do I know if I am buying unregistered securities or stocks?

    All securities, including stocks, bonds and notes, must be registered with the Securities and Exchange Commission (SEC) before ... Read Answer >>
  5. How is trading volume regulated by the Securities and Exchange Commission (SEC)?

    Learn about how the SEC uses the trading volume formula as one requirement for an exemption to the ban on the resale of restricted ... Read Answer >>
  6. How are asset management firms regulated?

    Find out how the asset management industry is regulated and how those regulations fit within the broader scope of financial ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center