What Is the Securities Act of 1933?

The Securities Act of 1933 was created and passed into law to protect investors after the stock market crash of 1929. The legislation had two main goals: to ensure more transparency in financial statements so investors could make informed decisions about investments; and to establish laws against misrepresentation and fraudulent activities in the securities markets.

How the Securities Act of 1933 Works

The Securities Act of 1933 was the first major legislation regarding the sale of securities. Prior to this legislation, the sales of securities were primarily governed by state laws. The legislation addressed the need for better disclosure by requiring companies to register with the Securities and Exchange Commission (SEC). Registration ensures that companies provide the SEC and potential investors with all relevant information by means of a prospectus and registration statement.

The act—also known as the "Truth in Securities" law, the 1933 Act, and the Federal Securities Act—requires that investors receive financial information from securities being offered for public sale. This means that prior to going public, companies have to submit information that is readily available to investors.

Today, the required prospectus has to be made available on the SEC website. A prospectus must include the following information:

  • A description of the company’s properties and business
  • A description of the security being offered
  • Information about executive management
  • Financial statements that have been certified by independent accountants

Key Takeaways

  • The Securities Act of 1933 was created and passed into law to protect investors after the stock market crash of 1929.
  • The Securities Act of 1933 was designed to create transparency in the financial statements of corporations.
  • The Securities Act also established laws against misrepresentation and fraudulent activities in the securities markets.

Securities Exempt from SEC Registration

Some securities offerings are exempted from the registration requirement of the act. These include:

  • Intrastate offerings
  • Offerings of limited size
  • Securities issued by municipal, state, and federal governments
  • Private offerings to a limited number of persons or institutions

The other main goal of the Securities Act of 1933 was to prohibit deceit and misrepresentations. The act aimed to eliminate fraud that happens during the sales of securities.

President Franklin D. Roosevelt signed the Securities Act of 1933 into law as part of his famous New Deal.

History of the Securities Act of 1933

The Securities Act of 1933 was the first federal legislation used to regulate the stock market. The act took power away from the states and put it into the hands of the federal government. The act also created a uniform set of rules to protect investors against fraud. It was signed into law by President Franklin D. Roosevelt and is considered part of the New Deal passed by Roosevelt.

The Securities Act of 1933 is governed by the Securities and Exchange Commission, which was created a year later by the Securities Exchange Act of 1934. Several amendments to the Securities Act of 1933 have passed since its creation. Amendments have been passed to update rules numerous times over the years, with the latest enacted in 2018.