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. Registration ensures that companies provide the SEC and potential investors with all relevant information by means of a prospectus and registration statement.
President Franklin D. Roosevelt signed the Securities Act of 1933 into law as part of his famous New Deal.
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. (The required prospectus now has to be available on the SEC website.) The prospectus has to include a description of the company’s properties and business; a description of the security being offered; information about the management running the company; and financial statements that have been certified by independent accountants.
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.
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. More important, the act 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.