Securities Exchange Act of 1934

Definition

The Securities Exchange Act of 1934 is a landmark piece of legislation that regulates the trading of securities in the secondary market. It established the Securities and Exchange Commission (SEC) to oversee and enforce securities laws, promoting transparency and protecting investors from fraud and manipulation in the financial markets.

5 Must Know Facts For Your Next Test

1. The Securities Exchange Act was enacted on June 6, 1934, as part of New Deal legislation aimed at restoring public confidence in the financial markets after the Great Depression.
2. One of the key features of the act is the requirement for publicly traded companies to disclose financial information regularly, which helps maintain transparency in the markets.
3. The act also prohibits insider trading and other forms of market manipulation, which are illegal practices that can distort fair market conditions.
4. The establishment of the SEC as an independent regulatory body has been crucial in monitoring compliance with securities laws and protecting investors from fraud.
5. The Securities Exchange Act has been amended multiple times over the years to address changes in market practices and enhance investor protections.

Review Questions

• How did the Securities Exchange Act of 1934 change the regulatory landscape for securities trading?
  • The Securities Exchange Act of 1934 significantly altered the regulatory environment by establishing a federal framework for overseeing securities trading in the secondary market. It created the SEC, which was tasked with enforcing securities laws and ensuring transparency among publicly traded companies. This shift aimed to protect investors from fraudulent activities and restore confidence in financial markets following the turmoil of the Great Depression.
• Discuss the implications of requiring public companies to disclose financial information under the Securities Exchange Act.
  • The requirement for public companies to disclose financial information is a fundamental aspect of the Securities Exchange Act of 1934. This provision promotes transparency, allowing investors to make informed decisions based on accurate and timely data. It also holds companies accountable for their financial performance, as failure to comply can result in penalties from the SEC. Overall, this transparency helps prevent misinformation and reduces opportunities for market manipulation.
• Evaluate how the creation of the SEC under the Securities Exchange Act of 1934 has impacted investor confidence in U.S. financial markets over time.
  • The establishment of the SEC under the Securities Exchange Act of 1934 has had a profound impact on investor confidence in U.S. financial markets. By providing a regulatory authority that monitors compliance with securities laws, investigates violations, and enforces regulations against fraud and manipulation, the SEC fosters trust among investors. Over time, this oversight has helped create a more stable and fair trading environment, encouraging both institutional and retail investors to participate in financial markets, which contributes to overall market growth and economic stability.

Related terms

Securities and Exchange Commission (SEC):

A federal agency created by the Securities Exchange Act of 1934 responsible for enforcing securities laws, regulating the securities industry, and protecting investors.

Market Manipulation: A practice that involves artificially inflating or deflating the price of a security, often through deceptive or fraudulent means, which is prohibited under the Securities Exchange Act.

Proxy Statement: A document required by the SEC that provides shareholders with information about matters to be discussed at an annual meeting, including executive compensation and board of director elections.