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The first major securities act was the Securities Act of 1933. This was largely focused on consumer protection, which could be expected because of the country being deep in the Great Depression. The objective of the 1933 act was to provide investors with material, financial, and other information about corporations who were issuing public securities and to prevent fraud in the offering of those securities. The act was meant to ensure the buyers received complete and accurate information before they invested.
It also required that securities being offered or sold to the public in the United States be registered with the U.S. Securities Exchange Commission (SEC). Another requirement involved the seller of securities in the primary or the secondary market to file registration statements, which is also called a prospectus. Recall that a prospectus is a document that the issuer has to market its securities to investors. It describes the offering that is up for sale, provides information about management, and provides financial statements audited by public accountants.
A year later, the Securities Exchange Act of 1934 was passed. This act governs the secondary trading of stocks and bonds in the United States. This act was substantial in scope because it formed the basis for regulation of the markets in the United States. It also established the SEC, the primary enforcement agency of securities law.
Amendments to the Securities Exchange Act that were passed in 1975 are also known as the National Exchange Market System Act. This directed the Securities and Exchange Commission to work with the industry toward establishing a national market system, along with a nationwide clearance and settlement of securities transactions.
The National Market System (NMS) sought to transmit transaction information in real time, supported by the then current improvements in technology and communication. The transactions were sent to the Securities Industry Automation Corporation, the SIAC, where data is compiled and distributed.
This new national marketing system plan was regulated by Regulation NMS, which was a sequence of steps to modernize and strengthen the system for trading equity securities. Until this time, different regional markets were very fragmented and dealers could not compare prices of stocks in each of those markets. Congress authorized the SEC to facilitate this.
Provisions included:
As technology and the speed of market transactions rapidly increased, there became greater opportunities and more frequent occurrences of fraudulent activities. This reached a peak with the passage of the Sarbanes-Oxley Act of 2002. This was a federal law that set new standards for companies and accounting firms. Also known as SOX, the law provided for much more severe penalties and increased oversight. Since then, other countries have been forced to apply stricter financial government laws as well.
SOX provisions included:
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