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The Key Legislation That Governs the Financial Securities Industry

A security is simply defined as the documentation of either ownership or debt that can be given a monetary value for the purpose of selling these items for profit-sharing. Many securities are purchased from an initial public offering, or IPO. Securities are governed by a considerable number of laws. Regulations are strict to prevent corporations from buying and selling securities that are dicey on the Exchange. There is no greater example of risk-taking by financial firms and the misuse of securities that than of the 2008 financial crisis in the United States.

These Are Five Laws That Govern Securities.

According to the Securities Act of 1933, investors must receive substantial, truthful representation from sellers about the securities being sold to the public. A year after Congress established the Securities Act of 1933, it implemented the Securities and Exchange Commission. Under the Securities Exchange Act of 1934, the SEC has the power to broadly regulate securities, including taking disciplinary action against individuals who fraudulently sell them on the New York Stock Exchange, the Chicago Board of Options, and NASDAQ.

The Securities Exchange Act of 1934 not only established the SEC. The Act prohibits insider trading, the practice of buying or selling a security by an individual who has information on that security that is not shared with the public. To facilitate additional information-sharing within the financial sector, Congress created the Investment Company Act of 1940. The Act says a company cannot sell their stock unless they disclose the general financial status of the company. This also includes the company’s investment activity.

Changes to financial securities regulation during the last two decades

The SEC registers people, too. In 1940, Congress established the Investment Advisers Act that stated that advisers compensated for their securities investment advice must also registered with the SEC.The Act was changed in recent years to only require advisers with more than $100 million in assets to register.

The Sarbanes-Oxley Act of 2010 created a Public Company Accounting Oversight Board to keep tabs on the activities of auditors.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is possibly the most influential piece of legislation since the Great Depression to change how financial markets operate. The act highlighted several areas to protect consumers, including by regulating corporate governance and disclosure policies.

Regulating financial securities may become more technical with the advancement of banking technologies. Bitcoin is one example. Bitcoin is a cryptocurrency, or a type of electronic cash, that can be difficult to legislate. Chris Brummer, director of Georgetown’s Institute of International Economic Law, says the cryptocurrency will be difficult to use within our existing financial system. It is nearly impossible to keep track of fraud for a percentage of Initial Coin Offerings whose origins are unknown, says Brummer.

Regulating cryptocurrencies will pose new challenges for governments of the future.

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