A Primer on Financial Securities Law
Securities are debt and personal property that has monetary worth that can be sold in order to share profits. Many securities are purchased from an initial public offering, or IPO. However, there are several laws that regulate securities. This is because financial companies have been able to manipulate the stock market in their favor by selling risky securities. Financial firms greatly mishandled securities, which lead to the 2008 financial crisis in the United States.
Five Laws That Regulate Securities.
As stated in the Securities Act of 1933, the public must be sold securities that have been properly vetted. The Securities and Exchange Commission was created shortly thereafter. 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. Insider trading is prohibited by the Act, which says that an individual cannot buy or sell a security if all information about the security has not been disclosed to the public. Congress passed the Investment Company Act of 1940 to continue efforts for financial disclosure within the investment and banking industries. Company officials must disclose the strength and weaknesses of the company each time they sell company stock. The Act also stipulates a company must disclose investment activity with each selling of stock.
Changes to financial securities regulation during the last two decades
Financial firms are not the only entities catalogued at the SEC. By 1940, Congress was mandating that advisers compensated for their investment advice should also be registered with the SEC.The Act was changed in recent years to only require advisers with more than $100 million in assets to register.
In recent years, the government has sought to regulate the professional behaviors of auditors with the Public Company Accounting Oversight Board.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was in response to the financial crisis of 2008. The legislation outlined several areas of reform, including everything from trading restriction to consumer protection.
Writing new legislation to accommodate changing banking technology is a challenge. Take Bitcoin. The cryptocurrency Bitcoin is one that is challenging to regulate. Chris Brummer, director of Georgetown’s Institute of International Economic Law, says the cryptocurrency will be difficult to use within our existing financial system. Brummer has stated that the origins of Initial Coin Offerings are not always identifiable, making it impossible for investors to keep track of fraud.
As cryptocurrencies increase in popularity, governments will need to regulate with technology that can keep up.