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Securities exchanges

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Securities associations

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Self-regulatory organizations (SRO)

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Other trading platforms
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Issuers

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Antifraud provisions

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Exemptions from reporting because of national security

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See also

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References

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External links

Securities Exchange Act of 1934

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From Wikipedia, the free encyclopedia
 Securities Exchange Act of 1934

Long title An act to provide for the regulation of securities exchanges and of
over-the-counter markets operating in interstate and foreign
commerce and through the mails, to prevent inequitable and unfair
practices on such exchanges and markets, and for other purposes.

Nicknames Securities Exchange Act

Exchange Act
1934 Act
'34 Act

Enacted by the 73rd United States Congress

Citations

Public law Pub. L. 73–291

Statutes at Large 48 Stat. 881

Codification

Titles amended 15 U.S.C.: Commerce and Trade

U.S.C. sections 15 U.S.C. § 78a et seq.

created

Legislative history

 Signed into law by President Franklin D. Roosevelt on June 6, 1934

Major amendments
 Dodd–Frank Wall Street Reform and Consumer Protection Act
Economic Growth, Regulatory Relief and Consumer Protection Act

United States Supreme Court cases

Silver v. N.Y. Stock Exch., 373 U.S. 341 (1963)

TSC Indus. v. Northway, 426 U.S. 438 (1976)
Chiarella v. United States, 445 U.S. 222 (1980)
Basic Inc. v. Levinson, 485 U.S. 224 (1988)
Central Bank of Denver v. First Interstate Bank of Denver , 511 U.S. 164 (1994)
Plaut v. Spendthrift Farm, Inc., 514 U.S. 211 (1995)
Wharf Holdings v. United Int'l Holdings, 532 U.S. 588 (2001)
Dura Pharm. v. Broudo, 544 U.S. 336 (2005)
Stoneridge Inv. Partners v. Scientific-Atlanta, 552 U.S. 148 (2008)
Matrixx Initiatives v. Siracusano , 563 U.S. 27 (2011)
Credit Suisse Securities (USA) LLC v. Simmonds , 566 U.S. 221 (2012)
Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014)
Salman v. United States, No. 15-628, 580 U.S. ___ (2016)
Liu v. Securities and Exchange Commission, No. 18-1501, 591 U.S. ___ (2020)
Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System, No. 20-
222, 594 U.S. ___ (2021)
Axon Enterprise, Inc. v. Federal Trade Commission , No. 21-86, 598 U.S. ___ (2023)

The Securities Exchange Act of 1934 (also called the Exchange Act, '34 Act,

or 1934 Act) (Pub. L. 73–291, 48 Stat. 881, enacted June 6,
1934, codified at 15 U.S.C. § 78a et seq.) is a law governing the secondary trading of
securities (stocks, bonds, and debentures) in the United States of America.[1] A landmark
of wide-ranging legislation, the Act of '34 and related statutes form the basis of
regulation of the financial markets and their participants in the United States. The 1934
Act also established the Securities and Exchange Commission (SEC),[2] the agency
primarily responsible for enforcement of United States federal securities law.
Companies raise billions of dollars by issuing securities in what is known as the primary
market. Contrasted with the Securities Act of 1933, which regulates these original
issues, the Securities Exchange Act of 1934 regulates the secondary trading of those
securities between persons often unrelated to the issuer, frequently through brokers or
dealers. Trillions of dollars are made and lost each year through trading in the
secondary market.

Securities exchanges[edit]
One area subject to the 1934 Act's regulation is the physical place where securities
(stocks, bonds, notes of debenture) are exchanged. Here, agents of the exchange,
or specialists, act as middlemen for the competing interests in the buying and selling of
securities. An important function of the specialist is to inject liquidity and price continuity
into the market. Some of the more well known exchanges include the New York Stock
Exchange, the NASDAQ and the NYSE American.

Securities associations[edit]
The 1934 Act also regulates broker-dealers without a status for trading securities. A
telecommunications infrastructure has developed to provide for trading without a
physical location. Previously these brokers would find stock prices through newspaper
printings and conduct trades verbally by telephone. Today, a digital information network
connects these brokers. This system is called NASDAQ, standing for the National
Association of Securities Dealers Automated Quotation System.

Self-regulatory organizations (SRO)[edit]

In 1938 the Exchange Act was amended by the Maloney Act, which authorized the
formation and registration of national securities associations. These groups would
supervise the conduct of their members subject to the oversight of the SEC. The
Maloney Act led to the creation of the National Association of Securities Dealers, Inc. –
the NASD, which is a Self-Regulatory Organization (or SRO). The NASD had primary
responsibility for oversight of brokers and brokerage firms, and later, the NASDAQ stock
market. In 1996 the SEC criticized the NASD for putting its interests as the operator of
NASDAQ ahead of its responsibilities as the regulator, and the organization was split in
two, one entity regulating the brokers and firms, the other regulating
the NASDAQ market. In 2007, the NASD merged with the NYSE (which had already
taken over the AMEX), and the Financial Industry Regulatory Authority (FINRA) was
created.

Other trading platforms[edit]

In the last 30 years,[timeframe?] brokers have created two additional systems for trading
securities. The alternative trading system, or ATS, is a quasi exchange where stocks
are commonly purchased and sold through a smaller, private network of brokers,
dealers, and other market participants. The ATS is distinguished from exchanges and
associations in that the volumes for ATS trades are comparatively low, and the trades
tend to be controlled by a small number of brokers or dealers. ATS acts as a niche
market, a private pool of liquidity. Reg ATS, an SEC regulation issued in the late 1990s,
requires these small markets to 1) register as a broker with the NASD, 2) register as an
exchange, or 3) operate as an unregulated ATS, staying under low trading caps.
A specialized form of ATS, the Electronic Communications Network (or ECN), has been
described as the "black box" of securities trading. The ECN is a completely automated
network, anonymously matching buy and sell orders. Many traders use one or more
trading mechanisms (the exchanges, NASDAQ, and an ECN or ATS) to effect large buy
or sell orders – conscious of the fact that overreliance on one market for a large trade is
likely to unfavorably alter the trading price of the target security.

Issuers[edit]
While the 1933 Act recognizes that timely information about the issuer is vital to
effective pricing of securities, the 1933 Act's disclosure requirement (the registration
statement and prospectus) is a one-time affair. The 1934 Act extends this requirement
to securities traded in the secondary market. Provided that the company has more than
a certain number of shareholders and has a certain amount of assets (500
shareholders, above $10 million in assets, per Act sections 12, 13, and 15), the 1934
Act requires that issuers regularly file company information with the SEC on certain
forms (the annual 10-K filing and the quarterly 10-Q filing). The filed reports are
available to the public via EDGAR. If something material happens with the company
(change of CEO, change of auditing firm, destruction of a significant number of
company assets), the SEC requires that the company issue within 4 business days
an 8-K filing that reflects these changed conditions (see Regulation FD). With these
regularly required filings, buyers are better able to assess the worth of the company,
and buy and sell the stock according to that information.

Antifraud provisions[edit]
While the 1933 Act contains an antifraud provision (Section 17), when the 1934 Act was
enacted, questions remained about the reach of that antifraud provision and whether a
private right of action—that is, the right of an individual private citizen to sue an issuer of
stock or related market actor, as opposed to government suits—existed for purchasers.
As it developed, section 10(b) of the 1934 Act and corresponding SEC Rule 10b-5 have
sweeping antifraud language. Section 10(b) of the Act (as amended) provides (in
pertinent part):
It shall be unlawful for any person, directly or indirectly, by the use of any means or
instrumentality of interstate commerce or of the mails, or of any facility of any national
securities exchange ...
(b) To use or employ, in connection with the purchase or sale of any security registered on a
national securities exchange or any security not so registered, or any securities-based swap
agreement (as defined in section 206B of the Gramm–Leach–Bliley Act), any manipulative or
deceptive device or contrivance in contravention of such rules and regulations as the
Commission may prescribe as necessary or appropriate in the public interest or for the
protection of investors.

Section 10(b) is codified at 15 U.S.C. § 78j(b).

The breadth and utility of section 10(b) and Rule 10b-5 in the pursuit of securities
litigation are significant. Rule 10b-5 has been employed to cover insider trading cases,
but has also been used against companies for price fixing (artificially inflating or
depressing stock prices through stock manipulation), bogus company sales to increase
stock price, and even a company's failure to communicate relevant information to
investors. Many plaintiffs in the securities litigation field plead violations of section 10(b)
and Rule 10b-5 as a "catch-all" allegation, in addition to violations of the more specific
antifraud provisions in the 1934 Act.

Exemptions from reporting because of national security [edit]

Section 13(b)(3)(A) of the Securities Exchange Act of 1934 provides that "with respect
to matters concerning the national security of the United States", the President or the
head of an Executive Branch agency may exempt companies from certain critical legal
obligations. These obligations include keeping accurate "books, records, and accounts"
and maintaining "a system of internal accounting controls sufficient" to ensure the
propriety of financial transactions and the preparation of financial statements in
compliance with "generally accepted accounting principles".
On May 5, 2006, in a notice in the Federal Register, President Bush delegated authority
under this section to John Negroponte, the Director of National Intelligence.
Administration officials told Business Week that they believe this is the first time a
President has ever delegated the authority to someone outside the Oval Office. [3]

See also[edit]
 Securities regulation in the United States
 Commodity Futures Trading Commission
 Securities commission
 Chicago Stock Exchange
 Financial regulation
 List of financial regulatory authorities by country
 NASDAQ
 New York Stock Exchange
 Stock exchange
 Regulation D (SEC)
Related legislation

 1933 – Securities Act of 1933

 1938 – Temporary National Economic Committee (establishment)
 1939 – Trust Indenture Act of 1939
 1940 – Investment Advisers Act of 1940
 1940 – Investment Company Act of 1940
 1968 – Williams Act (Securities Disclosure Act)
 1975 – Securities Acts Amendments of 1975
 1982 – Garn–St. Germain Depository Institutions Act
 1999 – Gramm-Leach-Bliley Act
 2000 – Commodity Futures Modernization Act of 2000
 2002 – Sarbanes–Oxley Act
 2006 – Credit Rating Agency Reform Act of 2006
 2010 – Dodd–Frank Wall Street Reform and Consumer Protection Act

References[edit]
1. ^ Lin, Tom C. W. (April 16, 2012). "A Behavioral Framework for Securities Risk". Seattle University
Law Review. Rochester, NY.  34: 325.  SSRN 2040946.
2. ^ Cox, James D.; Hillman, Robert W.; Langevoort, Donald C. (2009).  Securities Regulation: Cases
and Materials (6th  ed.). Aspen Publishers. p. 11.
 3. ^ "Intelligence Czar Can Waive SEC Rules". BusinessWeek. May 23, 2006. Archived from  the
original on May 25, 2006. Retrieved October 9, 2007.

External links[edit]
 Securities Exchange Act of 1934, as amended, in HTML/PDF/details in the GPO Statute
Compilations collection
 United States Securities and Exchange Commission (SEC) – Official site
 Introduction to the Federal Securities Laws
 Securities Lawyer's Deskbook – Securities Exchange Act of 1934. University of Cincinnati
College of Law.
 Public Law 73-291, 73d Congress, H.R. 9323: Securities Exchange Act of 1934

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 This page was last edited on 14 April 2023, at 20:16 (UTC).
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