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Securities, Options and Futures Consultants

Securities Rules & Regulations ...

The regulatory structure relating to securities in the United States is diffuse. At the federal level it derives from the following Acts of Congress enacted during the Great Depression, which followed the stock market crash of 1929.

U.S. Statutes and Regulations

• Securities Act of 1933
  This Act governs the issuance of stock by underwriters, underwriting syndicates and others. This market is known as the primary market and is regulated by the Securities Exchange Commission (SEC), which requires registration and the filing of prospectuses for offerings unless exempted. It also requires the periodic filing of other documents and polices the market for fraud.
• Securities Exchange Act of 1934
  This Act regulates the secondary market in which shares of stock, having been issued, are permitted to trade. As such, it directly controls the Securities Exchanges in the United States, as well as the brokers and brokerage firms that act as broker/dealers. Again, the SEC is the regulator.
• Investment Company Act of 1940
  This is the Act that directly regulates the mutual fund industry. It is the primary focus in dealing with market timing, late trading and other mutual fund abuse although each of the other Acts plays a role here.
• Investment Advisers Act of 1940
  This Act regulates investment advisers who advise the purchase of mutual funds, variable insurance products and certain other investments.
• Sarbanes-Oxley Act of 2002
  Also known as SOX, this bill was enacted in the wake of scandals like Enron and Worldcom to protect shareholders and the general public from errors and fraud and ensure the accuracy of corporate financial disclosures.
• Dodd-Frank Wall Street Reform & Consumer Protection Act
  Passed in 2010 in response to the Great Recession, Dodd-Frank was an overhaul of the existing financial regulatory system intended to promote the financial security of the United States. It included significant changes to the regulatory structure aimed at improving accountability and transparency among other purposes.

Other Regulations

In addition, each state regulates securities sales through its Blue Sky laws. Most states have adopted variants of the Uniform Securities Act, which is a model act drafted for the purpose of encouraging uniformity in regulation at the state level. While this appears duplicative, state regulation often differs from federal regulation to a considerable degree, as it does from state to state.

Also, various other federal and state laws are important such as the Maloney Act of 1938, which allowed the securities industry a measure of self-regulation. The New York Stock Exchange, FINRA and various other exchanges have also served as self-regulatory organizations, or SRO’s, and have promulgated rules for their members.

An important state law is the Martin Act, a once-dormant 1921 New York Blue Sky law, which New York authorities have used to combat stock fraud schemes. Under this Act there is both the power to subpoena and indict, which the SEC can only do by referral to the U.S. Department of Justice.

See Broker Breach of Fiduciary Duty.