The Securities Exchange Act of 1934 (the “1934 Act”) grants broad authority to the Securities and Exchange Commission (“SEC”) to oversee the securities industry. The SEC’s authority includes the power to register, regulate, and oversee brokerage firms, transfer agents, and clearing agencies; as well as securities self regulatory organizations (SROs), including the Financial Industry Regulatory Authority (“FINRA”).
In addition, the New York Stock Exchange, the NASDAQ Stock Market, and the Chicago Board of Options Exchange are all subject to regulation under the 1934 Act.
The Act addresses certain conduct in the securities markets and provides the SEC with the power to discipline regulated entities and persons associated with them. Italso grants the SEC the ability to regulate disclosures of public companies, such as the authority to require periodic reporting of information by companies with publicly traded securities.
SEC Reporting Requirements
Private or public companies with over $10 million in assets whose securities are held by more than 500 shareholders must file annual and other periodic reports with the SEC. These reports and filings are available to the public through the SEC’s EDGAR database.
The 1934 Act requires disclosure of specific information by anyone seeking to acquire more than 5 percent of a public company’s securities by direct purchase or tender offer. Tender offers are often extended by individuals or entities trying to gain control of a public company.
The Exchange Act regulates the disclosure furnished in materials used to solicit shareholders’ votes on corporate actions and at annual or special meetings held for the election of directors. The information contained in proxy materials must be filed with the SEC prior to any solicitation to ensure compliance with disclosure rules. Solicitations, whether by management or shareholder groups, must disclose all material facts about the matters that are presented to a vote of a company’s shareholders.
Fraud and Insider Trading
The 1934 Act prohibits fraudulent activities of any nature in connection with the offer, purchase, or sale of securities. These provisions are the basis for many types of disciplinary actions, including actions against fraudulent insider trading. Insider trading is illegal when a person trades a security while in possession of material nonpublic information in violation of a duty to withhold the information or refrain from trading.
Registration of SROs
The 1934 Act requires exchanges, brokers and dealers, transfer agents, and clearing agencies to register with the SEC. Registration involves filing disclosure documents that are updated on a regular basis.
The exchanges and FINRA are SROs. SROs must adopt rules that discipline members for improper conduct and establish measures to ensure market integrity as well as investor protection. Proposed rules of SROs are subject to SEC review. While many SRO proposed rules are effective upon filing, some must be approved by the SEC before they become effective.
The full text of the Exchange Act can be read at: http://www.sec.gov/about/laws/sea34.pdf.
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