Securities Exchange Act of 1934

What Is the Securities Exchange Act of 1934?

The Securities Exchange Act of 1934 (SEA) was created to govern securities transactions on the secondary market, after issue, ensuring greater financial transparency and accuracy and less fraud or manipulation.

The SEA authorized the formation of the Securities and Exchange Commission (SEC), the regulatory arm of the SEA. The SEC has the power to oversee securities — stocks, bonds, and over-the-counter securities — as well as markets and the conduct of financial professionals, including brokers, dealers, and investment advisors. It also monitors the financial reports that publicly traded companies are required to disclose.

Understanding the Securities Exchange Act of 1934

All companies listed on stock exchanges must follow the requirements outlined in the Securities Exchange Act of 1934. Primary requirements include registration of any securities listed on stock exchanges, disclosure, proxy solicitations, and margin and audit requirements. The purpose of these requirements is to ensure an environment of fairness and investor confidence.

The SEC can choose to file a case in federal court or settle the matter outside of trial.

The SEA of 1934 granted the SEC broad authority to regulate all aspects of the securities industry. It is led by five commissioners, who are appointed by the president, and has five divisions: Division of Corporation Finance, Division of Trading and Markets, Division of Investment Management, Division of Enforcement and Division of Economic and Risk Analysis.

The SEC has the power and responsibility to lead investigations into potential violations of the SEA, such as insider trading, selling unregistered stocks, stealing customers' funds, manipulating market prices, disclosing false financial information, and breaching broker-customer integrity.

Also, the SEC enforces corporate reporting by all companies with more than $10 million in assets and whose shares are held by more than 500 owners.

History of the Securities Exchange Act of 1934

The SEA of 1934 was enacted by Franklin D. Roosevelt's administration as a response to the widely held belief that irresponsible financial practices were one of the chief causes of the 1929 stock market crash. The SEA of 1934 followed the Securities Act of 1933, which required corporations to make public certain financial information, including stock sales and distribution.

Other regulatory measures put forth by the Roosevelt administration include the Public Utility Holding Company Act of 1935, the Trust Indenture Act of 1934, the Investment Advisers Act of 1940, and the Investment Company Act of 1940. They all came in the wake of a financial environment in which the commerce of securities was subject to little regulation, and controlling interests of corporations were amassed by relatively few investors without public knowledge.