Question

Contrast the Securities Act of 1933 and the Securities Exchange Act of 1934.

Answer 1

Securities Act of 1933 and Securities Exchange Act of 1934

Securities act of 1933:

This was enacted as a result of market crash that took place in 1929. This law deals with the sale of securities. Prior to this law, it was governed by the state laws. This law is also known as “Truth in Securities act. Because it requires the company to provide proper information about the securities and issuer to the prospective investors to enable them to make a good decision.

The act has the following objectives:

• It ensures that the investors receive important information about the securities that has been offered for sale.
• To avoid fraud in the sale of securities to the public.

There are certain exemptions to the act. It exempts secondary sale i.e. security which has been sold by someone else other than the issuer after its original issue. It also exempts certain small offerings.

Securities Exchange Act of 1934:

This act established the SEC (Securities Exchange Commission). This gave the SEC a power to frame a policy on the sale of securities which includes regulating the brokerage firms, transfer agents, authority to register etc.

This act prohibits fraudulent activities like insider trading which is nothing but trading a security which is in possession of nonpublic information in violation of a duty to prevent it from being traded. It also requires a person to disclose all information about him when he wants to acquire more than 5% of company’s securities though purchase or tender offer.

The act also governs the disclosure information to get votes from the stakeholders at the time of director’s elections. This information must be filed with the commission in advance to ensure the compliance with the rules.