What was the The Securities Exchange Act of 1933?

Published by Thomas Herold in Investments, Laws & Regulations, Trading

The term 'Securities Exchange Act of 1933' is included in the Investments edition of the Herold Financial Dictionary. Get yourself a copy now on Amazon - available as Kindle or Paperback.

The Securities Exchange Act of 1933 became sponsored and passed because of the devastating stock market crash which happened on and following Black Monday in 1929. The administration and Congress had two principle goals with this piece of legislation. These were to make certain a greater amount of transparency would exist with financial statements so that investors could engage in better informed choices on their investments. The other goal was to create laws which would crack down on fraud and misrepresentation of securities within the various securities markets.

This Securities Exchange Act of 1933 turned out to be the original piece of significant legislation that dealt with securities and their sales. Before this law became enacted, it was state laws which governed securities’ sales principally. The laws dealt with the desperate need to have more effective and consistent disclosures from firms. It mandated that corporations must register their operations with the SEC Securities and Exchange Commission. This registration guaranteed that the corporations would deliver appropriate information to both possible investors and the SEC via both a registration statement and an official prospectus.

It was the Securities Exchange Act of 1933 which mandated that all investors deserve appropriate, fair, and free information on any securities the corporations are providing for sale to the public. Thanks to this act, before companies could launch an Initial Public Offering, they were required to provide information on the deal which was being freely disseminated to investors. Such a prospectus became not only required. It had to be shared with investors by the Securities and Exchange Commission on their own website.

This prospectus was required to deliver certain basic minimum information. Among this was a company business’ and properties’ description. They also had to offer a full description detailing the security which they were offering to investors. They had to divulge any and all relevant information concerning the management that operates the corporation. Finally, they had to provide certified financial statements which independent third party accountants signed off on before they could be released to the public domain.

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Besides this, the Securities Exchange Act of 1933 was intended to outlaw any misrepresenting or deceiving throughout the process of securities sales. The framers of the act wanted to ensure that securities sales fraud could be not only reduced but eliminated.

This Securities Exchange Act of 1933 had an important legacy and set critical precedents for the financial world and American securities markets alike. As the first national laws which regulated and ruled on the stock markets, it seized this regulatory authority from the fifty states. The power of oversight for financial markets permanently evolved up to the federal government level. Most importantly, this act developed a universally acknowledged and clear body of regulations which helped to safeguard investors from fraudulent practices.

Today this act is generally referenced by the nickname the “Truth in Securities” law. Sometimes financial advisors and regulators will refer to it as “The Securities Act” or the “1933 Act.” It was then-President Franklin D. Roosevelt who signed this important legislation into law. As such, it is often deemed to be part and parcel of the legendary New Deal package crafted personally by President Roosevelt.

There have been a range of important amendments to the Securities Exchange Act of 1933 which Congress passed into law over the years since the legislation became effective. Among these amendments which updated the regulations were those passed in 1934, 1954, 1959, 1960, 1970, 1980, 1982, 1987, 1996, 1998, 2000, 2010, and in 2012.

The term 'Securities Exchange Act of 1933' is included in the Investments edition of the Herold Financial Dictionary. Available now on Amazon in Kindle and Paperback.