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Law | SEC
The securities law exists because of unique informational needs of
investors. Securities are not inherently valuable;
their worth comes only from the claims they entitle
their owner to make upon the assets and earnings
of the issuer, or the voting power that accompanies
such claims. The value of securities depends on
the issuer's financial condition, products and
markets, management, and competitive and regulatory
climate. Securities laws attempt to ensure that
investors have accurate information of the type
of interest they are purchasing and its value.
The Securities exist in form of notes, stocks,
treasury stocks, bonds, certificates of interest
or participation in profit sharing agreements,
collateral trust certificates, preorganization
certificates or subscriptions, transferable shares,
investment contracts, voting trust certificates,
certificates of deposit for a security, and a
fractional undivided interest in gas, oil, or
other mineral rights. Certain types of notes,
such as a note secured by a home mortgage or a
note secured by accounts receivable or other business
assets are not securities.
There are two principle settings for buying and
selling securities: issuer transactions and trading
transactions. Issuer transactions are the means
by which businessmen raise capital and involve
the sale of securities by the issuer to investor.
Trading transactions are the purchasing and selling
of outstanding securities among investors. Outstanding
securities are traded through securities markets
that can be either stock exchanges or "over-the-counter".
A stock exchange provides a place, rules, and
procedures for buying and selling securities. Generally, to have their
securities sold and bought on a stock exchange,
a company must list its securities on a given
exchange. Stock exchange rules are subject to
approval by the Securities
and Exchange Commission (SEC). All
transactions that do not take place on a stock
exchange are said to be executed in the over-the-counter
market, which is the residual securities market.
Only dealers and brokers who are registered with
the SEC may engage in securities business both
on stock exchanges and over-the-couner market.
Most of the broker-dealers serving the public
are members of the National Association of Securities
Dealers (NASD), a national securities association
registered with SEC.
Securities regulations focus mainly on the market
for common stocks. Both federal and state laws
regulate securities. Federal securities laws are
generally administrated by the Security and Exchange
Commission which was established by the Securities
Exchange act of 1934. The first of the federal
securities laws enacted was the Federal Securities
Act of 1933, which regulates the public offering
and sale of securities in interstate commerce.
The 1933 Act prohibits the offer or sale of a
security not registered with the Securities Exchange
Commission and requires the disclosure of certain
information to the prospective security's purchaser.
The objective of the 1933 Act's registration requirements
is to enable a purchaser to make a reasoned decision
based on reliable information.
Securities Exchange Act of 1934 requires that
issuers, subject to certain exemptions, register
with SEC if they want to have their securities
traded on a national exchange. Issuers of securities
registered under the 1934 Act must file various
reports with SEC in order to provide the public
with adequate information about companies with
publicly traded stocks. The 1934 Act also regulates
proxy solicitation and requires that certain information
be given to a corporation's shareholders as a
prerequisite to soliciting votes. The 1934 Act
permits the SEC to promulgate rules and regulations
to protect the public and investors by prohibiting
manipulative or deceptive devices or contrivances
via mails or other means of interstate commerce.
Rule 10b-5 of The 1934 Act protects against insider
State securities law are commonly known as Blue
Sky Laws. Typical provisions include prohibition
against fraud in the sale of securities, registration
requirements for brokers and dealers, registration
requirements for securities to be sold within
the state, and sanctions and civil liability.
A majority of states, with the exception of New
York and California, have adopted the Uniform
Securities Act, at least in part.