Getting To The Point – Regulations

Laws That Protect the Financial Securities Sector

A security is simply defined as the documentation of either ownership or debt that can be given a monetary value for the purpose of selling these items for profit-sharing. Many securities are purchased from an initial public offering, or IPO. Securities are governed by a considerable number of laws. Regulations are strict to prevent corporations from buying and selling securities that are dicey on the Exchange. There is no greater example of risk-taking by financial firms and the misuse of securities that than of the 2008 financial crisis in the United States.

Five Laws That Regulate Securities.

As stated in the Securities Act of 1933, the public must be sold securities that have been properly vetted. In the midst of the Great Depression and a year after enacting The Securities Act of 1933, Congress created the Securities and Exchange Commission. Individuals who fraudulently sell stocks on the New York Stock Exchange, the Chicago Board of Options, and NASDAQ may face legal action from the SEC, as the Commission has disciplinary authority.

The SEC was not the only critical piece of legislation to come out of the Securities Exchange Act of 1934. The Act bans selling or buying a security by a person who has knowledge about the security but that information has not been shared to the public, a practice called insider trading. In a further effort to promote disclosure within the financial industry, Congress passed the Investment Company Act of 1940. The Act requires that companies, including mutual funds, share their policies regarding the overall financial health of the company each time the company’s stock is sold. Additionally, each time a company sells stock it must also share investment activity.

More recent legislation

Financial firms are not the only entities catalogued at the SEC. Congress passed the Investment advisers Act of 1940 to mandate that investment advisers receiving compensation for their securities advice had to registered with the SEC.The Act was changed in recent years to only require advisers with more than $100 million in assets to register.

The Sarbanes-Oxley Act of 2010 created a Public Company Accounting Oversight Board to keep tabs on the activities of auditors.

Maybe the most radical change to financial regulations since the 1940s was the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The legislation outlined several areas of reform, including everything from trading restriction to consumer protection.

Writing new legislation to accommodate changing banking technology is a challenge. Take Bitcoin. It is hard for Congress to regulate Bitcoin, a form of electronic cash, that has become more popular to use. Chris Brummer, director of Georgetown’s Institute of International Economic Law, cautions the currency is difficult to incorporate within U.S. stock exchanges. Brummer has stated that the origins of Initial Coin Offerings are not always identifiable, making it impossible for investors to keep track of fraud.

As cryptocurrencies increase in popularity, governments will need to regulate with technology that can keep up.

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