What Does Securities Exchange Act of 1934 Mean?
The Securities Exchange Act of 1934 is legislation passed by the United States Congress that empowered the Securities and Exchange Commission (SEC) with broad oversight of the activities that take place in the securities market. In fact, it was this piece of legislation that led to the creation of the SEC and bestowed upon it powers relating to registration and regulation of brokerage firms.
Divestopedia Explains Securities Exchange Act of 1934
The Securities Exchange Act of 1934 entrusts much of the activities related to the securities market to the SEC. This Act empowers the SEC to establish rules needed for the proper conduct of the secondary markets; this includes the role of participants in the market, such as investors and companies. It gives the SEC powers to identify any inappropriate actions and to take disciplinary action for the same. This Act gives the SEC the right to oversee the actions of all market players, requiring them to register themselves with the SEC before they can become a participant in the secondary market.
Under this Act, the SEC has the responsibility to ensure that all companies meet the established guidelines with respect to disclosure, so that investors know the full state of the company before buying its securities. To this end, companies should file their periodic reports with the SEC, and in turn, the SEC makes this information available to all investors through its online filing system. In case of non-disclosure or non-filing, the SEC has the authority to impose disciplinary action against the defaulting companies.
The main idea of the Act is to protect the interest of investors by prohibiting any fraudulent activity that gives an unfair advantage to one or more players. It does this by imposing severe penalties on anyone who tries to defraud investors in any way. The SEC also has the right to bring civil enforcement cases against those who perpetrate such frauds. In some rare cases, criminal action suits are also possible.
Due to the important role played by this Act in establishing the SEC, it is highly significant in the history of U.S. legislation.