What Is the Securities Act of 1933?
The Securities Act of 1933 was created and passed into law to protect investors after the stock market crash of 1929. The legislation had two main goals: to ensure more transparency in financial statements so investors could make informed decisions about investments; and to establish laws against misrepresentation and fraudulent activities in the securities markets.
Key Takeaways
- The Securities Act of 1933 was created and passed into law to protect investors after the stock market crash of 1929.
- The Securities Act of 1933 was designed to create transparency in the financial statements of corporations.
- The Securities Act also established laws against misrepresentation and fraudulent activities in the securities markets.
- The Securities Act is enforced by the Securities and Exchange Commission, created by the Exchange Act of 1934.
- Some offerings may be exempt from the Securities Act if they are not sold to the wider public.
Understanding the Securities Act of 1933
The Securities Act of 1933 was the first major legislation regarding the sale of securities. Prior to this legislation, the sales of securities were primarily governed by state laws. The legislation addressed the need for better disclosure by requiring companies to register with the Securities and Exchange Commission (SEC). Registration ensures that companies provide the SEC and potential investors with all relevant information by means of a prospectus and registration statement.
The act—also known as the "Truth in Securities" law, the 1933 Act, and the Federal Securities Act—requires that investors receive financial information from securities being offered for public sale. This means that prior to going public, companies have to submit information that is readily available to investors.
Today, the required prospectus has to be made available on the SEC website. A prospectus must include the following information:
- A description of the company’s properties and business
- A description of the security being offered
- Information about executive management
- Financial statements that have been certified by independent accountants
$2.4 billion
The proposed SEC budget for fiscal year 2024.
Securities Exempt From SEC Registration
Some securities offerings are exempted from the registration requirement of the act. These include:
- Intrastate offerings
- Offerings of limited size
- Securities issued by municipal, state, and federal governments
- Private offerings to a limited number of persons or institutions
The other main goal of the Securities Act of 1933 was to prohibit deceit and misrepresentations. The act aimed to eliminate fraud that happens during the sales of securities.
President Franklin D. Roosevelt signed the Securities Act of 1933 into law as part of his famous New Deal.
History of the Securities Act of 1933
The Securities Act of 1933 was the first federal legislation used to regulate the stock market. The act took power away from the states and put it into the hands of the federal government. The act also created a uniform set of rules to protect investors against fraud. It was signed into law by President Franklin D. Roosevelt and is considered part of the New Deal passed by Roosevelt.
The Securities Act of 1933 is governed by the Securities and Exchange Commission, which was created a year later by the Securities Exchange Act of 1934. Several amendments to the act have been passed to update rules numerous times over the years.
Every registration statement and prospectus for a public securities offering in the United States can be found on EDGAR, an electronic database by the Securities and Exchange Commission.
What Was the Objective of the 1933 Securities Act?
The main goal of the Securities Act of 1933 was to introduce national disclosure requirements for companies selling stock or other securities. It requires companies selling securities to the public to reveal key information about their property, financial health, and executives. Prior to that law, securities were only subject to state regulations, and brokers could promise extravagant returns while disclosing little relevant information.
How Is the Head of the Securities and Exchange Commission Chosen?
The Securities and Exchange Commission is headed by five commissioners, who serve five-year terms and are appointed by the president with the consent of the Senate. The president also designates one of those commissioners to be the chairman of the body.
How Did the Public Benefit From the Federal Securities Act?
The main benefit of the securities act was to introduce disclosure requirements for new securities issues. Prior to its passage, companies selling stocks or bonds could promise large profits without revealing key information about their companies.
The Bottom Line
The Securities Act of 1933 was the first federal law to regulate the securities industry. It requires companies that sell stocks or bonds to the public to disclose certain information, such as their assets, financial health, executives, and a description of the security being sold. It is now one of many laws that control securities offerings in the United States.
FAQs
The Securities Act of 1933 (as amended, the “Securities Act”) was passed to ensure that investors have financial and other important information about securities that are being sold publicly. It also bans the use of fraud, deceit, and misrepresentation in the sales of securities.
What is the significance of the Securities and Exchange Commission in US history? ›
The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market manipulation.
What was the result of the Federal Securities Act of May 1933? ›
The Securities Act of 1933 was created and passed into law to protect investors after the stock market crash of 1929. The goal of the act was to create transparency in the financial statements of corporations. It established laws against misrepresentation and fraudulent activities in the securities markets.
What is one recognized purpose of the Securities Act of 1933? ›
AN ACT To provide full and fair disclosure of the character of securities sold in interstate and foreign commerce and through the mails, and to prevent frauds in the sale thereof, and for other purposes.
What is the purpose of the Securities Act of 1933 Quizlet? ›
The Securities Act of 1933 regulates new issues of corporate securities sold to the public. The act is also referred to as the Full Disclosure Act, the Paper Act, the Truth in Securities Act, and the Prospectus Act. The purpose of the act is to require full, written disclosure about a new issue.
What was the significance of the Securities and Exchange Commission quizlet? ›
The Securities and Exchange Commission (SEC) is a government commission created by Congress to regulate the securities markets and protect investors SEC founded in 1930. In addition to regulation and protection, it also monitors the corporate takeovers in the U.S.
What is the significance of the Securities and Exchange Commission of 1934? ›
The Securities Exchange Act of 1934 gives the SEC broad powers to enforce U.S. federal securities law, but also investigate potential violations such as insider trading, the sale of unregistered stocks, manipulation of market prices and disclosure of fraudulent financial information.
What is the history of securities regulation? ›
The development of federal securities law was spurred by the stock market crash of 1929, and the resulting Great Depression. In the period leading up to the stock market crash, companies issued stock and enthusiastically promoted the value of their company to induce investors to purchase those securities.
What is the history of the Securities Exchange Act of 1934? ›
Prior to the signing of the Securities Exchange Act by President Roosevelt on June 6, 1934, there was not much oversight of the United States securities market. The act created the Securities & Exchange Commission (SEC) and some regulation of large public companies really began.
Who benefited from the Securities Act of 1933? ›
Often referred to as the "truth in securities" law, the Securities Act of 1933 has two basic objectives: require that investors receive financial and other significant information concerning securities being offered for public sale; and. prohibit deceit, misrepresentations, and other fraud in the sale of securities.
The Securities Exchange Act of 1934 regulates secondary financial markets to ensure a transparent and fair environment for investors. It prohibits fraudulent activities, such as insider trading, and ensures that publicly traded companies must disclose important information to current and potential shareholders.
Who passed the Securities Act of 1933? ›
The act passed both the House and the United States Senate without a record vote and was signed into law by Roosevelt on May 27, 1933.
How did the SEC help the Great Depression? ›
The crash led to Congress to passing the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC "was designed to restore investor confidence in our capital markets by providing investors and the markets with more reliable information and clear rules of honest dealing."
What is the main goal of the US securities laws? ›
Securities laws and regulations aim at ensuring that investors receive accurate and necessary information regarding the type and value of the interest under consideration for purchase. (For more information on the history of securities, see securities law history).
Who did the SEC help? ›
We protect investors by vigorously enforcing the federal securities laws to ensure truth and fairness. We deter misconduct, hold wrongdoers accountable, and provide resources to help investors evaluate their investment choices and protect themselves against fraud.
What is the purpose of the Securities Exchange Act of 1934 quizlet? ›
The Securities Exchange Act of 1934 regulates the securities markets, with the main intent being to prevent fraud and manipulation. It also created the SEC as the regulatory authority over the markets and market participants.
What is a major difference between the Securities Act of 1933 and the Securities Exchange Act of 1934 quizlet? ›
The 1933 act is a one-time disclosure law, whereas the 1934 act provides for continuous periodic disclosures by publicly held corporations. The Securities Exchange Act applies to companies that have assets in excess of _____________________________ and five hundred or more shareholders.
