The United States Securities and Exchange Commission Act established a list of rules and regulations to be followed by the US SEC to regulate securities markets within the United States of America.
Highlights of the Act
Creation of the SEC: Established the U.S. Securities and Exchange Commission (SEC) to oversee securities markets and enforce federal securities laws.
Regulation of Secondary Market Trading: Governs trading of securities in the secondary markets, including exchanges (e.g., NYSE) and over-the-counter markets.
Reporting Requirements for Public Companies: Requires publicly traded companies to regularly file reports (10-K, 10-Q, and 8-K) to ensure transparency for investors.
Anti-Fraud Provisions: Prohibits fraudulent and manipulative practices, including insider trading, misrepresentation, and deceit in securities trading. Section 10(b) and Rule 10b-5 are particularly notable for anti-fraud enforcement.
Proxy Regulations: Regulates the process by which shareholders vote on corporate matters, including the election of board members and significant corporate actions.
Registration of Market Participants: Mandates that brokers, dealers, and exchanges register with the SEC, enabling oversight of their operations.
Disclosure Requirements for Significant Shareholders: Requires anyone acquiring over 5% of a company’s stock to disclose their stake, aiming to increase transparency about significant shareholding and potential takeover attempts.
Margin Requirements: Empowers the Federal Reserve to regulate margin requirements to limit the use of borrowed funds for purchasing securities, reducing market volatility and excessive risk.
Self-Regulatory Organizations (SROs): Oversees and works with SROs, such as FINRA and stock exchanges, to enforce industry standards and protect market integrity.
Investigative and Enforcement Powers: Grants the SEC broad powers to investigate violations, subpoena documents, and bring civil actions against individuals or companies for non-compliance.
Conflict with Crypto Companies
The Act was formed in 1934 and had no provision for cryptocurrencies. This resulted in a major confrontation between the US SEC and crypto-based companies in the US starting with the Ripple vs SEC case in 2020.
The SEC believes that it has powers to regulate cryptocurrencies and all associated businesses because it considers them securities. However, there is no clear law that decides whether cryptocurrencies are securities or not.
Though there was an act named the Financial Innovation in Technology Act for the 21st Century (FIT-21), yet is has been ineffective in resolving any conflict between the SEC and the companies that it has charged with securities violation.
