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Securities Act of 1934


Companies raise capital by issuing shares on the primary market which is regulated by Securities Exchange Act of 1933. The following year Securities exchange Act of 1934 was enacted by Roosevelt administration which regulates securities on the secondary market, where they are traded after original issuance. This Act created Securities and Exchange Commission (SEC) and gave it broad power to register, regulate and oversee securities, markets and financial professionals. SEC has disciplinary power over regulated entities and person associated with them if they engage in prohibited conducts in the market.

Requirements outlined in securities Act of 1934 must be followed by all companies that are listed on stock exchange. Primary requirements include corporate reporting, proxy solicitation, tender offers, insider trading and registration of exchanges and associations.

Companies that have more than $10 million is assets and more than 500 shareholders must do annual and periodic reports.

Proxy materials illustrate specific company's information that are available to shareholders sent before annual shareholder meeting. SEC governs disclosures and materials used to solicit shareholders votes held for the election of directors or approval of corporate actions. This information contained in proxy material must be filed with SEC in advance of solicitation to ensure compliance with the rules.

The Act requires disclosure of important information by anyone who is seeking to acquire more than 5% of ownership in the company by purchasing securities because often this is part of the attempt to gain control over the company.

Insider trading is when someone buys or sells public company's shares and has non-public material information about the stock. It is one of the fraudulent activities connected with offer, purchase and sale of securities, prohibited by The Securities Act of 1934.

Market participants, exchanges, brokers, dealers, transfer agents, clearing agencies are required to register with the SEC meaning they have to file disclosures on regular basis. SEC also regulates nation's self regulatory organizations (SRO). Self regulatory organizations exercise some degree of regulatory authority over an industry or profession. Commission delegated authority to certain SRO like FINRA or NYSE to enforce certain industry standards and requirements related to securities trading and brokerage.
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