We are excited to share FinProLaw’s summary of the Securities Exchange Act of 1934. Let us know if you enjoyed this content.
The Securities Exchange Act of 1934 (the “Exchange Act”) is primarily known for creating the Securities and Exchange Commission (the “SEC”) and providing the regulatory framework for the resale of securities (as opposed to the Securities Act of 1933 – which is focused on the initial registration of securities). This framework provides the SEC with the authority to register, regulate, and oversee brokerage firms, transfer agents, and clearing agencies as well as the nation’s securities self-regulatory organizations (“SROs”). Among others, these SROs include:
- New York Stock Exchange
- NASDAQ Stock Market
- Chicago Board of Options
- The Financial Industry Regulatory Authority (“FINRA”)
We will discuss the importance of SROs in a latter blog, but for our purposes here, it is important to note that SROs must create rules that allow for disciplining members for improper conduct and for establishing measures to ensure market integrity and investor protection. SRO-proposed rules are subject to SEC review and published to solicit public comment.
The Exchange Act covers many other areas of securities law, but some of the more important topics include:
Corporate Reporting – When must a company file reports through the SEC’s EDGAR database? Companies with more than $10 million in assets whose securities are held by more than 500 owners must file annual and other periodic reports.
Proxy Solicitations – What are proxy solicitations? A proxy solicitation is a request that someone else vote on behalf of a shareholder at a shareholders meeting. The Exchange Act governs the disclosure in materials used to solicit shareholders’ votes in annual, or special meetings, held for the election of directors and the approval of other corporate action.
When must this information be filed with the SEC and what must be included? This proxy solicitation information, contained in proxy materials, must be filed with the SEC in advance of any solicitation to ensure compliance with the disclosure rules. Solicitations, whether by management or shareholder groups, must disclose all important facts concerning the issues on which holders are asked to vote.
Tender Offers – What are tender offers? A tender offer is a bid to purchase some or all of shareholders’ stock in a corporation. The Exchange Act requires disclosure of important information by anyone seeking to acquire more than 5 percent of a company’s securities by direct purchase or tender offer.
What is the purpose of the tender offer disclosure rules? As with the proxy rules, these rules allow shareholders to make informed decisions on these critical corporate events.
Insider Trading – As we have discussed in other blogs, the securities laws broadly prohibit fraudulent activities of any kind in connection with the offer, purchase, or sale of securities.
What are the potential ramifications of insider trading? The prohibitions on fraudulent trading, including those found in the Exchange Act, are the basis for many types of disciplinary actions, including actions against fraudulent insider trading. Insider trading occurs when a person trades a security while in possession of material nonpublic information in violation of a duty to withhold the information or refrain from trading.
SROs must create rules that allow for disciplining members for improper conduct and for establishing measures to ensure market integrity and investor protection. SRO proposed rules are subject to SEC review and published to solicit public comment. While many SRO proposed rules are effective upon filing, some are subject to SEC approval before they can go into effect.
About the Author
Michael Rasmussen is the founder of United Atlantic Legal Services. He is a licensed attorney in Florida and registered solicitor in the United Kingdom. Michael has acted as General Counsel and Chief Compliance Officer to several investment advisers, including private fund managers, responsible for the management of billions of dollars in client assets.
Michael is also the founder of FinProLaw, an online learning platform where Michael has created courses designed for investment adviser compliance professionals. These courses include:
- Investment Adviser Compliance Essential for Chief Compliance Officers
- Foundations of Investment Adviser Compliance
- What is a “Security”?
- Investment Adviser Marketing Rule
- Regulation A – Exemption from Registration
- Regulation Crowdfunding – Exemption from Registration
- Regulation D – Exemption from Registration
Michael can also be found on LinkedIn.
Investment adviser firms who are also clients of United Atlantic Legal Services can receive many of these courses at a significantly reduced fee or, in some cases, at no expense. Contact us today or visit the FinProLaw to learn more.