An Overview of Securities Law
Securities laws try to ensure that the investor has the required and accurate details about the type of asset or interest he is about to buy, as well as the value of the interest. Securities laws basically exist because of the informational needs of investors. The real value of securities unfolds from the claims made by the owner on the assets and earnings of the issuer. Sometimes, such claims are accompanied by voting powers. Various factors like the issuer’s financial condition, regulatory climate, products and management etc. decide the value of securities.
One can see and use securities in various forms like stocks, bonds, notes, treasury stocks, collateral trust certificates, transferable shares, voting trust certificates, investment contracts, undivided interest in oil, gas or other mineral rights and participation in profit sharing agreements. Notes secured by business receivables or home mortgage or any other business assets are not considered as securities.
Security buying and selling transactions take place in two basic formats. These are issuer transactions and trading transactions. Businessmen raise capital through the sale of securities to the investor, in an issuer transaction. A trading transaction takes place among the investors, where they themselves buy and sell outstanding securities. One can trade in outstanding securities through stock exchanges or over the counter trades.
Stock exchange is a platform that enables the buying and selling of securities. It has certain rules and regulations that every investor or trader needs to follow. Companies must list their shares and securities on a particular stock exchange to enable transactions. A stock exchange can implement any new rule or regulation only after the permission of Securities and Exchange Commission. An organization called National Association of Securities Dealers is a national security association registered with the SEC. Most of the brokers and dealers are the members of this organization. Only the brokers and dealers registered with the Securities and Exchange Commission can deal in securities at the stock exchange or at ‘over the counter’ markets. Off the stock market transactions are executed in over the counter markets, which are residual securities markets.
The Federal and State laws both govern and regulate the securities market.
The market regulations are primarily focussed on the common stocks market.
The Securities and Exchange Commission established as per the Federal Securities Act of 1934, administers the Federal securities laws. The Federal Securities Act, 1933 regulates the sale of securities as well as the public offerings in inter state trade and commerce. The act prohibits the purchase or sale of securities not registered with the stock exchange commission and demands the disclosure of certain details to the prospective buyer.
The registration requirements of the 1933 Act enable the buyer to make a reasoned decision based on reliable information.