Notes

Final Legislative Act PT 2

I believe the Securities Act and Securities Exchange Act are important to the current economy. While the Securities Act and Securities Exchange Act are two separate acts, they are considered a unit since the Securities Exchange Act expands upon the Securities Act. Therefore, I will consider the Securities Act and Securities Exchange Act as a single legislative act. The Securities Act was established in 1933 and its purpose was to combat the fraudulent sales of public securities. The Securities Act made it mandatory that investors receive financial and other important information on securities that are for sale on public markets. Prior to this act, it was common place to sale fraudulent securities, trade on inside information, and the explicit stock price trading collusion—where there is secretive trading done by small groups of investors to increase stock prices. Investing in financial securities has become more accessible and affordable such as using trading apps like Robinhood or financial institutions that offer brokerage accounts like E*Trade which allows investors to buy shares of stocks in odd lots—order amount for a security that is less than the normal unit of trading for an asset, which is typically 100 shares for stocks. The Securities Act is all the more important as investing becomes more commonplace. Without the Securities Act, no common person would try to invest as they would be exploited. Insider trading and price collusion only benefits those on the inside so, if a person not on the inside then they are the ones taking the loss. When people know they are going to lose, then they do not participate in the game—which is why insider trading and explicit price collusion was made illegal. The same is true with regards to dodgy financial securities. These falsely reported financial securities are no better than a scam. Once again, only the one running the scam profits and the scammed person is left robbed. That is why the person scammed is called a victim.

In order to make this legislative act more powerful and carry more authority, New Deal policy makers gave the Securities Act some backbone and established the Securities Exchange Act. The Securities Exchange Act came the following year in 1934 and created a federal agency called the Securities and Exchange Commission (SEC). The SEC manages securities transactions and enforces securities laws. Beyond being a regulatory body where companies with publicly traded securities have to report periodic financial information, the SEC is a disciplinarian as it can seek monetary penalties, disgorgement of ill-gotten gains, and injunctions for atonement of law violators. The SEC can also send potential criminal cases to criminal law enforcement authorities for investigation. For the economy today and the modern investor, while a security might be extremely volatile and risky to the point some would say that investing in it would be a loss from the time of purchase, it is thanks to the SEC that the knowledge of this security's volatility is available and not being masqueraded as a no-risk T-bill.