Securities Act of 1933: Significance and History

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What Is the Securities Act of 1933?

The Securities Act of 1933 was created and passed into law to protect investors after the stock market crash of 1929. The legislation had two main goals: to ensure more transparency in financial statements so investors could make informed decisions about investments; and to establish laws against misrepresentation and fraudulent activities in the securities markets.

Key Takeaways

• The Securities Act of 1933 was created and passed into law to protect investors after the stock market crash of 1929.
• The goal of the act was to create transparency in the financial statements of corporations.
• It established laws against misrepresentation and fraudulent activities in the securities markets.
• The Securities Act is enforced by the Securities and Exchange Commission, created by the Exchange Act of 1934.
• Some offerings may be exempt from the Securities Act if they are not sold to the wider public.

Understanding the Securities Act of 1933

The Securities Act of 1933 was the first major legislation regarding the sale of securities. Prior to this legislation, the sales of securities were primarily governed by state laws. The legislation addressed the need for better disclosure by requiring companies to register with the Securities and Exchange Commission (SEC).

Registration ensures that companies provide the SEC and potential investors with all relevant information by means of a prospectus and registration statement.

The act—also known as the "Truth in Securities" law, the 1933 Act, and the Federal Securities Act—requires that investors receive financial information from securities being offered for public sale. This means that before going public, companies have to submit information that is readily available to investors.

Today, the required prospectus has to be made available on the SEC website. A prospectus must include the following information:

• A description of the company’s properties and business
• A description of the security being offered
• Information about executive management
• Financial statements that have been certified by independent accountants

$2.4 billion

The proposed SEC budget for fiscal year 2024.

Securities Exempt From SEC Registration

Some securities offerings are exempt from the registration requirement of the act. These include:

• Intrastate offerings
• Offerings of limited size
• Securities issued by municipal, state, and federal governments
• Private offerings to a limited number of persons or institutions

The other main goal of the Securities Act of 1933 was to prohibit deceit and misrepresentations. The act aimed to eliminate fraud that happens during the sale of securities.

Every registration statement and prospectus for a public securities offering in the United States can be found on EDGAR, an electronic database by the Securities and Exchange Commission.

History of the Securities Act of 1933

The Securities Act of 1933 was the first federal legislation used to regulate the stock market. The act took power away from the states and put it into the hands of the federal government. The act also created a uniform set of rules to protect investors against fraud. It was signed into law by President Franklin D. Roosevelt and is considered part of the New Deal passed by Roosevelt.

The Securities Act of 1933 is governed by the Securities and Exchange Commission, which was created a year later by the Securities Exchange Act of 1934. Several amendments to the act have been passed over the years to update rules.

What Was the Objective of the 1933 Securities Act?

The main goal of the Securities Act of 1933 was to introduce national disclosure requirements for companies selling stock or other securities. It requires companies selling securities to the public to reveal key information about their property, financial health, and executives. Prior to that law, securities were only subject to state regulations, and brokers could promise extravagant returns while disclosing little relevant information.

How Is the Head of the Securities and Exchange Commission Chosen?

The Securities and Exchange Commission is headed by five commissioners, who serve five-year terms and are appointed by the president with the consent of the Senate. The president also designates one of those commissioners to be the chairman of the body.

How Did the Public Benefit From the Federal Securities Act?

The main benefit of the securities act was to introduce disclosure requirements for new securities issues. Prior to its passage, companies selling stocks or bonds could promise large profits without revealing key information about their companies. The disclosure requirements helped investors better understand the true financial prospects of a company, allowing them to make better investment decisions and safeguard their money.

The Bottom Line

The Securities Act of 1933 was the first federal law to regulate the securities industry. It requires companies that sell stocks or bonds to the public to disclose certain information, such as their assets, financial health, executives, and a description of the security being sold. It is now one of many laws that control securities offerings in the United States.

1. Investor.gov. “Registration Under the Securities Act of 1933.”
2. U.S. Securities and Exchange Commission. “Fiscal Year 2024 Congressional Budget Justification.” Pages 13, 16.
3. U.S. Securities and Exchange Commission. "The Laws that Govern the Securities Industry."
4. Library of Congress. “National Recovery Administration (NRA) and the New Deal: A Resource Guide.”
5. GovInfo. “Securities Exchange Act of 1934.” Download PDF.
6. Legal Information Institute. "Securities Law History."
7. U.S. Securities and Exchange Commission. “Current SEC Commissioners.”

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