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 Securities Act of 1933 was designed to create transparency in the financial statements of corporations.
- The Securities Act also 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 prior to 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 exempted 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 sales of securities.
President Franklin D. Roosevelt signed the Securities Act of 1933 into law as part of his famous New Deal.
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 to update rules numerous times over the years.
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.
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 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.
FAQs
The Securities Act of 1933 (as amended, the “Securities Act”) was passed to ensure that investors have financial and other important information about securities that are being sold publicly. It also bans the use of fraud, deceit, and misrepresentation in the sales of securities.
What was the result of the Federal Securities Act of May 1933? ›
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.
What are the most significant provisions of Section 5 of the Securities Act of 1933? ›
Section 5 Regulations
Section 5 seeks to promote mandatory disclosures by requiring registration statements and to ensure potential investors only have access to information that the SEC approves during a public securities offering.
What is one recognized purpose of the Securities Act of 1933? ›
The 1933 act has two basic objectives: Require that investors receive relevant information about securities offered for public sale. Prohibit deceit, misrepresentations, and other fraud in the sale of securities.
What does the Securities Act of 1933 do with Quizlet? ›
The Securities Act of 1933 requires the registration of all new nonexempt issues of securities sold to the public. In general, exempt issues include municipal securities, U.S. government securities, bank issues, and nonprofit organization securities. The securities in this question are all nonexempt.
What is the Securities Act of 1933 definition of control? ›
The term control (including the terms controlling, controlled by and under common control with) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.
What was the significance of the year 1933? ›
December 5 – The Twenty-first Amendment to the United States Constitution is ratified, repealing Prohibition. December 15 – The 21st Amendment officially goes into effect, making alcohol legal in the United States. December 17 – The first NFL Championship game in American football is played.
What happens if you violate the Securities Act of 1933? ›
Penalties. Section 24 of the Securities Act of 1933 provides for fines not to exceed $10,000 and a prison term not to exceed five years, or both, for willful violations of any provisions of the act.
How does the Federal Securities Act affect us today? ›
The securities laws broadly prohibit fraudulent activities of any kind in connection with the offer, purchase, or sale of securities. These provisions are the basis for many types of disciplinary actions, including actions against fraudulent insider trading.
Is the Securities Act of 1933 still in effect? ›
It is an integral part of United States securities regulation.
The Securities Act serves the dual purpose of ensuring that issuers selling securities to the public disclose material information, and that any securities transactions are not based on fraudulent information or practices.
What are the 5 exempt transactions under the Securities Act of 1933? ›
Exempt transactions are securities transactions that are exempt from the registration requirements of the 1933 Securities Act. Four typical examples of transaction exemptions in the United States include 1) Regulation A Offerings, 2) Regulation D Offerings, 3) Intrastate Offerings, and 4) Rule 144 Offerings.
What is the purpose of the Securities Act of 1933? ›
The Securities Act of 1933 has two basic objectives: To require that investors receive financial and other significant information concerning securities being offered for public sale; and. To prohibit deceit, misrepresentations, and other fraud in the sale of securities.
Which of the following is true of the Securities Act of 1933? ›
Of the options provided, the correct answer is that the Securities Act of 1933 forbids any interstate offering of a new security until a registration statement has been filed with and approved by the Securities and Exchange Commission.
What is the Regulation S of the Securities Act of 1933? ›
Regulation S, which was adopted by the Securities and Exchange Commission (the “SEC”) in 1990,1 provides that offers and sales of securities that occur outside of the United States are exempt from the registration requirements of Section 5 of the Securities Act of 1933 (the “Securities Act”).
Why was the Securities Exchange Act important? ›
To protect investors, Congress crafted a mandatory disclosure process designed to force companies to disclose information that investors would find pertinent to making investment decisions. In addition, the Exchange Act regulates the exchanges on which securities are sold.
What was the significance of the Securities and Exchange Commission in the Great Depression? ›
The crash led to Congress to passing the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC "was designed to restore investor confidence in our capital markets by providing investors and the markets with more reliable information and clear rules of honest dealing."
What is the significance of securities and exchange? ›
The Securities and Exchange Commission (SEC) oversees securities exchanges, securities brokers and dealers, investment advisors, and mutual funds in an effort to promote fair dealing, the disclosure of important market information, and to prevent fraud.
What is the purpose of the securities law? ›
The securities laws broadly prohibit fraudulent activities of any kind in connection with the offer, purchase, or sale of securities. These provisions are the basis for many types of disciplinary actions, including actions against fraudulent insider trading.
