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Major Federal Securities Laws

4. What are the primary security laws?

Securities are subject to federal and state regulation. State securities laws are known as “Blue Sky laws” and are discussed at the end of this chapter. The two primary federal laws governing the trade or sale of securities are the Securities Act of 1933 (’33 Act) and the Securities Exchange Act of 1934 (’34 Act).

•    ’33 Act – The ’33 Act provides the rules for the initial sale of securities to the public. This includes detailed rules for the personal disclosure to prospective purchasers and disclosure of information to the general public through registration with the Federal Government.

•    ’34 Act – The 34’ Act concerns the on-going disclosure requirements once company securities are traded publicly, such as on national exchanges. These laws provide for the substantive content of the disclosure, the procedural disclosure requirements, and the repercussions (such as civil and criminal penalties) for failing to adhere to these laws.

Both the ’33 and ’34 Acts are administered by the Securities Exchange Commission. Along with the regulations promulgated by the SEC, they govern the sale or exchange of securities in any context.

•    Discussion: Why do you think the securities laws treats the initial sale of securities to the public separately from the subsequent sale of issued securities on public markets? How are these types of securities different?

•    Practice Question: What type of activity is regulated by the Securities Act of 1933? The Securities Exchange Act of 1934?

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