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Securities Regulation

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    The way to make the truly big bucks is on Wall Street. Very little has changed on Wall Street since the beginning, everything but a few laws. When those laws are interpreted the wrong way, or when someone breaks a law on Wall Street, the agency respo

    ible for busting them is the Securities Exchange Commission (SEC). The primary mission of the SEC is to protect investors while maintaining the integrity of the securities market. They want to ensure that the market is fair for all investors, at all t

    es. How they plan to make the market as secure as it can be is another story- one that includes many specific laws that your average Joe probably doesn’t know.

    Since the beginning of time, man has cheated. Whether it be at sports, on exams, and even on their spouses- man has cheated all. There are several forms of “cheating” on Wall Street. From market manipulation, to trading on inside information, there

    nothing Wall Street hasn’t seen. Bribery, scandals, even murder has made Wall Street what it is today-the financial capital of the world. With the SEC to regulate things, little has changed on Wall Street.

    The Securities Exchange Commission was created by the Securities Exchange Act of 1934. It acts just like a mini-government in a sense that it includes legislative, executive, and judicial functions. The duty of its legislative branch is to announce

    les and regulations to the public. The executive branch simply enforces the market rules against anyone who violates the statutes. The main job of the judicial branch is to decide whether or not a person has violated or broken any of those same rules

    d regulations of the market. While these tasks seem like few, the gray area of the laws make them difficult and confusing, especially for investors. The millions of investors probably doesn’t help the SEC out, mainly because they are so largely outnum

    The Securities Act of 1933 was the first federal legislation designed to regulate interstate activities of securities. Basically, it is designed to ensure that investors receive complete, and accurate information. Its aim is to require full and fair

    blic disclosure of new issues and to prevent fraud. Under the act, all newly issued securities sold through interstate commerce must be registered with the SEC. Registration is completed by filing an “S-1” statement, which gives detailed information t

    issuing entity and the issue. An interesting fact is that if the S-1 statement proves to be misleading, all those who have signed it can be prosecuted for fraud. The maximum penalty for this crime is 3 years in prison, or a $5000 dollar fine for each

    The Securities Exchange Act of 1934. The purpose of this act is to bar unfair practices once securities have been issued. It regulates exchanges and is designed to ensure that the market is fair and orderly. The most significant feature of the 1934

    t is the creation of the SEC. Its five commissioners are appointed by the president, are approved by the Senate for five-year terms and are barred from any business or stock activity when they are serving. The 1934 Act calls on exchanges to regulate t

    mselves. All national securities exchanges must first register with the SEC, which at the time they impliedly agree to abide by the law and supply up-to-date information about the organizations rules. Others who must register with the SEC are those in

    viduals or firms who engage in securities transactions. Also, securities themselves must be registered with the SEC. I have recently heard of internet scams where innocent people have invested in non-existent companies, which isn’t regulated by anyone

    Since the beginning of the exchange, there has been manipulation of stock prices which consist of wash sales, matching orders, and false information. A wash sale is when one person simultaneously buys and sells to create the misleading appearance of

    active trading. Matching orders is when two or more individuals act together and enter identical or almost identical orders simultaneously, so that the transaction appears on the ticker tape although there has been no true change of ownership. False i

    ormation is when an individual or group urge a transaction in a particular security upon someone else, by saying that some person is going to move in a way that will affect its price. For example, Joe Bloggs tells Amateur Andy that the Manager of Fidel

    y Investments is going to buy 5 million shares of company XYZ. If Amateur Andy relies on that information and it later proves to be false, then that is considered false information.

    Insider Rules are defined in the 1934 Act, which restricts the activities of “insiders.” Individuals who are considered insiders are: an officer or director of a corporation, anyone holding 10% or more of the shares issued by the corporation and imme

    ate family members, anyone who has information about the corporation not available to the public. Basically, the law says that insiders are not allowed to profit from their information by trading in a stock before that information is public. This is o

    of the gray areas of the law. What exactly is public? For that reason, those who become insiders must file a personal statement with the SEC.

    Under section 15-A of the 1934 Act, the National Association of Securities Dealers (NASD) was established to regulate the OTC (over the counter). The NASD itself must be registered with the SEC. Any nonmember broker or dealer who does business which

    involves any interstate commerce or transactions involving national securities exchanges is regulated by the SEC.

    In 1970, Congress created the Securities Investor Protection Corporation (SIPC). This corporation provides limited protection to customers of securities firms (i.e. Bankrufirm) that are forced to liquidate and to promote confidence in the securities i

    ustry. It protects an investors cash and securities up to half a million dollars.

    Surprisingly, there is a prudent man rule. In many states, some version of this rule applies to the investment related activities of fiduciaries or trustees. It states that people acting on behalf of another can invest only in those securities that a

    easonably prudent man who is seeking reasonable income and preservation of capital would choose.

    In conclusion, I feel that even the most market savvy will come up short against the professionals. The reason is simple: they simply don’t have access to as much information as the professionals, although the internet is a close equalizer. When it

    mes to contacts, the way to prosper on Wall Street is trading on inside information. While the SEC members there to regulate, there are simply too many people to oversee. It can be difficult to prove that someone used inside information to trade. It

    sically comes down to the perpetrator admitting that they did it (traded on inside information).

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