Congress established the Securities and Exchange Commission via the Securities Exchange Act of 1934. Through the Act, the SEC is empowered with comprehensive authority over the whole securities industry. This covers the power to register, control, and manage clearing agencies, brokerage firms, securities self regulatory organizations (SROs), and transfer agents. The New York Stock Exchange and the Chicago Board of Options are examples of SROs, and so is the Financial Industry Regulatory Authority (FINRA).
The Act also pinpoints and disallows specific types of conduct in the markets and gives the Commission disciplinary authority over regulated entities as well as persons connected with them.
Additionally, the Act empowers the SEC to require regular reporting by companies that have publicly traded securities.
Companies that own assets in excess of $10 million and whose securities are held by no less than 500 owners have to file reports yearly along with other needed periodic reports. Such reports can be accessed by the public via the SEC’s EDGAR database.
The Securities Exchange Act also controls the disclosure in materials that are used to get shareholders’ votes in yearly or special meetings conducted to elect directors and approve other corporate action. This information, which is contained in proxy materials, should be filed with the Commission ahead of any solicitation to guarantee compliance with the disclosure rules. Solicitations, both by management and shareholder groups, have to indicate all crucial facts related to the matters to be voted on by holders.
As per the Securities Exchange Act, there should be a disclosure of all pertinent facts by any person who would like to acquire in excess of 5 percent of a company’s securities, whether by direct purchase or tender offer. This offer is usually extended as a way to take control of the company. Similar to the proxy rules, this leads to more informed decisions made by shareholders on such crucial corporate events.
The securities laws widely ban dishonest activities of any sort in relation to the offer, purchase, or sale of securities. These provisions are the foundation for several types of disciplinary sanctions, including those against devious insider trading.
Registration of Exchanges, Associations, and Others
The Act requires a many different market participants to register with the Commission, like exchanges, transfer agents, and the restUnder the Act, various market participants should register with the Commission, such as brokers and dealers, clearing agencies, etc. The registration process entails filing disclosure documents which are periodically updated.
As stated previously, the exchanges and the Financial Industry Regulatory Authority (FINRA) are both SROs. SROs should establish rules on disciplining members for unacceptable conduct and on applying measures that uphold investor protection and market integrity. SRO proposed rules are up for SEC review and published for public comsumption and feedback.