Securities law regulates the sale of stocks, bonds, and other equity and debt instruments by corporations. Each country has its own laws and regulations, but the US is often used as a normative example. Securities in the US are regulated at the federal and state levels, with the Securities and Exchange Commission (SEC) requiring companies to disclose financial information and regulating public offerings. State laws protect consumers from fraud and require brokers and dealers to register. The US court system also allows for civil liability for securities actions based on common law.
Securities law consists of the statutes, regulations and court decisions governing the registration and sale of stocks, bonds and other equity and debt instruments by corporations. Each country that allows companies to sell securities to the public through a stock market has its own laws and regulatory frameworks to control market activity. The globalization of world economies and the increase in the number of multinational corporations has favored more uniformity than disparity in the way in which the sale of securities is regulated, particularly in countries with legal systems based on English common law.
The United States has long had one of the world’s leading economies and the most stable stock market with some of the most prominent companies. Securities law in the United States, therefore, can be used as a normative example of a regulatory framework that has many elements in common with other jurisdictions. Corporate securities in the United States are regulated at the federal and state levels. The legal framework is primarily designed to keep investors informed of the important information needed to make decisions about buying and selling shares.
Nationally, the Securities Act consists of federal statutes detailing the law relating to the market for the sale of stock and also establishing a federal agency, the Securities and Exchange Commission (SEC), to turn the law into regulations that companies they must follow. The SEC requires filing with the agency if a company plans to sell securities, requires companies to disclose certain financial information on a periodic basis, and regulates the public offering of securities and the conduct of certain company stakeholders known as insiders.
Each state also has its own securities law that applies to companies registered in that jurisdiction. At the state level, the law is primarily concerned with protecting the consumer from fraud and deceptive practices. State law typically requires brokers and securities dealers to register with the state, and it also regulates their activities through a state securities commission. Most states also require companies to register all securities that will be sold within the state.
In addition to the legislative framework of securities law, the US court system allows for civil liability for securities actions that are based on traditional aspects of the common law. Under common law, every sale of stock was a contract, and the relationship between buyer and broker was of a fiduciary nature. Actions for breach of contract, fraud, and breach of fiduciary duties of care and disclosure can still be brought through the courts and constitute a substantial body of securities case law.
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