The Securities Exchange Act of 1934 regulated the secondary trading of securities and established the Securities Exchange Commission (SEC) to prevent illegal activities and regulate practices in the primary and secondary markets. It aimed to avoid another stock market crash like the one that triggered the Great Depression.
The Stock Exchange Act of 1934 is both a piece of US trade law and a series of clarifications and fixes to the Stock Exchange Act of 1933. The updated law contained two main points; He regulated the secondary trading of securities and founded the Securities Exchange Commission (SEC). These acts were created in the hope of avoiding another stock market crash like the one that triggered the Great Depression.
A security is typically a stock, bond, or debt note. These securities are issued to allow companies to earn money or mitigate debt. There are two main methods for trading securities; The primary and secondary market. In the primary market, the issuer sells the securities. In the secondary market, securities are traded between parties that are not connected to the issuer. The Securities Exchange Act of 1934 was created to regulate these secondary businesses.
These secondary operations are big business for the stock exchange. While the primary issuer can only issue a specific collateral once, it can be traded between other parties as often as they like. In order for a primary issuer to recoup the security, it must purchase it from the current party that owns it, often in the secondary market.
The Securities Exchange Act of 1934 regulated the market through forced disclosure and the elimination of fringe practices. Parties involved in the secondary market were required to submit periodic financial information showing how and when they made money. This would avoid certain internal practices and create a level playing field for investors. The law also changed shareholder voting rights and eliminated some of the most dangerous margin practices.
The other major aspect of the Securities Exchange Act of 1934 was the formation of the SEC. The SEC will monitor the stock system and prevent illegal activities. It would also regulate certain practices in the primary and secondary stock markets. Both the Securities Exchange Act of 1934 and the 1933 Act had various statements of what was and was not allowed in the two markets, and the SEC was given the right to police those requirements.
One of the other important items in the Securities Exchange Act of 1934 was a clarification of the 1933 Act. The 1933 document contains various anti-fraud statements, but the actual methods of those statements are unclear. The 1934 Act attempts to clarify those statements and fold them with new SEC oversight.
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