Securities regulation in the United States is the field of U.S. law that covers transactions and other dealings with securities. The term is usually understood to include both federal and state-level regulation by governmental regulatory agencies, but sometimes may also encompass listing requirements of exchanges like the New York Stock Exchange and rules of self-regulatory organizations like the Financial Industry Regulatory Authority (FINRA).
On the federal level, the primary securities regulator is the Securities and Exchange Commission (SEC). Futures and some aspects of derivatives are regulated by the Commodity Futures Trading Commission (CFTC). Understanding and complying with security regulation helps businesses avoid litigation with the SEC, state security commissioners, and private parties. Failing to comply can even result in criminal liability.
Overview
The SEC was created by the Securities Exchange Act of 1934 to enforce the Securities Act of 1933. The SEC oversees several important organizations: for example, FINRA, a self-regulatory organization, is regulated by the SEC. FINRA promulgates rules that govern broker-dealers and certain other professionals in the securities industry. It was formed when the enforcement divisions of the National Association of Securities Dealers (NASD), FINRA, and the New York Stock Exchange merged into one organization. Similarly, the Securities Investor Protection Corporation (SIPC) is overseen by the SEC. All brokers and dealers registered with the SEC under , with some exceptions, are required to be members of SIPC (pursuant to ) and are subject to its regulations.
The laws that govern the securities industry are:
Securities Act of 1933 – regulating distribution of new securities
Securities Exchange Act of 1934 – regulating trading securities, brokers, and exchanges Trust Indenture Act of 1939 – regulating debt securities Investment Company Act of 1940 – regulating mutual funds Investment Advisers Act of 1940 – regulating investment advisers Sarbanes-Oxley Act of 2002 – regulating corporate responsibility Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 – regulating trade, credit rating, corporate governance, and corporate transparency Jumpstart Our Business Startups Act of 2012 – regulating requirements for capital markets
The federal securities laws govern the offer and sale of securities and the trading of securities, activities of certain professionals in the industry, investment companies (such as mutual funds), tender offers, proxy statements, and generally the regulation of public companies. Public company regulation is largely a disclosure-driven regime, but it has grown in recent years to the point that it has begun to dictate certain issues of corporate governance.
State laws governing issuance and trading of securities are commonly referred to as blue sky laws and mostly deal with fraud and fraud investigation privileges, registration of securities, and registration of broker-dealers. In general, states allow injunctions to stop businesses from potentially fraudulent activity and states give broad investigative power, generally to the attorney general, to investigate fraudulent activity.