Chapter 1 Part 3 Flashcards
You can easily identify the questions that are referencing federal laws or regulations since these items have
a number in their title
The Securities Act of 1933
(regulation of new issues)
Secmities Exchange Act of 1934
(regulation of secondary markets, also known as trading markets
Investment Advisers Act of 1940
(federal regulation of investment advisers)
Investment Company Act of 1940
regulation of mutual ftmds and other investment companies
The Securities Act of 1933 was
the first federal legislation covering the securities industry and specifically, the primary market. Coming as a reaction to the stock market crash in 1929, this federal law requires that be offered or sold to the public. Prior to 1933, state law primarily governed regulation of thecertain securities be registered with the SEC in order to issuance, offer, and sale of securities. As previously mentioned, the sale of new securities by the issuer occurs in the primary market.
In 1934, Congress passed the Securities Exchange Act of 1934. Among many items, the Act is responsible for
creating the Securities and Exchange Commission-the preeminent regulatory authority in the area of domestic securities dealings in both the primary and secondary markets as well as having the power to enforce registration requirements of certain financial professionals. Additionally, the Act gave regulatmy oversight regarding the extension of credit in the securities industry to the Federal Reserve Board.
The federal law that governs investment adviser registration with the SEC is
the Investment Advisers Act of 1940. Many of its concepts have been incorporated into the USA and in the model rules that NASAA has adopted regarding investment advisers.
Investment Company Act of 1940 to regulate
investment companies. This new type of packaged product invests the money it receives from various investors in a portfolio of securities. Each investor owns an undivided interest in this pool of money, which is professionally managed by an investment adviser. Each investor will share in the profits and losses of the pool proportionate to her investment.
Certain investment companies are regulated under the Investment Company Act of 1940. They include
such entities as mutual funds and unit investments trusts (UITs). The sale and operation of investment companies are regulated by the ICA ‘40.
In 1996, Congress passed the National Securities Markets Improvement Act to
reduce duplication of state and federal securities regulation.
NSMIA created
a specific category of securities that are exempt from formal state registration. These securities are classified as federal covered securities and include: • Securities listed on U.S. exchanges (e.g., NYSE, Nasdaq, etc.) • regulation D offerings (private placements) • Municipal securities issued outside the state • Securities issued by investment companies (e.g., open-end and closed-end management companies, unit investment trusts, and face-amount certificates)
As result of NSMIA, federal covered securities are no longer regulated by the state or required to register at the state level. Keep in mind, if the state does not require registration, it may not deny or revoke that registration. However, Administrators will want to know
what is being offered or sold in their state. Therefore, states may require the issuer to file copies of the documents submitted to the SEC. In certain cases, states 1nay also require the issuer to pay a fee to the state. This process is called notice filing.
In order to prevent duplication of registration, NSMIA further created a category for
investment advisers called federal covered advisers, based on the amount of money under management or the type of client they serviced. Consequently, advisers are only subject to regttlation at one level–either the state or federal.
NSMIA prohibits state from enforcing requirements on broker-dealers that are
more restrictive than existing federal requirements. Some of these requirements relate to minimum net capital, bonding, and the maintenance of books and records.
