Congress passed the Securities Exchange Act of 1934, formally creating the Securities and Exchange Commission. The Act provides the SEC with wide authority over all areas of the securities sector. This covers the power to register, control, and manage clearing agencies, brokerage firms, securities self regulatory organizations (SROs), and transfer agents. Examples of SROs are the New York Stock Exchange and the NASDAQ Stock Market, along with the Financial Industry Regulatory Authority (FINRA).
The Act also names and bans certain kinds of market behavior and provides the Commission disciplinary authority above regulated entities and everyone who is associated with them.
In addition, the Act gives the SEC power to require regular reports from companies having publicly traded securities.
Companies whose assets exceed $10 million and securities are held by more 500 owners are to file reports every year and other necessary periodic reports. Such reports can be accessed by the public via the SEC’s EDGAR database.
The Securities Exchange Act also has power over the disclosure in materials intended to win shareholders’ votes in annual or other meetings set for electing directors and approving of other corporate action. This information, which is found in proxy materials, need to be filed with the Commission before any solicitation so that disclosure rules are complied with. Solicitations, both by management and shareholder groups, have to indicate all crucial facts related to the matters to be voted on by holders.
According to the Securities Exchange Act, anyone who wants more than 5 percent of a company’s securities, either by tender offer or direct purchase, should disclose all pertinent information. This offer is typically made to secure control of the company. No differently from the proxy rules, this enables shareholders to make wiser decisions on these vital corporate events.
The securities laws extensively disallow illegal activities of any nature as per the offer, purchase, or sale of securities. Behind various types of disciplinary actions are these provisions, including against cases of illegal insider trading.
Registration of Exchanges, Associations, and Others
The Act dictates that a range of market participants register with the Commission, from exchanges, to transfer agents to clearing agencies and more. The registration process entails filing disclosure documents which are periodically updated.
As said earlier, the exchanges and the Financial Industry Regulatory Authority (FINRA) are self-regulatory organizations (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.