Securities Exchange Act of 1934

Summary

This video provides an in-depth explanation of the Securities Exchange Act of 1934, highlighting its role in regulating security exchanges and trading activities. It covers key concepts like trade dates, settlement periods, physical vs. book entry securities, and the responsibilities of investors and brokers. The SEC, established by this act, is emphasized as the primary securities regulator, with a focus on investor protection, market efficiency, and capital formation. The video also introduces Self-Regulatory Organizations (SROs) like FINRA, which oversee securities firms and provide additional regulatory frameworks for the industry.

Takeaways

• 😀 The Securities Exchange Act of 1934 regulates the trading and exchanges of securities, including settlement time frames for different types of securities.
• 😀 Securities settle on different timelines depending on the type: corporate and municipal securities settle in T+2, while government securities settle in T+1.
• 😀 Cash trades and mutual funds settle the same day, with prices determined at the close of business (4:00 PM).
• 😀 Physical certificates of securities, though less common today, are still required to be stored securely and in deliverable condition.
• 😀 Most securities are not registered in the owner's name but in the street name of a broker-dealer, which allows for easier transactions but also presents risks if the broker-dealer goes bankrupt.
• 😀 The SEC (Securities and Exchange Commission) is the chief regulator of federal securities laws, created under the Securities Exchange Act of 1934.
• 😀 The SEC’s mission is to protect investors, maintain fair and efficient markets, and facilitate capital formation.
• 😀 The SEC oversees Self-Regulatory Organizations (SROs), such as FINRA, which handle the day-to-day regulation of securities firms and markets.
• 😀 FINRA is a crucial SRO for regulating securities firms in the U.S., and membership in such organizations is mandatory for firms wishing to operate in the securities industry.
• 😀 FINRA sets rules for licensing, continuing education, and renewals, and the firm element and regulatory element are part of the continuing education requirements.
• 😀 SROs, such as the CBOE (Chicago Board of Options Exchange) and MSRB (Municipal Securities Rulemaking Board), play essential roles in regulating specific aspects of the securities industry, like options trading and municipal securities markets.

Q & A

What is the primary function of the Securities Exchange Act of 1934?

The Securities Exchange Act of 1934 primarily regulates the trading of securities, ensuring that the exchanges, market participants, and trading activities are properly overseen to maintain fairness and transparency.

What is the difference between trade date and settlement date in securities transactions?

The trade date is the day the price of a security is agreed upon by the buyer and seller, while the settlement date is when the transaction is finalized, and the buyer actually takes ownership of the security. The time between the two depends on the type of security being traded.

How long does it take for corporate and municipal securities to settle?

Corporate and municipal securities settle in T+2, meaning the transaction is settled two business days after the trade date.

What is the difference between physical and book-entry securities?

Physical securities are hard copy certificates that need to be kept in secure condition, while book-entry securities are digital records of ownership, eliminating the need for physical certificates.

What role does the SEC (Securities and Exchange Commission) play in regulating securities?

The SEC is the chief regulator and enforcer of federal securities laws. Its mission is to protect investors, maintain fair and efficient markets, and facilitate capital formation, overseeing the activities of exchanges and market participants.

What are Self-Regulatory Organizations (SROs), and how do they relate to the SEC?

Self-Regulatory Organizations (SROs) are entities under the SEC's oversight that regulate their own members. They monitor and enforce securities regulations, and the SEC ultimately has authority over them. They play a key role in maintaining market integrity.

What is FINRA, and what is its function in the securities industry?

FINRA (Financial Industry Regulatory Authority) is an SRO that regulates securities firms operating in the U.S. It was created from the merger of the NASD and NYSE enforcement and arbitration functions. FINRA ensures compliance with rules, licensing, and continuing education in the securities industry.

What are the continuing education requirements for securities professionals under FINRA?

Securities professionals must complete continuing education through two components: the Firm Element, which requires in-office training, and the Regulatory Element, which is an at-home test completed every three years after the initial registration.

How does the Securities Exchange Act of 1934 relate to the Securities Act of 1933?

Both the Securities Act of 1933 and the Securities Exchange Act of 1934 are major pieces of U.S. securities legislation. While the Securities Act of 1933 regulates the issuance of securities, the Securities Exchange Act of 1934 focuses on the trading and exchanges of those securities, as well as oversight of market participants.

What protection does SIPC insurance provide to investors in case of broker-dealer insolvency?

SIPC (Securities Investor Protection Corporation) provides insurance protection up to $500,000 per securities account if a broker-dealer becomes insolvent, protecting investors from losses due to the broker's failure.