securities law: an overview

The securities law exists because of unique informational needs of investors. Securities are not inherently valuable; their worth comes only from the claims they entitle their owner  to make upon the assets and earnings of the issuer, or the voting power that accompanies such claims. The value of securities depends on the issuer's financial condition, products and markets, management, and competitiveand regulatory climate. Securities laws attempt  to ensure that investors have accurate information of the type of interest they are purchasingand  its value.

The Securities exist in form of notes, stocks, treasury stocks, bonds, certificates of interest or participation in profit sharing agreements, collateral trust certificates, preorganization certificates or subscriptions, transferable shares, investment contracts, voting trust certificates, certificates of deposit for a security, and a fractional undivided interest in gas, oil, or other mineral rights. Certain types of notes, such as a note secured by a home mortgage or a note secured by accounts receivable or other business assets are not securities.

There are two principle settings for buying and selling securities: issuer transactions and trading transactions. Issuer transactions are the means by which businessmen raise capital and involve the sale of securities by the issuer to investor. Trading transactions are the purchasing and selling of outstanding securities among investors. Outstanding securities  are traded through securities markets thatcan be either stock exchanges or "over-the-counter".

A stock exchange provides a place, rules, and procedures for buying and selling securities. Generally, to have their securities sold and bought on a stock exchange, a company  must list its securities on a given exchange. Stock exchange rules are subject to approval by the Securities and Exchange Commission (SEC) (http://www.law.cornell.edu/cfr/cfr.phptitle=17&type=chapter&value=II). All transactions that do not take place  on  a stock exchange are said to be executed  in the over-the-counter market, which is the residual securities market. Only dealers and brokers who are registered with the SEC  may engage in securities business both on stock exchanges and over-the-couner market. Most of the broker-dealers serving the public are members of the National Association of Securities Dealers (NASD) (http://www.nasd.com/web/idcplg?IdcService=SS_GET_PAGE&nodeId=5), a national securities association registered with SEC.

Securities regulations focus mainly on the market for common stocks. Both federal and state laws regulate securities. Federal securities laws are generally administrated by the Security and Exchange Commission which was established by the Securities Exchange Act of 1934. The first of thefederal securities laws enacted  was the Federal Securities Act of 1933, which regulates the public offering and sale of securities in interstate commerce. The 1933 Act  prohibits the offer  or sale of a security not registered with the Securities Exchange Commission and requires the disclosure of certain information to the prospective security's purchaser.  The objective of the 1933 Act's registration requirements is to enable a  purchaser  to make a reasoned decision based on reliable information.

Securities Exchange Act of 1934 requires that issuers, subject to certain exemptions, register with SEC if they want to have their securities traded on a national exchange. Issuers  of securities registered under the 1934 Act must file various reports  with SEC in order to provide  the public with adequate information about companies with publicly traded stocks. The 1934 Act also regulates proxy solicitation and requires that certain information be given to a corporation's shareholders as a prerequisite to soliciting votes. The 1934 Act permits the SEC to promulgate rules and regulations to protect the public and investors by prohibiting  manipulative or deceptive devices or contrivances via  mails or other means of interstate commerce. Rule 10b-5 of  The 1934 Act  protects  against insidertrading.

State securities law are commonly known as Blue Sky Laws (http://chrome.law.cornell.edu/wex/index.php/Blue_sky_law). Typical provisions include prohibition against fraud in the sale of securities, registration requirements for brokers and dealers, registration requirements for securities to be sold  within the state, and sanctions and civil liability. A majority of states,with the exception of  New York and California, have adopted the Uniform Securities Act (http://www.law.upenn.edu/bll/ulc/fnact99/usa88.htm), at least in part.

See also  Corporations  

menu of sources

Federal Material

Federal Statutes

• U.S. Code:
  • 15 U.S.C., Chapter 2A - Securites Act of 1933
  • 15 U.S.C., Chapter 2B - Securities Exchanges
  • 15 U.S.C., Chapter 2B-1 - Securities Investor Protection Act

Federal Regulations

• Title 17 C.F.R., Chapt. II (http://www.law.cornell.edu/cfr/17cfrII.htm) - Securities and Exchange Commission

Federal Judicial Decisions

• U.S. Supreme Court: Recent Securities Decisions (http://supct.law.cornell.edu/supct/search/index.html?query=sec+or+securities)
• U.S. Circuit Courts of Appeals: Recent Securities Decisions (http://www.law.cornell.edu/usca/search/index.html?query=securities+or+sec)

State Material

Uniform Laws

• Uniform Securities Act (http://www.law.cornell.edu/uniform/vol7.html#secur)

State Statutes

• State Statutes Concerning Corporations (http://www.law.cornell.edu/topics/state_statutes.html#corporations)

State Judicial Decisions

• N.Y. Court of Appeals:
  • Recent  Securities Decisions (http://www.law.cornell.edu/nyctap/search/index.html?query=(securities+and+(sec+or+exchange+or+finance))+not+liibulletin)
  • Commentary from liibulletin-ny (http://www.law.cornell.edu/nyctap/search/index.html?query=liibulletin+and+securities)
• Appellate Decisions from Other States (http://www.law.cornell.edu/states/)

Other References

Key Internet Sources

• Federal Agencies:
  • Securities and Exchange Commission (http://www.sec.gov/)
  • Internal Revenue Service (http://www.irs.gov/)
• Center for Corporate Law - University of Cincinnati College of Law (http://www.law.uc.edu/CCL/)
• EDGAR Electronic Filings with the SEC With Related Information (http://edgar.stern.nyu.edu/)
• Corporate Information from SEC Filings (EDGAR) (http://www.sec.gov/edgarhp.htm)
• Securities Law Home Page (http://www.seclaw.com/)
• Introduction to Blue Sky Law (http://www.seclaw.com/bluesky.htm)
• Introduction to the Federal Securities Laws (http://www.seclaw.com/seclaw.htm)
• National Association of Securities Dealers (NASD) (http://www.nasd.com/)
• NASDAQ (http://www.nasdaq.com/)

• Stock Valuation:
  • Networth (http://www.quicken.com/investments/stocks/)
  • Security APL Quoteserver (http://www.secapl.com/)
  • Stockmaster (http://www.stockmaster.com/)

UsefulOffnet (or Subscription - $) Sources

• Good Starting Point in Print: Thomas Lee Hazen, Hornbook on the Law of Securities Regulation (http://west.thomson.com/product/11212869/product.asp), West Group (2005)
• LII Downloads (http://www.law.cornell.edu/disks96.html)

other topics

Category: Enterprise Law