The U.S. Securities Market – Regulation and Insurance Involved

Every broker represented by the Shark Traders is a member of SIPC and our capital is protected from the insolvency of the broker or any force majeure incident.

Background information on Securities Market Regulations

Different laws and by-laws, particularly the Securities Exchange Act of 1934 and the Securities Act of 1933, regulate the trades on the securities markets in the U.S. The Securities Exchange Act of 1933 requires complete disclosure of information related to the issuing of latest securities. It assumes the registration of latest securities as well as releasing of the issue list that contains a thorough description of the issuer’s financial prospects.
The Securities Exchange Act of 1934 established the Securities and Exchange Commission or SEC that had to ensure the stipulations of the Securities Act of 1933 were followed. One thing that should be kept in mind though is that although SEC approves a financial report or a prospectus, it doesn’t mean that the related securities are an excellent investment. What matters to them is the fact that the issuer gives all the information needed. Investors need to evaluate the attractiveness of securities investment.
The Securities Exchange Act of 1934 also expanded the explanation of the information disclosure standard included in the Securities Act of 1933 and commanded periodic disclosures of important financial information by the organizations that have previously released securities traded in the secondary market. It also gave SEC the right to list and control stock exchanges and the activity of dealers and brokers. SEC shares this duty with other regulators as it is the administrative body that’s accountable for extensive regulation of the securities markets.
The Federal Reserve System manages the financial system of the United States as a whole while the CFTC (Commodity Futures Trading Commission) is responsible for regulating trades in the futures market. The Federal Reserve System controls the granting of loan to the participant of the securities market by banks. It also sets the prerequisites to marginal trade in stocks as well as stock options.
The Securities Investor Protection Act of 1970 made the SIPC (Securities Investor Protection Corporation), which protects investors from losses in the event their brokerage firms go bankrupt. Similar to how the Federal Deposit Insurance Corporation protects investors from the insolvency of banks at national level, SIPC promises that investors will get the securities listed with bankrupt brokerage firms. SIPC is financially supported by an insurance premium that’s paid by every member brokerage company of this corporation. It can also borrow funds from the Securities and Exchange Commission if it doesn’t have enough finances to fulfill its responsibilities.
Aside from federal laws, trade in securities also need abide by the respective state’s laws. These laws are usually referred to as the blue sky laws since their goal is to provide the investors with an opportunity to realize investment possibilities more accurately. Even before the materialization of the Securities Act of 1933, the laws of individual states countering deception in the field of securities purchase and sale already existed. Different laws of individual states were combined to a certain degree when many states implemented some provisions of the Uniform Securities Act that commenced in 1956.