Securities are investments whose value depends on 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 competitive and regulatory climate. Securities laws regulate the disclosure to investors about the value of the entities they seek to invest in.
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. A home mortgage or a note secured by accounts receivable or other business assets are not securities.
Transactions insecurities are made through a stock exchange, which 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). Other transactions that do not take place on a stock exchange are conducted 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), a national securities association registered with SEC.
Securities are regulated under both federal and state laws. Federal securities laws are generally administrated by the Security and Exchange Commission, which was established by the Securities Exchange act of 1934. The Federal Securities Act of 1933 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 investor.
The 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. The 1934 Act requires issuers of publicly traded securities to file various reports with the SEC in order to provide fair disclosure to the public. The 1934 Act also regulates proxy solicitation and requires that certain information be given to a corporation's shareholders before soliciting votes. The 1934 Act permits the SEC to promulgate rules and regulations to protect the public and investors by prohibiting manipulative or deceptive practices via mails or other means of interstate commerce. Rule 10b-5 of The 1934 Act protects against insider trading.
Blue Sky Laws are state securites laws which prohibit fraud in the sale of securities, provide registration requirements for brokers and dealers, registration requirements for securities to be sold within the state, and sanctions and civil liability.
