What Is the Securities Exchange Act of 1934? Reach and History

Overview

The Securities Exchange Act of 1934 (the Exchange Act or SEA) regulates trading of securities on the secondary market (after they are issued). Its primary goals are to prevent fraud and manipulation, and to increase transparency so investors can make informed decisions. The Act also created the Securities and Exchange Commission (SEC), the federal agency that enforces securities law, oversees markets, and requires public disclosure by reporting companies.

Why it was enacted

• Enacted in response to the 1929 stock market crash and the lack of regulation that preceded it.
• Followed the Securities Act of 1933, which focused on disclosures for newly issued securities.
• Part of a broader set of reforms in the 1930s to restore investor confidence and impose oversight on capital markets.

Scope and core requirements

The Exchange Act regulates trading on national exchanges and the broader secondary market. Key requirements and scope include:

• Registration and regulation of exchanges, brokers, dealers, transfer agents, and clearing agencies.
• Ongoing disclosure obligations for companies with publicly held securities (and certain companies that meet size/ownership thresholds).
• Rules governing proxy solicitations, tender offers, margin and audit practices, and conduct of market participants.
• Prohibitions against fraud, insider trading, market manipulation, and other abusive practices.

Reporting and disclosure

Companies subject to the Act must file regular disclosures to keep investors informed:

• Form 10-K — annual report.
• Form 10-Q — quarterly report.
• Form 8-K — current reports for major, material events.

These filings are publicly accessible through the SEC’s EDGAR system. Companies with more than $10 million in assets and 500 or more shareholders also meet reporting-company thresholds even if their securities are not exchange-listed.

The Securities and Exchange Commission (SEC)

The Exchange Act established the SEC and granted it broad authority to regulate the securities industry, enforce federal securities laws, and administer disclosure requirements. Key facts:

• The SEC is led by five commissioners appointed by the President.
• Principal divisions and their functions:
• Division of Corporation Finance — ensures material corporate disclosures are available to investors.
• Division of Trading and Markets — oversees fair and orderly markets and major market participants.
• Division of Investment Management — regulates investment companies and registered investment advisers.
• Division of Economic and Risk Analysis — applies financial economics and data analytics to the SEC’s work.
• Division of Enforcement — investigates violations, brings civil enforcement actions, and conducts administrative proceedings.

Enforcement powers include investigations, administrative proceedings, civil suits in federal court, and negotiated settlements.

Key areas of regulation under the Exchange Act

• Insider trading — prohibits trading based on material, nonpublic information.
• Market manipulation — bans coordinated schemes that artificially move prices (e.g., “pools”).
• Tender offers — requires disclosure by anyone seeking to buy 5% or more of a company’s shares so shareholders can evaluate the offer.
• Proxy solicitation — mandates filing proxy materials with the SEC so shareholders receive necessary information before voting.

How the 1934 Act differs from the 1933 Act

• Securities Act of 1933: governs initial offerings of securities (primary market) and requires registration and prospectus disclosures for new issues.
• Securities Exchange Act of 1934: governs trading of those securities after issuance (secondary market), ongoing reporting, market regulation, and enforcement.

Key takeaways

• The Exchange Act of 1934 created a federal framework for regulating secondary securities markets and market participants.
• It established the SEC and gave it authority to require disclosures, oversee exchanges and intermediaries, and enforce anti-fraud rules.
• Regular reporting (10-K, 10-Q, 8-K) and public access to filings through EDGAR promote transparency and investor protection.
• The Act remains a cornerstone of U.S. securities regulation, aimed at maintaining fair, orderly, and efficient markets.

Bottom line

The Securities Exchange Act of 1934 brought comprehensive oversight to secondary securities trading, improved transparency through mandatory reporting, and empowered the SEC to deter and punish fraud and manipulation—foundations that continue to shape investor protection and market integrity today.