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Securities Act Of 1933 & 1934

1814 words - 8 pages

The Securities and Exchange Act of 1933 was signed into law by President Franklin D. Roosevelt as part of the New Deal. The New Deal signified the first federal regulation of the economy. President Roosevelt designed the New Deal to assist in resolving the issues that resulted from the Great Depression, an unmatched economic calamity that eventually produced an unemployment rate of 25% and a 33% reduction of the nation's economy.

The regulation of securities was a good initial foundation for the New Deal reforms. The stock market crash of 1929 was a major cause leading to the economic downfall of America, known as the Great Depression. Today, the word securities refers to negotiable ...view middle of the document...

Owning securities permit you to own the security without taking physical possession. This makes securities highly liquid and, therefore, easily traded on the public market. They are simple to price, and thus are useful in determining the value of the underlying asset. Traders are educated in the laws governed by the Securities and Exchange Commission (SEC) and are required to be licensed to buy and sell securities. The act demanded “that all sales of securities be registered with the government unless there was a specific exemption to the contrary.” For example, rule 144 transmitted by the SEC under the 1933 Act, allows, under certain circumstances, the public resale of restricted and controlled securities without registration. The process of registering with the SEC requires the company to submit a prospectus, a disclosure statement that includes all significant facts connected to the securities, as well as, the company issuing the securities. The act offered solutions for stockholders who are misinformed regarding the securities, or those who purchase securities are not registered but are required to be. The act also contains allowances for criminal and civil penalties for breaching its conditions.

There are several types of public offerings, which include an initial public offering (IPO), direct public offering (DPO), selling stockholder offering, private investment in public equity (PIPE), or equity line.

An initial public offering is the first sale of stock by a company through an underwriter. A direct public offering is similar in that it is an offering of your company’s stock, but without the use of an underwriter. A selling stockholder offering is an offering of stock by current stockholders in your company. A private investment in public equity, or PIPE, consists of the selling of publicly traded common shares to private investors. This may also include certain forms of preferred stock or convertible securities. An equity line transaction is when a company ascertains a line of credit with a lender or even an investor. When the company draws down on the equity line, it furnishes free trading shares of the company’s stock, commonly at a discount to the market price, to the lender or investor. Equity line funding deals can be used by public companies to satisfy their working capital requirements, for the acquisition of other companies, and event to make their loan payments. One possible gamble with equity lines is that sale of the company’s stock could weaken the market price, which would require the company to issue more and more stock in the company in order to pull down on the equity line.

Before issuing stock to the public, a corporation must register the security with the SEC using a registration statement (or Form S-1). Form S-1 contains basic information about the company, as well as, audited and stub period financial statements for the company, but also requires companies to supply information on the intended...

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