Securities Industry Essentials (SIE) ExamOverview of Regulatory FrameworkMedium
A registered representative (RR) is studying for the SIE exam and learns about the primary purpose of the Securities Act of 1933. Which of the following best describes its main objective?
- ATo establish rules for investment company operations.
- BTo ensure fair and orderly trading in the over-the-counter market.
- CTo provide full and fair disclosure in the primary market.
- DTo regulate the secondary market for securities.
Show answer & explanationAnswer & explanation
Correct answer: C. To provide full and fair disclosure in the primary market.
The Securities Act of 1933 is often referred to as the 'truth in securities' law. Its primary objective is to require issuers to provide full and fair disclosure of all material information to potential investors when offering new securities to the public in the primary market.
Why the other options are wrong
- A. The Investment Company Act of 1940 governs investment companies.
- B. FINRA primarily regulates the OTC market, under the 1934 Act framework.
- D. The Securities Exchange Act of 1934 regulates the secondary market.
Securities Act of 1933
Federal law designed to protect investors by requiring full and fair disclosure of information regarding new securities offerings in the primary market.
- Often called the 'Paper Act' or 'Truth in Securities Act'.
- Requires registration of new securities with the SEC.
- Mandates prospectuses for informed investment decisions.
Memory trick: Primary disclosure for new issues, the truth must be told.