Securities Industry Essentials (SIE) ExamOverview of Regulatory FrameworkHard
A broker-dealer firm is implementing new procedures to prevent insider trading among its employees. Which federal act makes it illegal for individuals to trade on material, non-public information and mandates that issuers of securities file periodic reports with the SEC?
- AInvestment Company Act of 1940
- BSecurities Act of 1933
- CTrust Indenture Act of 1939
- DSecurities Exchange Act of 1934
Show answer & explanationAnswer & explanation
Correct answer: D. Securities Exchange Act of 1934
The Securities Exchange Act of 1934 broadly prohibits fraudulent and manipulative practices, including insider trading, in the secondary market. It also mandates periodic reporting by public companies to ensure continuous disclosure and protect investors.
Why the other options are wrong
- A. This act regulates investment companies, not insider trading or general corporate reporting.
- B. This act primarily deals with new issues and initial disclosures, not ongoing insider trading or periodic reports.
- C. This act applies to corporate bonds and debentures, ensuring a trustee acts for bondholders.
Insider Trading & Securities Exchange Act of 1934
The Securities Exchange Act of 1934 prohibits insider trading and mandates periodic reporting from publicly traded companies to the SEC, ensuring fair and transparent markets and preventing the misuse of material non-public information.
- Prohibits insider trading
- Requires periodic reports (10-K, 10-Q)
- Applies to secondary market trading
- Empowers SEC to enforce against fraud
Memory trick: The 'Exchange' Act 'Ex'poses 'Ex'ternal and 'Ex'isting information abuse.