Securities Industry Essentials (SIE) ExamOverview of Regulatory FrameworkEasy
A broker-dealer firm is implementing new procedures to prevent insider trading. Which federal act primarily addresses insider trading and the misuse of confidential information in securities transactions?
- AThe Investment Company Act of 1940
- BThe Securities Exchange Act of 1934
- CThe Sarbanes-Oxley Act of 2002
- DThe Securities Act of 1933
Show answer & explanationAnswer & explanation
Correct answer: B. The Securities Exchange Act of 1934
The Securities Exchange Act of 1934 is the foundational legislation that governs the secondary market, including provisions against market manipulation, fraud, and insider trading.
Why the other options are wrong
- A. The Investment Company Act of 1940 regulates investment companies like mutual funds.
- C. The Sarbanes-Oxley Act of 2002 deals with corporate governance and accounting scandals, not directly insider trading.
- D. The Securities Act of 1933 primarily regulates the primary market and the issuance of new securities.
Securities Exchange Act of 1934 & Insider Trading
The Securities Exchange Act of 1934 is the primary federal law prohibiting insider trading and other fraudulent activities in the secondary securities markets.
- Regulates secondary market (trading on exchanges).
- Prohibits fraud and market manipulation.
- Establishes the SEC and empowers it to enforce rules against insider trading.
Memory trick: The '34 Act Prevents Insider Scams.