Securities Industry Essentials (SIE) ExamOverview of Regulatory FrameworkHard
A broker-dealer firm is implementing new procedures to prevent insider trading. Which federal act makes it illegal to trade on material, non-public information and provides for severe penalties for violations?
- ATrust Indenture Act of 1939
- BSecurities Exchange Act of 1934
- CInvestment Company Act of 1940
- DSecurities Act of 1933
Show answer & explanationAnswer & explanation
Correct answer: B. Securities Exchange Act of 1934
The Securities Exchange Act of 1934 is the primary federal law that prohibits insider trading, making it illegal to trade securities based on material, non-public information. It also provides for significant civil and criminal penalties.
Why the other options are wrong
- A. The Trust Indenture Act of 1939 relates to public issues of debt securities.
- C. The Investment Company Act of 1940 regulates investment companies.
- D. The Securities Act of 1933 focuses on the primary market and new issues.
Insider Trading (1934 Act)
The Securities Exchange Act of 1934 prohibits insider trading, which is the illegal practice of using material, non-public information to profit from securities transactions. This act provides the legal framework for enforcing such prohibitions and imposing severe penalties.
- Prohibits trading on material, non-public information.
- Found in the Securities Exchange Act of 1934.
- Applies to all market participants.
- Carries severe civil and criminal penalties.
Memory trick: The '34 Act is the 'Insider Trading Interceptor.'