Finance: What is the Securities Act of 1933?

What is the Securities Act of 1933? Signed by President Franklin Roosevelt, the Securities Act of 1933 was the first legislation to regulate the stock market. Instituted in reaction to the Crash of 1929, the Act of 1933 outlined financial disclosure rules and registration mandates for public companies with the SEC, subsequently formed in 1934 to enforce the Act of 1933. The rule attempted to inject financial transparency into the markets so investors not privy to inside information could get hoodwinked.

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Transcript

00:23

wild, Westy thing, with few rules and a whole lot of insider trading information,

00:28

driving the bus, or carriage, or whatever they had back then. In fact before 1933,

00:34

securities laws were a, state thing. Each state had its own view as to how much

00:40

the poor uneducated farmer should be protected by the government. In fact

00:45

most really weren't protected at all. Making matters even worse, States [man and woman trading on map]

00:50

citizens, invested in each other all the time. Like across the state border. So

00:56

what would then happen when one set of state's laws, applied to one side of the

01:00

trade and one state set of laws, was conjoined to another set of laws, applied

01:05

to the other in a different state. Yeah that was a problem. Clearly we needed,

01:10

national laws and that's when the 1933 Securities Act was born, setting federal

01:16

law above state law. But keeping state laws generally intact when the [Uncle Sam]

01:21

intrastate activities were happening. What did all that mean? Well it

01:24

meant that the default laws generally revolved around whatever the state had

01:29

already in place. Except in the case where transactions, required a federal

01:34

purview, or look-see. Because the transactions happened among, two or more

01:39

states, or that they violated some major federal law. Like discrimination or

01:44

something like that down the line. Well the notion here, was that, farmers were

01:49

being sold acres of, quote, Blue Sky, unquote. Like you had to pay for the blue [two men in field]

01:54

sky and we're not talking about smog here. Instead of things of real value.

01:58

Right, like farmers would believe that they could buy an acre of blue sky.

02:02

Sorry, farmer Joe, we're just keeping it real there, you really did try to buy

02:06

acres of blue sky. Was solely because, farmer Joe, did not possess the education, [squirrels in head]

02:11

to determine the difference between a real investment opportunity and a fake

02:16

one. Finally the government, well they just had to step in and protect the

02:20

average Joe, from the average, you know Schmo.[man talking in front of parchment]