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Enacted by the United States Congress, the Securities Act of 1933 brought the issuance of securities under federal regulation for the first time. Securities can be defined as stocks, bonds, mutual funds and other such investments. Part of President Franklin Delano Roosevelt's New Deal, the act was a direct result of the market crash of 1929 that sparked the Great Depression. Before this act, regulation of securities was dealt with by state governments. The law is also known as the Truth in Securities Act, The Federal Securities Act, or the 1933 Act. It is enforced by the US Securities and Exchange Commission (SEC).
After the crash of 1929, many had come to believe that state laws, or so-called blue sky laws, governing securities were not enough to protect against future economic disaster; the federal government would have to intervene. Toward that effort, President Roosevelt assembled a brain trust, not only to craft securities regulation, but to put together a series of progressive legislation which he called the New Deal. As a part of that group of advisers, Benjamin V. Cohen and Thomas Corcoran crafted the Securities Act of 1933, with the help of James Landis. Landis would go on to become chairman of the newly-formed SEC in 1934.
In effect, the Securities Act of 1933 serves to make the process of issuing securities to investors more transparent. Issuers must undergo a registration process and meet other criteria before the sale of securities is legal. The registration process requires that the issuer divulge information about the issuing company as well as about the security being issued. The purpose of these regulations is twofold: to provide investors with enough information about a security to make a wise investment and to thwart fraudulent security sales.
Under Rule 144 of the 1933 act, some restricted securities may be sold without registration. This typically includes transactions that occur outside the US. Certain securities may also be given safe harbor under Regulation S, meaning they may be exempted from undergoing registration requirements as listed under Section 5. These typically include securities backed by foreign governments.
Shortly after the Securities Act of 1933 was passed into law, Congress passed the Securities Exchange Act of 1934. Under this law, the SEC was created to enforce the 1933 Act. The Securities Act of 1933 had originally been enforced by the Federal Trade Commission. The Securities Exchange Act of 1934 was also passed to set up regulation of secondary, or general public, trading of securities.
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