History And Roles Of Regulations

Submitted By lcenteno
Words: 709
Pages: 3

History and Roles of Regulations

Due to the increase amounts of investors throughout history and the stories of deception from companies they invested in regulations were put in place. There is much more security because of the regulations that protect investors today. However, back then there were no regulations and investors were not able to pursue legal justice. Investing has much history and was very common with the more wealthy investors who were able to afford stocks and purchase bonds. It was not considered much of a problem then because it was assumed that since those investors had money they were able to afford risks. Nonetheless, because of the abuse of financial frauds on investors it somewhat scared them to a point where most investors had stopped investing. This was a great concern for the government because investors were becoming an important part of the U.S. economy. The first of many regulations was the Blue Sky Laws which protected investors from worthless securities issued by unscrupulous companies. They require companies to provide a prospectus to state the interest that is going to be received and why. It is then the decision of the investor on whether to invest or not. This regulation was alright; however, it did not prevent investors from buying a security with unfair terms because they were informed. This led to many uninformed investors who were being manipulation and eventually the Great Depression made its debut. Due to the Great Depression, in 1933 two more regulations were passed: Glass-Steagall Act and Securities Act. The Glass-Steagall Act prevented banks from involving themselves in the stock market and hanging when or if the stock market crashed. The Securities Act was a stronger version of the Blue Sky Laws at a Federal level and was named the Securities and Exchange Act of 1934 to beef up the economy because of the economy and people wasting away. The original Blue Sky Laws lacked enforcement and horrified investor confidence hence bringing forth additional acts to help rebuild it. These acts were the Public Utility Holding Company Act (1935), the Trust Indenture Act (1939), the Investment Advisors Act (1940) and the Investment Company Act (1940) and were enforced by the SEC. This then led to the SEC using their powers to help run Wall Street by demanding more disclosures, strict reporting, companies registering and regularly with the SEC, and the ability for civil charges to be filed against companies who commit fraud or other security regulations. With all these regulations in place the return of investors slowly began after the World War II and it pretty much restarted the economy. The SEC made it possible for investors to have better access to company financials and the possibility to strike back against fraudsters if there was a case (Beattie, 2011). In my opinion the most important