Securities Exchange Act of 1934
The Securities Exchange Act of 1934 (the Exchange Act) is a landmark law that regulates the reselling of securities—the secondary market. This is in contrast to the Securities Act of 1933, which regulates how securities are registered, issued, and distributed to the public for the first time—the primary market.
The Exchange Act’s mandate to regulate the secondary market covers the financial markets and the market participants. These participants include broker-dealers, their representatives, and self-regulatory organizations. For example, it is the Exchange Act that lays out the rules for who must register as a broker-dealer. The Exchange Act also established the SEC, the body primarily responsible for the creation and enforcement of securities laws.
For the Series 82, you will need to know several definitions from the Exchange Act; they are listed below.
Under the Act, a person means a company, government, political subdivision, or agency of a government, or a natural person. Hence, a person does not just refer to an individual but extends to entities as well.
A broker is any person engaged in the business of effecting securities transactions for the accounts of others. In other words, a broker executes transactions for other people’s accounts rather than for its own inventory of securities. Typically, a broker is paid a commission, and the transactions are referred to as agency transactions.
A dealer is any person engaged in the business of buying and selling securities for its own account (not including security-based swaps). A dealer typically has a significant inventory of securities and buys and sells from its inventory, earning money through the difference between the price it bought a security at and the price it sold at. Dealers may charge a markup or a markdown on a transaction, and the transactions executed by dealers are called principal transactions.
Broker-dealers are usually firms tha