Series 7: 18.1.1 The Securities Act Of 1933

18.1.1  The Securities Act of 1933

One of the first pieces of legislation to come out of the most devastating U.S. stock market crash of all time was the Securities Act of 1933. At the core of this act is the belief that investors have a right to make informed decisions about the securities they’re purchasing or that they own. To that end, the Securities Act of 1933 requires the vast majority of securities offered to U.S. investors to go through a registration and disclosure process.

The initial step in this process is the filing of a registration statement, which contains key information about the security being issued, the details of its actual issue process (price, date, etc.), and the issuer itself. Usually, this form is filed by the company issuing the securities with the help of an investment banker (also known as an underwriter), who is a special type of broker-dealer that focuses on helping companies issue their securities to the public.

When this registration is filed, the security begins a 20-day cooling-off period. During this period, regulators examine the registration filing and the issuer to make sure the legal requirements are met. This usually means checking to make sure all the necessary information is there for investors to make an informed decision for themselves. When the SEC determines that the security has met the registration requirements, it isn’t approving the security. During this cooling-off period, no sales may be made for the security.

During the cooling-off