1.2. Securities Exchange Act of 1934

The Securities Act of 1933 regulates how securities are registered, issued, and distributed to the public for the first time. This is called the primary market. In contrast, the Securities Exchange Act of 1934 regulates how existing securities are resold between investors. This is called the secondary market. The Securities Exchange Act of 1934 also regulates broker-dealers and the people who work for them. You may see it referred to as the 1934 Act, the Exchange Act, or the People Act.

To meet its objectives, the Exchange Act defines a broad set of guidelines to govern securities trading. It also created a new agency, the Securities and Exchange Commission (SEC), which administers and enforces both the Exchange Act itself as well as the other federal securities laws described in this chapter. For example, the Exchange Act put the SEC in charge of the registration process created a year earlier by the Securities Act. Within the scope of these guidelines, the Exchange Act permits the market to regulate itself. Five major pieces of information about the Exchange Act are important to remember:

• It contains important trading laws including laws on insider trading.

• It gave the Federal Reserve Board the power to regulate margin requirements, which are discussed in Chapter 8.

• It created the Securities and Exchange Commission (SEC) to be the body primarily responsible for the enforcement of securities laws and the creation of regulations based on those laws.

• It allows securities exchanges to regulate themselves under th