Many people know that the stock market is an excellent way for investors to grow and preserve their capital. The market provides a ever-changing and volatile environment that can be misunderstood at times.
This volatility means that there is a need for regulatory entities to oversee the market, prevent fraud and protect investors. These entities also ensure that investors receive timely and correct information.
The History Of Regulation
The regulations governing the market have not always been in place, as is evident by the stock market crash of 1929. In the years leading up to the crash, people poured all of their money into the common stocks that were being printed by corporations.
The market eventually collapsed on October 24, 1929, as a massive wave of sell orders flooded the market. This was due to the over-valued stock prices and mass speculation. This event has come to be known as “Black Thursday”.
The events of October 1929, as well as the growing number of participants in the stock market, led the United States government to step in to attempt to regulate the market, and protect investors.
The US Securities And Exchange Commission
In 1934 the United States Securities and Exchange Commission was created in order to channel more oversight from the federal government to the stock markets. The Securities and Exchange Commission mandated that all publicly traded companies produce timely and applicable information to investors, as well as information concerning investing’s intrinsic risks.
Corporations must also adhere to a set of strict rules set by the SEC when they make the decision to go public. The rules for a company’s Initial Public Offering (IPO) are set by the Securities and Exchange Commission, and include a “quiet period” when employees are required to remain silent about what the company is doing.
The Securities and Exchange Commission is also charged with writing the laws that control the stock market, as well enforcing its authority by bringing legal action against any violators of the laws set forth by the agency.
Financial Industry Regulatory Authority
Created in 2007, the Financial Industry Regulatory Authority is the result of a merger between the regulatory branch of the NYSE and the National Association of Securities Dealers.
Overseen by the Securities and Exchange Commission, the Financial Industry Regulatory Authority is a self-regulating agency that is responsible for regulating and overseeing all United States brokerage firms and stockbrokers.
The Financial Industry Regulatory Authority carries out the market regulations for the American Stock Exchange, the International Securities Exchange, the NASDAQ Stock Exchange, and the Chicago Climate Exchange.
The United States Congress
The United States Congress has been called on to regulate the stock market, and to pass laws to assist in market regulation. Many of the laws regulating the market are written by other agencies such as the Financial Industry Regulatory Authority and the Securities and Exchange Commission.
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