Service Reduces the Number of Trade-for-Trade Transactions Requiring Financial Settlement
June 03, 2010 09:21 AM Eastern Daylight Time

NEW YORK--(EON: Enhanced Online News)--The Depository Trust & Clearing Corporation (DTCC) has begun aggregating each side of certain equities transactions that settle outside its systems into one receive and one deliver order to eliminate the need for financial firms to manually settle multiple transactions each day.

“By aggregating these trades, we are able to reduce the total number of transactions that need to be settled each day, which helps our members reduce their own internal costs.”

Through DTCC’s clearing agency subsidiary, National Securities Clearing Corporation (NSCC) aggregates only those “trade-for-trade” transactions that are executed between the same trading parties and in the same security. In addition, only transactions that NSCC designates to settle on a trade-for-trade basis are eligible for aggregation. NSCC typically designates transactions to settle trade-for-trade if they involve securities that have been chilled or globally locked for operational, risk management, or regulatory or compliance reasons.

For the week of May 17, NSCC successfully aggregated 67% of the 64,650 trade-for-trade transactions in its systems, reducing the number of trades requiring financial settlement to 20,834.

“While trade-for-trade transactions represent a small percentage of overall equity trading volume, they inject unnecessary inefficiencies into the system because each trade has to be manually settled,” said Susan Cosgrove, DTCC managing director, Clearance and Settlement/ Equities. “By aggregating these trades, we are able to reduce the total number of transactions that need to be settled each day, which helps our members reduce their own internal costs.”

How the Service Works

As transactions flow from the exchanges and trading venues into NSCC’s trade capture system each day, buy and sell orders between counterparties in a given security that are designated by the clearing corporation to settle trade-for-trade are aggregated into a single receive and a single deliver order. However, as is currently the case with trade-for-trade transactions, the aggregated obligations are not netted against each other and are not guaranteed by NSCC.

Here’s an example of how the service works: if Broker A had fifteen buys against Broker B in Security X, these items would be aggregated into one receive obligation for A and one deliver obligation for B for the total amount of shares for the 15 transactions in Security X. If Broker A also had 20 sells with Broker B on that same day for the same security, those items would also be aggregated into one deliver obligation for A and one receive obligation for B. In this example, A and B would each have two settlement obligations with the other for Security X rather than the 35 obligations they would each have without aggregation.

“Trade-for-trade aggregation further extends DTCC’s ability to leverage its core capabilities to develop solutions that automate securities processing and help reduce costs for financial firms while protecting the safety and soundness of the financial markets,” said Cosgrove.

About DTCC

DTCC, through its subsidiaries, provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments and over-the-counter derivatives. In addition, DTCC is a leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks. DTCC's depository provides custody and asset servicing for more than 3.6 million securities issues from the United States and 121 other countries and territories, valued at US$33.9 trillion. In 2009, DTCC settled nearly US$1.48 quadrillion in securities transactions. DTCC has operating facilities and data centers in multiple locations in the United States and overseas.

Contacts

The Depository Trust & Clearing Corporation
Craig Donner, 212-855-2531
cdonner@dtcc.com

Permalink: http://eon.businesswire.com/news/eon/20100603006033/en/DTCC/NSCC/clearance-and-settlement

Scams Involving Treasury Securities

Find out more about the renting, leasing, or blocking of Treasury Securities in the content below.
Renting or Leasing

We often hear about solicitations to "rent" or "lease" Treasury securities. Many of these solicitations have originated in the United Kingdom, Greece, and South Africa. To date, we have yet to hear of a genuine renting or leasing arrangement. Usually, the securities offered either don't exist (for instance, the offer is for bearer securities in an amount that exceeds the amount that remains outstanding in bearer form for that CUSIP) or are not owned by the party making the offer.

If you ask a leasing scam artist to produce the securities or otherwise prove ownership, he or she will be unable to do so and will offer excuses such as "they are frozen at my bank," "a wealthy philanthropist has assigned them to us to assign to others for infrastructure or humanitarian purposes in third world countries and wishes to remain anonymous," and "bank secrecy laws of this country prevent such a verification." Also, the scam artist will use one or more of the following tricks to try to con you:
Misuse of Public Debt Forms as Evidence of Ownership

Scam artists often misuse Public Debt forms to try to prove ownership or to make the scam seem "official." The two forms that are commonly misused are:

(1) PD F 1832 - Special Form of Assignment for U.S. Registered Definitive Securities
(2) PD F 1071 - Certificate of Ownership of United States Bearer Securities

The PD F 1832 and the PD F 1071 have nothing to do with book-entry bills, notes, or bonds. Unless there are securities physically attached to one of these forms, the form is meaningless and worthless. We only use the PD F 1832 in some cases to correct defective assignments of securities already in our possession. We also sometimes use it for the assignment of a large number of securities or where there is an assignment by two or more geographically separated owners. In all cases, the form is not valid unless the registered securities accompany the form.

We use the PD F 1071 to validate the ownership of bearer notes and bonds that are presented for redemption after they have become overdue. A bearer security becomes overdue after the lapse of between one and six months time from its face maturity date, depending on the original term of the security (such as, three months for a three-year note).

Scam artists try to use the forms as "evidence" that they hold the securities and claim that the forms can convey ownership or title to the securities listed on the forms. But, if you look at such a form you should see that the scam artist is misusing the form and cannot prove ownership of the securities listed. For instance, a typical misused PD F 1071 will fail to list serial numbers for any bearer securities allegedly owned and will fail to provide information explaining why the securities were not presented for payment before they became overdue. (The latter occurs because the bearer securities allegedly owned have not reached maturity at the time the form is misused.)
Misuse of CUSIP Numbers as Evidence of Ownership

Scam artists will also use a valid CUSIP number of a Treasury security that trades regularly in the market so a potential victim can get pricing information and confirm that we did issue the security. CUSIP is an acronym for the Committee on Uniform Securities Identification Procedures. Each security issue (stocks, corporate, municipal, or Treasury securities) has a unique CUSIP number. The CUSIP number is public information and it identifies an entire issue of a security. It does not identify any specific security, nor does mere use of it show ownership.
Claims That the Scam Has Been Certified by an Official Body

Scam artists may claim that an official body, such as the U.S. Embassy in London or the International Chamber of Commerce, has certified their fraudulent offering. They may also claim that we have created a special issue to the United Nations to pass on to other companies that were willing to do humanitarian and infrastructure projects in developing countries. All these claims are patently false.
Blocking of Assigned Treasury Securities

We periodically get requests to block off an amount of Treasury securities so the securities can be used to fund humanitarian or infrastructure projects in developing countries. This request is impossible for us to honor. We only sell securities at public auctions. We cannot block securities that we do not own.

Geez, check out NITE's activity, especially so far this year...amazing.

http://www.knight.com/ourfirm/liquidity.asp

Key Liquidity Statistics

Knight engages in trading and market-making in more than 19,000 U.S. securities

Knight supplies liquidity to a great number of difficult-to-trade issues

In 2009, Knight executed greater share volume than any U.S. exchange or securities firm

In the first quarter of 2010, among securities firms, Knight ranked*:

- #1 in shares traded of Listed securities with 18.9% market share

- #1 in shares traded of NASDAQ Capital Market, Global Market, and Global Select Market securities with a combined market share of 22.8%

- #1 in shares traded of Bulletin Board and Pink Sheet securities with 84.3% market share

- #1 shares traded of NASDAQ 100 securities with a 13.8% market share

- #1 shares traded of S&P 500 securities with a 15.4% market share


In the first quarter of 2010:

Knight executed more than 225 million trades, which is an average of 3.7 million trades per day, 569,000 trades per hour, 9,500 trades per minute and 158 trades per second

Knight traded approximately 625 billion shares, which is an average of 10.2 billion shares per day, 1.6 billion shares per hour, 26.3 million shares per minute and 438,000 shares per second

Knight dollar value traded topped $1.6 trillion, which is an average of $26.6 billion per day, $4.1 billion per hour, $68.2 million per minute and $1.1 million per second

These rules also require brokers that route orders on behalf of customers to disclose, on a quarterly basis, the identity of the market centers to which they route a significant percentage of their orders. In addition, brokers must respond to the requests of customers interested in learning where their individual orders were routed for execution during the previous six months.

The Securities Exchange Act of 1934 was created to provide governance of securities transactions on the secondary market (after issue) and regulate the exchanges and broker-dealers in order to protect the investing public.

Investopedia Says:
All companies listed on stock exchanges must follow the requirements set forth in the Securities Exchange Act of 1934. Primary requirements include registration of any securities listed on stock exchanges, disclosure, proxy solicitations and margin and audit requirements.

From this act the Securities Exchange Commission (SEC) was created. The SEC's responsibility is to enforce securities laws.

Related Links:
Find out how this regulatory body protects the rights of investors. Policing The Securities Market: An Overview Of The SEC
We'll help you clarify which exam you should take. Series 63, Series 65 Or Series 66?

Law governing the securities markets, enacted June 6, 1934. The act outlaws misrepresentation, Manipulation, and other abusive practices in the issuance of securities. It created the Securities and Exchange Commission (SEC) to enforce both the Securities Act of 1933 and the Securities Exchange Act of 1934.

Principal requirements of the 1934 act are as follows:

1. Registration of all securities listed on stock exchanges, and periodic Disclosures by issuers of financial status and changes in condition.

2. Regular disclosures of holdings and transactions of "Insiders"-the officers and directors of a corporation and those who control at least 10% of equity securities.

3. -solicitation of Proxies enabling shareholders to vote for or against policy proposals.

4. Registration with the SEC of stock exchanges and brokers and dealers to ensure their adherence to SEC rules through self-regulation.

5. -surveillance by the SEC of trading practices on stock exchanges and over-the-counter markets to minimize the possibility of insolvency among brokers and dealers.

6. Regulation of Margin Requirements for securities purchased on credit; the Federal Reserve Board sets those requirements.

7. -SEC subpoena power in investigations of possible violations and in enforcement actions.

The Securities Act Amendments of 1975 ratified the system of free-market determination of brokers' commissions and gave the SEC authority to oversee development of a National Market System.

Securities and Exchange Act of 1934
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Act passed by Congress establishing the Securities and Exchange Commission, an independent agency, to enforce federal securities laws. The act extended the registration and disclosure requirements of the Securities Act of 1933 to all companies with securities listed for sale on a national exchange, as well as other companies with assets over $1 million and more than 500 shareholders. These companies must file a registration application with the exchange and the Securities and Exchange Commission. The act also required disclosure of proxy solicitations, in which an organization attempts to gain the shares of other shareholders.

The act also exempted state chartered banks and national banks from having to register as broker-dealers with the Securities and Exchange Commission. (The Glass-Steagall Act restricted banks to underwriting bank-eligible securities, mainly government bonds, making further regulation unnecessary.) The Gramm-Leach-Bliley Act of 1999 authorizing banks to deal in a wide range of securities through subsidiaries, amended this section of the Securities and Exchange Act and put broker-dealer activities of banking companies under the supervision of the Securities and Exchange Commission.

Act of Congress:

Securities Exchange Act of 1934
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Relationship With Other Laws

Steven Ramirez

There are a number of federal securities acts other than the Securities Exchange Act of 1934. The most important of these is the Securities Act of 1933. The Securities Exchange Act of 1934 does not generally regulate the initial distribution of securities like the Securities Act of 1933. The Securities Act of 1933 imposes disclosure obligations upon companies when they are issuing securities.

As previously discussed, for over six decades the federal securities laws, including the Securities Exchange Act of 1934, provided investor remedies that were in addition to any remedies under state law. In 1998, however, Congress reversed this outcome and preempted all class actions under state "Blue Sky" laws, which generally extended investors more generous avenues of recovery than those remaining under the act after the Private Securities Litigation Reform Act of 1995.

Excerpt from the Securities Exchange Act of 1934

(3) Frequently the prices of securities on such exchanges and markets are susceptible to manipulation and control, and the dissemination of such prices gives rise to excessive speculation, resulting in sudden and unreasonable fluctuations in the prices of securities which (a) cause alternately unreasonable expansion and unreasonable contraction of the volume of credit available for trade, transportation, and industry in interstate commerce, (b) hinder the proper appraisal of the value of securities and thus prevent a fair calculation of taxes owing to the United States and to the several States by owners, buyers, and sellers of securities, and (c) prevent the fair valuation of collateral for bank loans and/or obstruct the effective operation of the national banking system and Federal Reserve System.

(4) National emergencies, which produce widespread unemployment and the dislocation of trade, transportation, and industry, and which burden interstate commerce and adversely affect the general welfare, are precipitated, intensified, and prolonged by manipulation and sudden and unreasonable fluctuations of security prices and by excessive speculation on such exchanges and markets, and to meet such emergencies the Federal Government is put to such great expense as to burden the national credit.

The Securities Exchange Act of 1934 (P.L. 73-291, 48 Stat. 881) was the first federal legislative initiative specifically intended to regulate stock exchanges and publicly held companies that have distributed securities (i.e., stocks and bonds) to the public. The act requires publicly held companies to make periodic public disclosures and disclosures in connection with proxy solicitations. The act also mandates certain disclosures in connection with tender offers for the shares of publicly held companies. Finally, the act regulates trading by certain company insiders and broadly prohibits all fraud in connection with the sale of securities.

With respect to stock exchanges including the National Association of Securities Dealers, which operates the NASDAQ market, or the New York Stock Exchange, the act requires registration and adherence to certain principles of self-regulation to ensure that exchanges operate transparently and fairly. Every securities broker and every securities dealer must be a member of a so-called self-regulatory organization. If either a securities firm or an individual affiliated with a securities firm violates the rules or regulations of the exchange, or the federal securities laws, or just and equitable principles of trade, the law permits the government to impose sanctions. These sanctions can range from fines to censures to permanent barring from the securities industry. The act also includes civil and criminal penalties against those who violate its provisions. The Securities and Exchange Commission (SEC) is the primary regulatory agency that enforces the federal securities laws, including the Securities Act of 1933, and the Securities Exchange Act of 1934.

Constitutional Basis

Congress promulgated the act under its authority to regulate interstate commerce, pursuant to Article II, section 8 of the U.S. Constitution. The act therefore requires the use of an instrumentality of interstate communication or transportation before it applies. The courts have held that the use of mails or a telephone suffices to meet this requirement, even if the use is completely intrastate.

Circumstances Leading to the Adoption of the Act

In the election of 1932, President Roosevelt promised to deliver economic reform in the effort to resolve the Great Depression, an unprecedented economic calamity that ultimately gave rise to an unemployment rate of 25 percent and to a 33 percent contraction of the nation's economy. The Securities Act of 1933 was the first piece of President Roosevelt's New Deal, and Congress enacted it during the first one hundred days of his administration. Nevertheless, President Roosevelt made it clear that more securities regulation was needed, specifically legislation "relating to better supervision of the purchase and sale of all [securities] dealt with on exchanges." The Securities Exchange Act of 1934 was this act, fulfilling the New Deal's promise for systematic securities reform. The New Deal represented the first massive federal regulation of the economy.

The regulation of securities was a natural starting place for the New Deal reforms, as the market crash of 1929 seemed to have triggered the deep economic malaise that became the Great Depression. Roosevelt sought to "bring back public confidence" in the securities markets and was convinced that truthful and full disclosure was essential to this goal. Congress joined in this conclusion, finding that full disclosure would give investors pause before falling prey to panic selling. Regulating the exchanges and publicly held companies is how lawmakers decided to achieve full disclosure, not just when a company first distributed securities, but on an ongoing basis. Congress was convinced that unregulated exchanges meant cycles of booms and terrible depressions when a company is a public traded company. The Great Depression was all the convincing most needed.

Nevertheless, the financial community opposed the act, preferring a more laissez-faire approach to preserve the status quo. One opponent testified to Congress that the act was a conspiracy to take the nation "down the road from democracy to communism." (Davis, 368). Business interests feared the act would lead to government supervision of much of the business sector, and stock exchanges fought hard to maintain their autonomy. Despite this opposition, the Securities Exchange Act passed both houses of Congress with overwhelming support and became law on June 6, 1934.

Experience Under the Act

By 1995 experts widely acknowledged that the American securities markets were the strongest in the world. A large part of this perception rested upon the effectiveness of the Securities Exchange Act of 1934. The act completed the work that Congress started with the Securities Act of 1933, by insuring traders had the ability to make intelligent investment decisions through full and truthful disclosure. The 1933 Act mandated disclosures when companies distributed securities, and the 1934 Act mandated disclosures when a company publicly traded its securities.

Initially the courts were very receptive to the remedial and investor protection goals of the act. In J.I. Case v. Borak (1964), the Supreme Court held that private investors could obtain remedies under the act's proxy disclosure rules. In SEC v. Capital Gains Research (1963), the Supreme Court decided that the terms fraud and deceit, as used in the act with respect to the regulation of securities professionals, must be construed broadly to reach all unjust and unfair practices used by brokers to abuse the trust of their clients. More recently, the Supreme Court held that trading on nonpublic inside information could amount to securities fraud even when the investor did not obtain the information from an officer or director of the issuer of the traded securities. This is known as the "misappropriation theory" of insider trading, adopted in United States v. O'Hagan (1998).

Still, as the decades passed and memories of the Great Depression faded, courts appeared to have become far more skeptical of the act. In Lampf, Pleva, Lipkind, Purpis & Petigrow v. Gilbertson (1991), the Supreme Court greatly restricted the time period for bringing securities fraud claims before they were barred by the statute of limitations. In Central Bank of Denver v. First Interstate (1994), the Supreme Court severely limited the potential liability of attorneys and accountants under the act. It is fair to say that the early twenty-first century Supreme Court is not positively inclined toward private enforcement of the act, although it appears to continue to strengthen government enforcement. In SEC v. Zanford (2002), the Supreme Court upheld the enforcement authority of the SEC against a miscreant broker.

Recent legislative trimming of the act's operation mirrors this judicial pruning. Specifically, in 1995 Congress enacted (over a presidential veto) the Private Securities Litigation Reform Act, limiting class action lawsuits under the act and shifting most enforcement responsibility to the SEC. In 1998 Congress went an additional step, in the Securities Litigation Uniform Standards Act, and preempted class actions based upon state law. The net effect of these two acts was to greatly undermine the efficacy of private litigation as a means of enforcement.

These legislative steps are particularly notable as Congress tends to chronically underfund the SEC, making it difficult for the agency to enforce the securities law. In addition, the SEC lacks one very important element—it has no authority to repay investors for their losses. Moreover, the SEC is certainly not immune from political pressure that may impact agency decisions and lead to a lax approach to law enforcement. Recently, former Chairman Arthur Levitt disclosed that political influence had undermined the SEC's ability to pursue a number of reform initiatives.

The impact of the Securities Exchange Act of 1934 on society has been controversial. The laissez-faire enthusiasts that unsuccessfully opposed the act have succeeded over the past few decades in undercutting the act's efficacy. They maintain, for example, that the market furnishes sufficient incentives for the disclosure of information such that no mandatory disclosure regime is needed. One commentator, however, has recognized that the market did not seem to function in the way these laissez-faire enthusiasts predicted before 1934. This commentator recognized that "[p]ervasive systemic ignorance blanketed Wall Street like a perpetual North Atlantic fog before the New Deal." This suggests that regulation was needed to free up disclosure and to allow markets to operate more efficiently, as investors make more informed decisions. The act, together with the Securities Act of 1933, seems to have enhanced investor confidence as a result.

Bibliography

Davis, Kenneth S. FDR: The New Deal Years. New York: Random House, 1986.

Posner, Richard. The Economic Analysis of Law. New York: Aspen, 1998.

Ramirez, Steven. "The Law and Macroeconomics of the New Deal at 70." MarylandLaw Review 62, no. 3 (2003).

Ramirez, Steven. "Fear and Social Capitalism." Washburn Law Journal 42, no. 1 (2002): 31–77.

Ramirez, Steven. "The Professional Obligations of Securities Brokers Under Federal Law." University of Cincinnati Law Review 72, no. 2 (2002): 527–568.

Roosevelt, Franklin D. The Public Papers and Addresses of Franklin D. Roosevelt. New York: Random House, 1938.

Stiglitz, Joseph. Globalization and its Discontents. New York: W.W. Norton, 2002.

Securities Exchange Act of 1934
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The Securities Exchange Act of 1934 is a law governing the secondary trading of securities (stocks, bonds, and debentures) in the United States of America. The Act, 48 Stat. 881 (enacted June 6, 1934), codified at 15 U.S.C. § 78a et seq., was a sweeping piece of legislation. The Act and related statutes form the basis of regulation of the financial markets and their participants in the United States. It is commonly referred to as the "Exchange Act", the "'34 Act", and the "Act of '34".

Companies raise billions of dollars by issuing securities in what is known as the primary market. Contrasted with the Securities Act of 1933, which regulates these original issues, the Securities Exchange Act of 1934 regulates the secondary trading of those securities between persons often unrelated to the issuer. Trillions of dollars are made and lost each year through trading in the secondary market.
Contents
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* 1 Securities exchanges
* 2 Securities associations
* 3 Self-regulatory organizations (SRO)
* 4 Other trading platforms
* 5 Issuers
* 6 Antifraud provisions
* 7 Exemptions from reporting because of national security
* 8 See also
* 9 External links
* 10 References

Securities exchanges

One area subject to 34 Act regulation is the actual securities exchange -- the physical place where people purchase and sell securities (stocks, bonds, notes of debenture). Some of the more well known exchanges include the New York Stock Exchange, the American Stock Exchange, and regional exchanges like the Cincinnati Stock Exchange, Philadelphia Stock Exchange and Pacific Stock Exchange. At those places, agents of the exchange, or specialists, act as middlemen for the competing interests to buy and sell apples. An important function of the specialist is to inject liquidity and price continuity into the market. Given that people come to the exchange to easily acquire securities or to easily dispose of a portfolio of securities, the specialist's role is important to the exchange.
Securities associations

The '34 Act also regulates broker-dealers without a status for trading securities. A telecommunications infrastructure has developed to provide for trading without a physical location. Previously these brokers would find stock prices through newspaper printings and conduct trades verbally by telephone. Today, a digital information network connects these brokers. This system is called NASDAQ, standing for the National Association of Securities Dealers Automated Quotation System.
Self-regulatory organizations (SRO)

In 1938 the Exchange Act was amended by the Maloney Act, which authorized the formation and registration of national securities associations, which would supervise the conduct of their members subject to the oversight of the SEC. That amendment led to the creation of the National Association of Securities Dealers, Inc. - the NASD, which is a Self-Regulatory Organization (or SRO). The NASD had primary responsibility for oversight of brokers and brokerage firms, and later, the NASDAQ stock market. In 1996 the SEC criticized the NASD for putting its interests as the operator of Nasdaq ahead of its responsibilities as the regulator, and the organization was split in two, one entity regulating the brokers and firms, the other regulating the NASDAQ market. In 2007 the NASD merged with the NYSE (which had already taken over the AMEX) and FINRA was created, which is now the only SRO.
Other trading platforms

In the last 30 years, brokers have created two additional systems for trading securities. The alternative trading system, or ATS, is a quasi exchange where stocks are commonly purchased and sold through a smaller, private network of brokers, dealers, and other market participants. The ATS is distinguished from exchanges and associations in that the volumes for ATS trades are comparatively low, and the trades tend to be controlled by a small number of brokers or dealers. ATS acts as a niche market, a private pool of liquidity. Reg ATS, an SEC regulation issued in the late 1990s, requires these small markets to 1) register as a broker with the NASD, 2) register as an exchange, or 3) operate as an unregulated ATS, staying under low trading caps.

A specialized form of ATS, the Electronic Communications Network (or ECN), has been described as the "black box" of securities trading. The ECN is a completely automated network, anonymously matching buy and sell orders. Many traders use one or more trading mechanisms (the exchanges, NASDAQ, and the ECN or ATS) to effect large buy or sell orders -- conscious of the fact that overreliance on one market for a large trade is likely to unfavorably alter the trading price of the target security.
Issuers

While the '33 Act recognizes that timely information about the issuer is vital to effective pricing of securities, the '33 Act's disclosure requirement (the registration statement and prospectus) is a one-time affair. The '34 Act extends this requirement to securities traded in the secondary market. Provided that the company has more than a certain number of shareholders and has a certain amount of assets (500 shareholders, above $10 million in assets, per Act sections 12, 13, and 15), the '34 Act requires that issuers regularly file company information with the SEC on certain forms (the annual 10-K filing and the quarterly 10-Q filing). The filed reports are available to the public via EDGAR. If something material happens with the company (change of CEO, change of auditing firm, destruction of a significant number of company assets), the SEC requires that the company soon issue an 8-K filing that reflects these changed conditions (see Regulation FD). With these regularly required filings, buyers are better able to assess the worth of the company, and buy and sell the stock according to that information.
Antifraud provisions

While the '33 Act contains an antifraud provision (Section 17), when the '34 Act was enacted, questions remained about the reach of that antifraud provision and whether a private right of action—that is, the right of an individual private citizen to sue an issuer of stock or related market actor, as opposed to government suits—existed for purchasers. As it developed, section 10(b) of the 1934 Act and corresponding SEC Rule 10b-5 have sweeping antifraud language. Section 10(b) of the Act (as amended) provides (in pertinent part):

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange [. . .]

(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act), any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

Section 10(b) is codified at 15 U.S.C. § 78j(b).

The breadth and utility of section 10(b) and Rule 10b-5 in the pursuit of securities litigation are significant. Rule 10b-5 has been employed to cover insider trading cases, but has also been used against companies for price fixing (artificially inflating or depressing stock prices through stock manipulation), bogus company sales to increase stock price, and even a company's failure to communicate relevant information to investors. Many plaintiffs in the securities litigation field plead violations of section 10(b) and Rule 10b-5 as a "catchall" allegation, in addition to violations of the more specific antifraud provisions in the '34 Act.
Exemptions from reporting because of national security

Section 13(b)(3)(A) of the Securities Exchange Act of 1934 provides that "with respect to matters concerning the national security of the United States," the President or the head of an Executive Branch agency may exempt companies from certain critical legal obligations. These obligations include keeping accurate "books, records, and accounts" and maintaining "a system of internal accounting controls sufficient" to ensure the propriety of financial transactions and the preparation of financial statements in compliance with "generally accepted accounting principles."

On May 5, 2006, in a notice in the Federal Register, President Bush delegated authority under this section to John Negroponte, the Director of National Intelligence. Administration officials told Business Week that they believe this is the first time a President has ever delegated the authority to someone outside the Oval Office.[1]
See also

* Securities Act of 1933
* Securities regulation in the United States
* U.S. Securities and Exchange Commission

External links

* United States Securities and Exchange Commission (SEC) - Official site
* Introduction to the Federal Securities Laws
* Securities Lawyer's Deskbook – Securities Exchange Act of 1934. University of Cincinnati College of Law.

References

1. ^ "Intelligence Czar Can Waive SEC Rules". BusinessWeek. 2006-05-23. www.businessweek.com/bwdaily/dnflash/may2006/nf20060523_2210.htm. Retrieved 2007-10-09.


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