securities trading, financial activity involving transactions of property such as stocks, bonds, commodities, and currency (see securities). Although the trading of stocks and bonds dates back several centuries in many Western nations, the development of the securities industry since World War II has been sweeping. The advent of new technologies, particularly in computers and telecommunications, has brought about a new era in securities trading. Traditional stock exchanges, while still vitally important in major cities around the world, now compete with such over-the-counter trading organizations as the National Association of Securities Dealers Automated Quotations (Nasdaq). Nasdaq and other similar systems allow computerized trading, linking investors with brokers and dealers both on a domestic and an international level. Such systems quote the highest bids and lowest asking prices on all securities, giving investors the opportunity to make optimum deals. In 1986, the London Stock Exchange created a computer-based network similar to Nasdaq with its deregulation move called "Big Bang." It connected London to a group of international securities dealers, making the city's trading floor largely obsolete. In the United States, such over-the-counter trading was at least partially responsible for the problems associated with program trading that arose in the 1980s and the collapse of the stock market in Oct., 1987. These events highlighted the weaknesses of computerized networks like Nasdaq. The 1980s were a decade of unprecedented volume and activity in securities trading because of technological innovation and new financial products. Securities fraud, particularly the insider-trading scandal, became a major issue. Insider trading, or the private trading of securities based on information that has not yet been made public, became an issue in the mid-1980s with the prosecution of such investors as Dennis Levine (1986) and Michael Milken (1988). Many contend that securities fraud of this sort has been a result of deregulation of the securities industry since at least the early 1980s, with an attendant relaxation of supervision by the U.S. Securities and Exchange Commission (SEC). The 1990s saw a renewed and accelerated effort by the SEC and other regulatory agencies to regulate the securities industry.

securities, in finance, instruments giving to their legal holders rights to money or other property. Securities include stocks, bonds, notes, mortgages, bills of lading, and bills of exchange. See speculation and stock exchange.

Securities and Exchange Commission (SEC), agency of the U.S. government created by the Securities Exchange Act of 1934 and charged with protecting the interests of the public and investors in connection with the public issuance and sale of corporate securities. The five members of the SEC are appointed by the President and confirmed by the Senate for terms of five years.

Responsibilities

The SEC administers a number of the most important reform measures of the New Deal: the Securities Act of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the Investment Advisers Act of 1940. In addition it may act as a participant in corporate reorganizations in the federal courts under the National Bankruptcy Act.

The first three of these statutes were passed in response to the pressure for greater protection of investors that developed as a result of the drastic decline in values of securities after Oct., 1929, the revelation of fraudulent and unfair practices in the sale of stocks and bonds, and the widespread belief that such practices had contributed to the severity of the Great Depression of the 1930s.

The Securities Act of 1933 is intended to compel full disclosure to investors of material facts about securities offered and sold in interstate commerce or through the mails. It requires that before an issue of securities may be offered for public sale the issuer must file with the SEC a registration statement giving complete information on such securities and on the issuing company. Dealers in securities must provide their customers with a condensation of the data in the statement. The SEC examines the statement and may refuse registration if it appears to be misleading, inaccurate, or incomplete. If registration is denied, the securities may not be offered for sale. However, an approval of the statement is not a finding by the SEC that the securities have investment value, or even a guarantee that the disclosures are accurate.

The Securities Exchange Act of 1934 is designed to increase the information available to investors and to prevent unfair practices in U.S. stock exchanges. It requires that certain current information be made public on the financial and managerial condition of corporations whose securities are traded in the exchanges. A registration statement containing such data for each listed security must be submitted to the SEC. The act also places the stock exchanges and over-the-counter markets under the SEC's supervision. Stock exchanges, brokers, and dealers must file information about themselves with the commission. Manipulative practices and false and misleading statements are prohibited. Other practices, such as short sales and market pegging, are regulated. Officers, directors, and principal stockholders of corporations whose securities are registered must report all their transactions in equity securities of their companies. The Board of Governors of the Federal Reserve System is responsible for regulating by means of margin requirements the use of bank credit to finance trading in securities.

The Public Utility Holding Company Act regulates the financial practices of holding-company systems controlling electric and gas utilities. It provides for registration of holding companies, elimination of uneconomic holding-company structures, and supervision of their transactions in securities and of certain of their financial practices. The SEC must pass upon all plans for reorganization of such companies or their subsidiaries and must require the corporate simplification and geographic integration of holding-company systems. However, it does not regulate public-utility rates. This act was upheld by the Supreme Court in 1946.

The Trust Indenture Act requires that securities of trustees meet satisfactory standards, and it also sets up qualifications for trustees. The Investment Company and Investment Advisers acts provide for registration and regulation of investment trusts, investment companies, and investment advisers.

The various laws administered by the SEC are intended to give investors a greater degree of safety in entrusting their money to enterprises than was previously afforded them. With these laws the emphasis in determining responsibility for the quality and condition of goods sold has shifted from the buyer to the seller. However, the statutes do not guarantee investors against loss. It is perhaps no more difficult for them to lose their money than before. The regulatory measures were at first bitterly opposed by the financial community, on the ground that they imposed such severe limitations and liabilities on security issuers and dealers as to impede the financing of industry. Persons aggrieved by the decisions of the SEC have a right of review by a U.S. circuit court of appeals. The original penalties of the Securities Act of 1933 were softened in 1934. Governmental supervision has won generally increasing acceptance by the interests concerned.

or stock market or(in continental Europe) Bourse

Organized market for the sale and purchase of securities (see security) such as stocks and bonds. Trading is done in various ways: it may occur on a continuous auction basis, it may involve brokers buying from and selling to dealers in certain types of stock, or it may be conducted through specialists in a particular stock. Some stock exchanges, such as the New York Stock Exchange (NYSE), sell seats (the right to trade) to a limited number of members who must meet eligibility requirements. Stocks must likewise meet and maintain certain requirements or risk being delisted. Stock exchanges differ from country to country in eligibility requirements and in the degree to which the government participates in their management. The London Stock Exchange, for example, is an independent institution, free from government regulation. In Europe, members of the exchanges are often appointed by government officials and have semigovernmental status. In the U.S., stock exchanges are not directly run by the government but are regulated by law. Technological developments have greatly influenced the nature of trading. In a traditional full-service brokerage, a customer placed an order with a broker or member of a stock exchange, who in turn passed it on to a specialist on the floor of the exchange, who then concluded the transaction. By the 21st century, increased access to the Internet and the proliferation of electronic communications networks (ECNs) altered the investment world. Through e-trading, the customer enters an order directly on-line, and software automatically matches orders to achieve the best price available without the intervention of specialists or market makers. In effect, the ECN is a stock exchange for off-the-floor trading.

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U.S. regulatory commission established by Congress in 1934. Its purpose was to restore investor confidence by ending the misleading sales practices and stock manipulations that had led to the stock market's 1929 collapse (see Stock Market Crash of 1929). It also prohibited the purchase of stock shares without adequate funds to pay for them, initiated registration and supervision of securities markets and stockbrokers, established rules regarding proxies, and prohibited unfair use of nonpublic information in stock trading (see insider trading). It also required that companies offering securities make full public disclosure of all relevant information. The discovery of fraudulent accounting practices among several large U.S. corporations brought demands for greater SEC oversight in the early 21st century.

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