Securities law consists of the statutes, regulations, and judicial decisions that govern the registration and sale of stock, bonds, and other equity and debt instruments by corporations. Every country that allows corporations to sell securities to the public through a stock market has its own laws and regulatory scheme to control market activity. The globalization of world economies and the increase in the number of multinational corporations has encouraged more uniformity than disparity in the way the sale of securities is regulated, particularly in countries with legal systems based on English common law.
The U.S. has long had one of the world’s top economies and the most stable stock market featuring some of the most prominent corporations. Securities law in the U.S., as a result, can be used as a normative example of a regulatory scheme that has many elements in common with other jurisdictions. Corporate securities in the U.S. are regulated at the federal and state level. The legal framework is designed primarily to keep investors informed of the important information needed to make decisions about buying and selling stock.
At the national level, securities law consists of federal statutes that detail the law regarding the market for the sale of stock and also establishes a federal agency, the Securities and Exchange Commission (SEC), to turn the law into regulations that corporations must follow. The SEC requires registration with the agency if a corporation plans to sell securities, requires corporations to make certain public disclosures of financial information on a periodic basis, and regulates the public offering of securities and the conduct of certain corporation stakeholders known as insiders.
Each state also has its own securities law that applies to corporations registered in that jurisdiction. At the state level, the law is primarily concerned with protecting the consumer from fraud and deceptive practices. State law typically requires securities brokers and dealers to register with the state, and also regulates their activities through a state securities commission. Most states also require corporations to register any securities that will be sold within the state.
In addition to the legislative framework of securities law, the U.S. court system allows civil liability for securities-related actions that are based on traditional aspects of common law. Under common law, each sale of stock was a contract, and the relationship between buyer and broker was fiduciary in nature. Actions for breach of contract, fraud, and breaches of the fiduciary duties of care and disclosure can still be brought through the courts and make up a substantial body of securities case law.
