securities
Securities Law: An Overview
Securities law addresses the unique informational needs of investors. Securities are not inherently valuable; their worth derives from the rights they provide in the assets, earnings, or governance of the issuer. The value of securities depends on the issuer’s financial condition, products, markets, management, and regulatory environment. Securities laws exist to ensure that investors receive accurate and sufficient information to make informed decisions.
Securities include instruments such as stocks, bonds, and notes. Litigation often centers on whether a financial instrument qualifies as a “security” under federal law. Courts focus on the substance of the transaction, particularly investor expectations and the nature of the investment, rather than its form.
Settings for Buying and Trading
Securities transactions occur in two settings: issuer transactions and trading transactions. Issuer transactions involve the sale of securities by issuers to raise capital in the primary market. Trading transactions involve the resale of outstanding securities among investors in secondary markets.
Securities may trade on stock exchanges or in the over-the-counter (OTC) market. Stock exchanges provide regulated venues with listing requirements, and their rules must be approved by the Securities and Exchange Commission (SEC). The OTC market facilitates transactions outside exchanges and is limited to SEC-registered broker-dealers.
Since 2007, the Financial Industry Regulatory Authority (FINRA) has served as the primary self-regulatory organization for broker-dealers, following the merger of the NASD and the regulatory arm of the New York Stock Exchange.
Federal Securities Regulation
Federal law primarily governs securities, though state blue sky laws also regulate securities within their jurisdictions.
Securities Act of 1933: Regulates the offer and sale of securities in the primary market. It requires registration of securities with the SEC and disclosure of material information, unless exempt.
Securities Exchange Act of 1934: Governs the secondary market, created the SEC, and regulates issuers, exchanges, broker-dealers, and insider trading. It also requires periodic reporting, regulates proxy solicitation, and prohibits fraud and market manipulation under Section 10(b) and SEC Rule 10b-5.
The SEC enforces securities laws by rulemaking (see: SEC rulemaking activity), enforcement actions, guidance releases, and no-action letters. Private plaintiffs may also bring securities fraud claims under Section 10(b), subject to heightened pleading standards.
Key Supreme Court Decisions
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007): Defined the “strong inference” standard for pleading scienter in securities fraud cases.
- Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (2008): Held that private plaintiffs cannot sue secondary actors (aiders and abettors) under Section 10(b).
- Credit Suisse Sec. (USA) LLC v. Billing, 551 U.S. 264 (2007): Held that securities regulation can preempt antitrust law where the two conflict.
State Securities Regulation
State securities statutes, called blue sky laws, regulate securities offerings and sales within a state. These laws generally require registration of securities, licensing of broker-dealers, and prohibit fraud. Most states have adopted versions of the Uniform Securities Act, though states such as California and New York retain distinct statutory frameworks.
Federal Sources
- Statutes: 15 U.S.C. §§ 77a et seq. (Securities Act of 1933), 15 U.S.C. §§ 78a et seq. (Securities Exchange Act of 1934), 15 U.S.C. §§ 78aaa et seq. (Securities Investor Protection Act).
- Regulations: 17 C.F.R. ch. II (SEC regulations).
[Last reviewed in August of 2025 by the Wex Definitions Team]
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