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Today, we’re diving into the Securities Exchange Act of 1934. While the Securities Act of 1933 focused on initial offerings, the 1934 Act was all about what comes after. The Exchange Act regulates the secondary market, created the SEC, and established rules to prevent fraud, insider trading, and market manipulation.

TODAY ON REASONED REFLECTIONS:

• Articles 💰;

• Market Movers 📈;

• The Securities and Exchange Act;

• Fun fact of the Reflection 🗓️;

• Quote of the Reflection 🧐.

ARTICLES 💰

Time for a bit of R&R

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• ETFs

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• Tax-friendly HSAs

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• Savings boost

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• 529s that keep on giving

  My Take - Any kids out there that have parents saving for their college expenses with a 529 account just got luckier! Any unused funds in the 529 account can now be rolled into the beneficiary’s Roth IRA (assuming certain conditions are met and subject to certain limits).

📈 MARKET MOVERS 📉

Data was pulled from MarketBeat as of April 18, 2025 based on the preceding 5 days. It includes U.S. NYSE and NASDAQ companies, covering all sectors, and focusing on large-cap stocks ($10b+ market cap).

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REFLECTION No. 31: The Exchange Act

I - Issue: What’s the Securities Exchange Act of 1934? 

R - Rule: The Securities Exchange Act of 1934 regulates the secondary trading of securities (i.e., buying and selling stocks after they’ve been issued to the public). Unlike the Securities Act of 1933, which governs initial offerings, the 1934 Act focuses on ongoing market activity.

A - Analysis: At its core, the Exchange Act is about maintaining fair and efficient markets. Once a security is sold in a public offering, it often continues to trade on stock exchanges. The 1934 Act governs the transaction when you buy or sell through your brokerage account. You aren’t buying the security directly from the company; instead, you are buying it directly from an existing stockholder looking to sell its holdings. 

The 1934 Act ensures that these markets operate efficiently by requiring public companies to disclose material information continuously. Companies that meet certain thresholds for total assets and shareholder count or that are listed on a national exchange must file annual (10-K), quarterly (10-Q), and current (8-K) reports. These filings inform investors well beyond the IPO stage, allowing them to make educated decisions about buying, holding, or selling.

The Securities Exchange Act requires disclosure of important information by anyone seeking to acquire more than 5 percent of a company's securities by direct purchase or tender offer. A tender offeror must also file disclosure documents with the SEC that disclose its plans relating to its holdings in the company. This information allows existing investors in that company to decide whether to sell or not.

A notable section from the 1934 Act is Section 10, which looks to prevent fraud. The SEC attempts to prevent fraud on the market under Rule 10b-5 by prohibiting the use of any “device, scheme, or artifice to defraud.” This section imposes liability for any misstatement or omission of a material fact or one that investors think is important when deciding whether to buy or sell a security. 

Lastly, the Exchange Act protects ordinary investors from those who engage in some trading practices that take advantage of information most investors do not have (i.e., insider trading). Insider trading is trading a company’s securities by individuals (generally a company’s officers, directors, or someone who owns 10% or more of the company) with access to confidential or other material non-public information about the company. As such, a company must report trading by its officers, directors, or other company members with privileged information access. 

C - Conclusion: The Securities Exchange Act of 1934 regulates the ongoing trading of securities after their initial sale. By establishing disclosure requirements and prohibiting fraud and insider trading, the 1934 Act helps maintain efficient U.S. markets.

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FUN FACT

With mobile banking and electronic payments now the norm, most people earn, spend, and manage money without touching a physical bill. Economists estimate that only about 8% of the world’s currency exists as actual cash. The rest is digitally stored on computer hard drives and in electronic bank accounts.

QUOTE OF THE REFLECTION 🧐