ch15 - TheRegulationsofMarkets andInstitutions Introduction

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    The Regulations of Markets  and Institutions
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    Introduction Financial system is one of most  intensely regulated sectors in US  economy Promote competition Protect individual consumers Assure stability of financial system Facilitate monetary policy
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    Regulation of Financial  Markets in the United States          Desire to protect individual investor Best protection is adequate information  about securities  Full disclosure broadens investor’s  participation in financial markets
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    Regulation of the Primary Market Securities Act of 1933 Requires disclosure of information for  newly issued publicly traded securities Privately held firms are not required to  reveal financial information to the public at  large, only to the lenders Securities Exchange Act of 1934
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    Securities Exchange Act of 1934 Created the Securities and Exchange  Commission (SEC) to administer provisions  of 1933 Act Publicly traded security must file registration  statement and preliminary prospectus  disclosing information about issue If information is adequate, SEC approves the  statement and sale Approval by the SEC does not imply that it views  the new issue as an attractive investment—merely  means disclosure of information is adequate
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    Securities Exchange Act of 1934 Extended 1933 Act to include periodic disclosure of  relevant financial information for firms trading in  secondary market 10K Report —Annual financial statement and  relevant information about a firm’s performance and  activity Insider Trading Laws Prohibit insiders from trading on private information  not  previously disclosed to public Corporate officers and major stockholders must report all  their transactions of their own firm’s stock
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    Regulation of the Secondary  Market SEC  and other regulatory agencies Have authority to regulate securities exchanges,  OTC trading, dealers, and brokers Basically rely on self-regulation by markets and  firms under their control Fed  sets margin requirements on stocks— how much of purchase price an investor can  borrow
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    Regulation of Commercial  Banks in the United States Protect individual depositor Foster a competitive banking system Ensure bank safety and soundness
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    U.S. Banking Regulatory  Structure Dual Banking System Federal Reserve Act of 1913 FDIC
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  Dual Banking System Federal and State banks existing side-by-side Legislation in 1860’s established federally  chartered banks under supervision of  Comptroller of the Currency (US Treasury  Department) Intent was to drive existing state chartered 
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ch15 - TheRegulationsofMarkets andInstitutions Introduction

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