Thursday, June 20, 2024

The pandemic has changed everything that we do in life. This includes the stock market and its investors. Individuals who use financial instruments have always needed to be protected to maintain the trust of investors and the integrity of the market.

In the knowledge that there are laws that separate them from you, like insider stock selling, fraudsters will think twice before attempting scheming tactics. Moreover, investors want to be compensated for damages to their investment, with laws in place, investors are guaranteed compensation.

Investors must receive fair and equitable treatments both nationally and internationally. Additionally, investors want to be compensated for damages caused to their investment, with laws in place, investors are guaranteed compensation.

Let’s look at four laws that protect investors in the stock market:

1. U. S. Securities and Exchange Commission (SEC)

The SEC has several responsibilities:

  • To protect investors
  • Maintain an efficient stock market through fairness and proper conduct
  • To help investors and capital markets to make better-informed decisions

The SEC assures that companies providing securities for sale to the public must tell the truth about their business, offerings, and risks. All the market players, like brokers, dealers, and exchanges are required to treat investors fairly and honestly.

If they do not, they will receive the full hammer of the SEC law come down on them. The SEC wholly enforces the federal securities laws to hold malefactors legally accountable and to prevent them from any future wrongs.

Also, the SEC created different divisions to monitor the stock market entities. These include the Division of Trading and Markets, which oversees the fair and efficacious rules of the trade markets.

The Division of Investment Management was created to protect investors by watching and regulating aspects of the investment management industry. Lastly, there is the Division of Enforcement, which thoroughly investigates violations of the security law acts.

2. The Investor Protection Act (IPA)

The Investor Protection Act works in conjunction with the SEC. The Act has devised an advisory committee that oversees regulatory priorities and issues that surround new financial products, fee structures, and trading strategies.

The IPA also provides consultation on initiatives to protect investors’ interests and promote confidence in the market’s integrity by requiring the disclosure of conflicts of interest and risks associated with investment products.

The act also protects the rights of whistleblowers. Whistleblowers can receive compensation through the IPA Act up to 30% of sanctions that exceed $1 million. The actions of the IPA law created the SEC’s Investor Protection Fund, which awards payments to whistleblowers and provides investor education information and enterprises.

3. Blue Sky Laws

Blue sky laws are state regulations to protect investors against securities fraud. The laws will vary by state, but their main purpose is to require sellers of new financial instruments to register and provide financial details of their products in every state they make their market offerings.

This requirement allows investors to receive more information to help them make the right determination for their investments. Blue sky laws allow both legal authorities and investors to bring action against companies who do not provide the information required by the law.

Blue sky laws are an added layer of investor protection under the federal securities regulations in each state. This law also is designed to keep unknowledgeable investors from being cheated and that they can receive fair and equitable treatment.

4. The Federal Trade Commission Act (FTC)

The FTC Act has a wide range of responsibilities. To put it simply, the FTC is the only federal agency that monitors consumer and competition actions. This includes protecting investors trading on U.S. stock markets. The Act is empowered to perform the following actions:

  • prevent deceptive and unfair commerce actions
  • when consumers are harmed, the FTC Act provides monetary compensation
  • designs practices that detail bad faith practices and the requirements to prevent fraud
  • provides businesses, organizations, and other business entities to provide full disclosure of their actions
  • make reports and legislative recommendations to Congress and the public on antitrust matters.

As a result of its scope of practices, the United States Congress continually passes additional laws giving the FTC and the FTC Act wider authority to enact and work with law enforcement agencies to act on any and all anticompetitive practices to give consumers a better fair market value.


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