Essay Title: 

regulation of security markets

April 3, 2016 | Author: | Posted in finance, mathematics and economics

An investor decides to place their money into the market when they believe that the return they will receive over time is greater than the value they place on the money at the present time (Croome , 2003 ) In the American past , there were significant obstacles to investor information regarding securities . Over time , the United States enacted various laws to regulate the securities markets to protect investors Basically , the objective of the legislation has been to protect the individual investor against any lack of information which could affect the value of the stocks [banner_entry_middle]

they are investing in

One of the factors which investors consider when placing their money with securities companies is the current and future financial position of companies offering stocks on the publicly traded market . This evaluation is key for the investor in determining if their money will return a value high enough to forego using the money at the present time . Therefore in 1934 The Security Exchange Act of 1934 regulated the way which financial information is released . Among other things , it requires that publicly traded firms are required to release accounting statements periodically (Allen and Herring , 21 ) There are two important aspects to this regulation . First , accounting statements allow the individual investor to evaluate the current financial position of the company , including cash flow . They are able to look at openly revealed financial information to see if the company ‘s stock is properly valued . This gives the investor information on which they can decide if their investment in stocks is paying a value higher than what the money could be bringing them if they held on to it . Second , the fact that the accounting statements are periodic allows the investor to track changes over time . They are able to sell securities if they desire based on any change in the company ‘s financial standing . These two aspects allow the investor to track and project the value of their money over time

A second provision in the Security and Exchange Act of 1934 is the prohibition of insider trading . The investor is looking to get the best value for their money – thus , the initial compulsion to invest in the securities markets . However , one practice that can severely affect the investor is insider trading . Basically , if someone receives information about a problem within a company , or an opportunity within a company , they can buy or sell significant chares of the stock , thus affecting the price . If this information is not released to all investors at the same time , the average investor could benefit or suffer , while those with this information can save their money . This situation was made apparent in the Martha Stewart case (SEC , 2003 . All investors understand that they are taking a risk when investing in the markets . However , if some people have an informational advantage , the individual investor is at a greater risk . Without prohibition of insider trading , the individual investor is at a disadvantage and when the risk is factored in , the value of their… [banner_entry_footer]


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