Problems leading to Regulation in SEC. After the commencement of the Securities and Exchange Commission (SEC) , various laws, rules, regulations, and numerous policies implication become sine-qua-non to govern the securities markets and the investment industries in the country.
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The followings are major abuses regarding securities trading:
It is deliberate deception performed with a view to obtaining unfair or illegal gains from the securities markets. By applying any fraudulent activity, a dishonest player in the securities markets earns abnormal gain that hampers the interest of the investors.
It occurs when a broker or dealer sells securities without first giving the investors the issuer’s prospectus that reveals all the relevant facts.
With a view to creating a record of a sale, the seller of securities repurchases the same. A deceptive transaction in which the seller of the securities repurchases the same is called a wash sale. This is done to deceive someone into believing that the market price has changed. It also indicates the sales between members of the same group to record artificial transaction prices.
Churning involves an abuse of the customer’s confidence by a securities broker by the transactions disproportionate the size and nature of the client’s account with a view to generating commission for the broker.
A securities market becomes a corner when a price manipulator owns the total supply by buying all the available securities and controls over the price.
A matched order involves illusory transactions in which two individuals act the same task. The co-conspirators create a record of trade and give the impression that delivery was made without a true change in ownership occurs.
Corporate directors, executives, accountants and other concerned persons being the insiders have access to material nonpublic information about the corporation. Insider trading occurs when securities transactions are made based on material nonpublic information that was obtained in breach of fiduciary trust. Temporary insiders like auditors, consultants, financial analysts, and bankers also shall be liable for breaching a fiduciary trust if they make a profit from information to which they had temporary access.
Association of two or more persons the objective of which is to make a profit through price manipulation is called illegal pools. Under this scheme, a large amount of money is being used to buy or sell stocks to artificially affect security prices. After obtaining the objective the pool is dissolved. Pool members provide capital, inside information and manage the pool operations.
It occurs when a client’s account shows securities trades that were not authorized verbally and/ or in writing by the client before the transaction occurred.
Problems leading to Regulation in SEC
