Market Watch: Regulation of the Stock Market

Market Watch: Regulation of the Stock Market

Length: 1666 words (4.8 double-spaced pages)

Rating: Excellent

Open Document

Essay Preview

More ↓
Market Watch: Regulation of the Stock Market

The Enrons and Worldcoms made it clear that the financial markets cannot be left under the auspices of corporate directors and officers, without oversight authority. "The corporate abuses and fraud that Enron exemplified, while not a first in the financial markets, they were certainly a first in terms of the magnitude of the losses to stockholders and the confidence the public reposed in the financial sector (Bequai 2003)." As a result of the stock market crash of 1929 regulations such as the Securities Act of 1933 and Securities Exchange Act of 1934 were established to prevent such practices as those that contributed to the downfalls of Enron and Worldcom.
In this report, I will briefly explore some popular reasons why the market crash of 1929 happened, events leading the market crash and regulations the government instituted in order to protect investors.

The 1920's, after the end of World War I, was considered a time of prosperity and technology with innovations such as the car and radio ushered in the . The economy was strong and millionaires were being created daily. But soon this economical bubble was about to burst.

Like the markets of the 1990's, the Dow Jones Industrial Average rose to tremendously heights. Many investors quickly purchased shares of stocks in the hopes of making loads of money. Stocks were seen as extremely safe by most economists, due to the powerful economic boom.

Investors purchased stock on margin. For every dollar invested, a margin user would borrow 9 dollars worth of stock. Because of this leverage, if a stock went up 1%, the investor would make 10%! This also works the other way around, exaggerating even minor losses.

How to Cite this Page

MLA Citation:
"Market Watch: Regulation of the Stock Market." 19 Jan 2020

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

The Stock Market And Stock Exchange Essay

- This paper will encompass the importance of the U.S stock market/stock exchange versus the Chinese stock market/ stock exchange, with a brief introduction about how each stock market/stock exchange came into existence, the importance of each stock market/stock exchange, how the U.S and Chinese manage their stock markets/stock exchange, how corporations are appointed plus the rules and regulations. This will also entail random facts about each stock market/stock exchange. Stock markets are like hitting a royal flush, if the price of your stocks goes up, you win; if it drops, you lose....   [tags: Stock market, Stock exchange, Stock]

Research Papers
2138 words (6.1 pages)

Personal Experience : The Stock Market Game Essay

- Part 1: Personal Experience The stock market game is a great way to learn and understand how stocks work. I ended up learning that going all in and shorting stocks was the quickest way to make money. Unfortunately, it is also the best way to experience the slaughter when stocks go other than what you predict. In the beginning, I did not truly understand how to play the stock game. I was afraid and put clumps of money in different stocks. The cost was hundreds and hundreds of dollars that. Slowly as I tested shorting with Sunedison (SUNE) I began making up the money that I lost....   [tags: Stock market, Stock, Short, Share]

Research Papers
1971 words (5.6 pages)

Financial Investment At The Stock Market Essay

- QUESTION 1 (i) Security markets refer to any type of financial investment at the stock market. A security market encompasses; equity markets, bond markets, and derivatives markets. Only a few companies in East Africa are enlisted at the stock exchange due to the technicalities of listing companies and the disadvantages that comes with it. Enlisting a company at the securities exchange market has advantage and disadvantages. The following are some of the advantages and disadvantages of enlisting a company at the securities exchange market; Advantages of Enlisting a Company at the Securities Exchange Market (a) Free Coverage and Publicity; Enlisting a company at the securities exchange market...   [tags: Stock market, Stock exchange]

Research Papers
1382 words (3.9 pages)

Essay on Playing the Stock Market Game

- There are many different ways to save money and there are different things to save for. A savings plan for an immediate want is apparently different than a savings strategy for retirement. One may choose to select stocks, bonds, or mutual funds for a savings strategy, however, my personal choice is to invest in bonds first, then mutual funds. My savings strategy selection process for an immediate want includes taking a portion of my income and storing it in a money market bank account to cover the expenses, since the interest rate changes daily for money market accounts....   [tags: stock market, ]

Research Papers
670 words (1.9 pages)

How The Stock Market Was Doing Essay

- During the first week of this finance project, I did not select to buy or sell any additional stocks. It took me a little while to figure out the charts on Yahoo Finance and see how the stock market was doing. For this reason, I just chose to observe and record my stocks every Monday, Wednesday, and Friday in order to be consistent. I have never invested or even thought about stocks before starting this class. This class was very helpful and informative to me for this case. In an excel spreadsheet, I tracked down the price of each share for each day, as well as the new values in order to see how much money I have lost or gained....   [tags: Stock market, Stock, Share, Investment]

Research Papers
1000 words (2.9 pages)

Why Is The Stock Market? Essay

- “When you’re young, saving for something that’s years away—aka retirement—may not seem important. But it is exactly when you should start saving. The more time your money is invested, the more time it has to grow.” (Fidelity) Stocks are a great and somewhat easy way to have the money that is invested in them exponentially grow overtime. It’s a great way to start saving for future plans like a family and retirement, and can become more and more beneficial throughout the years. Even investing small amounts of money into the market can lead to larger profit in the future....   [tags: Stock market, Stock, Preferred stock, Security]

Research Papers
1581 words (4.5 pages)

P 500 : A Stock Market Index Essay

- S&P 500 is a stock market index introduced by Standard & Poor. It includes 505 biggest US companies from all industries and covers more than 70% of US total market value. Comparing to Dow, S&P 500 is more representative of the whole market. The General Trend Shows a Similar Movement Between Gold and S&P500, Except a Few Times The general understanding toward stock markets and safe heaven assets is that when stock markets underperform, safe heaven assets usually outperform. It may not be entirely true....   [tags: Stock market, Stock, Market capitalization]

Research Papers
1013 words (2.9 pages)

Japan 's Stock Market Analysis Essay

- Japan has one the most advanced economies in the world, with an advanced economy comes an advanced equity market. As other advanced equity markets are, the Japanese market is similar to the U.S. in its essential functions and its operation by the exchanges that allow its existence. The Japanese stock market is third largest in the world by market capitalization, surpassed only by the United States and China. Market participants trade over the Tokyo Stock Exchange and the Osaka Securities Exchange which combined to form the Japan Exchange Group (JPX) in 2013 (   [tags: Stock market, Stock exchange]

Research Papers
1295 words (3.7 pages)

The Informational Efficiency of the Stock Market Essay

- Since the existence of stock markets, people tried to formulate models that reflect and deal as a guideline to understand how markets function. The concept of market efficiency is a major and broadly accepted hypothesis that mainly developed since the formulation of the market efficiency hypothesis by Eugene Fama, in 1970. Although the term market efficiency to economists is also a broadly known term referring to operational efficiency, this paper concentrates on the efficiency of stock markets or to be more precise the informational efficiency of the stock market....   [tags: market efficiency, stock market, eugene fama]

Research Papers
1636 words (4.7 pages)

Investment Risk In Stock Market Securities Essay

- Investment Risk in Stock Market Securities Introduction: Stories of people making fortunes from the securities market have enticed many others into risky investments. Congress created the Securities & Exchange Commission (SEC) to protect investors. Many corporation managers became greedy and made self-serving decisions that created the principle-agent problems. The solutions for these problems lead to more unethical behavior from management. The creative use of financial statements even tricked analysts and brokers....   [tags: Investment Stock Market Accounting]

Free Essays
1259 words (3.6 pages)

If a stock drops too much, a margin holder could lose all of their money and owe their broker money as well.
Investors mortgaged their homes, and idiotically invested their life savings in hot stocks, such as Ford and RCA. Few people actually studied the fundamentals of the companies they invested in. Thousands of fraudulent companies were formed to fool unsavvy investors. Most investors never even thought a crash was possible. To them, the stock market always seemed to go up.
"By 1929, the Fed raised interest rates several times to cool the overheated stock market. By October, the bear market had commenced. On Thursday, October 24 1929, panic selling occurred as investors realized the stock boom had been an over inflated bubble (Morgan, E.V.,Thomas, W.A. 1962)." Those investors who made millions investing using margins became insolvent instantaneously. The Dow decreased from 400 to 145 by November 1929, losing about 16 billon dollars in stock capitalization.
To increase the problems, banks invested their deposits in the stock market. Because banks were so heavily invested in the stock market many of the money from customer was lost which resulted in bank runs. Many banks ended up in bankruptcy, so those depositors who never invested in the stock market lost millions.

"Before the Great Crash of 1929, there was little support for federal regulation of the securities markets (" Congress solt solutions to identify the problems that lead to the market crash by holding hearings to discuss the situation. From information gathered at the hearings Congress established "The Securities Act of 1933, coming on the heels of the stock market crash of 1929 and the ensuing great depression, aimed to increase the public trust in American markets. It accomplishes this goal through disclosure of important financial information in the registration statement, and in the prospectus ("

What the Securities Act of 1933 means to investors is that, investors will be able to make intelligent investment decisions based on a company's financial information. The SEC requires that the information included in the financial information provided be accurate, it does not guarantee it. In recent years we've several companies whom violated this rule, such as Enron and their fraudulent account practices. Violation of such regulation can include paying a fine and/or jail time.
The Securities Exchange Act of 1934 was the second major congressional act passed to regulate the securities industry after the stock market crash of 1929. The main purpose of the Exchange Act was to establish and maintain fair and honest markets for the sale of securities. The Exchange Act deals with the secondary transactions of securities, whereas the Securities Act of 1933 regulates new issues.
The Exchange Act also created the Securities and Exchange Commission (SEC), which is an agency of the U.S. government. The SEC was established to regulate securities trading.
The Act identifies and prohibits certain types of actions in the markets and allows the Commission to have disciplinary powers over regulated entities and persons affiliated with them. Prohibited conduct includes:
A: Manipulation: is the intentionally influencing the market price of a security. Manipulative acts include, 1) intending to create a false or misleading impression of active trading, 2) Attempting to manipulate the price of a security by buying and selling the same security within a group of individuals without the security truly changing ownership, 3) making untrue or misleading statements regarding a material fact for the purpose of inducing others to purchase or sell a security and other actions.
B: Insider trading: is the act of trading on information that is not known to the public. Being aware of information that is not available to the general public gives insiders an opportunity to make huge profits form the short-term trading of their company shares.
C: Other violation include: accounting fraud and providing false or misleading information about securities and the companies that issue them, stealing customers' funds or securities and violating broker-dealers' responsibility to treat customers fairly; and sale of securities without proper registration.

For companies or individuals who violated the SEC's restricted action civil or administrative action or even both may be charged against them in federal court or internally. If the SEC takes civil action "often seeks civil monetary penalties and the return of illegal profits, known as disgorgement. The courts may also bar or suspend an individual from serving as a corporate officer or director. A person who violates the court's order may be found in contempt and be subject to additional fines or imprisonment (" Administrative action could result in issuance of a cease and desist orders, suspension or revocation of broker-dealer and investment advisor.

In 1940 Congress passed the Investment Company Act of 1940. "This Act regulates the organization of companies, including mutual funds, that engage primarily in investing, reinvesting, and trading in securities, and whose own securities are offered to the investing public. The regulation is designed to minimize conflicts of interest that arise in these complex operations (Gusmorino, Paul A 1996)." The Act requires these companies to disclose their financial condition and investment policies to investors when stock is initially sold and, subsequently, on a regular basis. The focus of this Act is on disclosure to the investing public of information about the fund and its investment objectives, as well as on investment company structure and operations. It is important to remember that the Act does not permit the SEC to directly supervise the investment decisions or activities of these companies or judge the merits of their investments.

The Investment Advisor Act of 1940 requires that all persons in the business of advising others about securities and who charge a fee for their advice must register with the SEC and/or the state where they do business.
This law makes it unethical conduct for an investment advisor to misrepresent its qualifications, the qualification of its employees, the nature of the services it offers, or fees that are to be charged through exaggerated claims, false information, or omissions of material facts.
In this course we discussed ethics, ethical theories, morals, government agencies and their ability to regulation certain industries, etc. The Financial services industry is a great example of an industry that needs to be closely regulated. As I briefly discussed, when there are little to no regulations the ethics and morals of individual can be strongly clouded by the thoughts of making huge amounts of money.
I chose to be an Investment Advisor to help people reach their retirement goals and make lots of money. And even now, I struggle with doing the right thing every once in a while. Knowing that my actions may result in civil or criminal action makes doing the right thing easier.
Inclusion, government intervention in can have positive and negative effect. Effect that can inhibit or encourage business. Although it would be better that people conducted business with morals and ethics in away that government regulations were not necessary. I understand that morals are difficult to find in life and business.

Integrity seems to be a value that best describes this course perfectly. In one chapter we discussed ethics in business and ethical theories another whistle blowing. In my opinion, integrity is extremely important on a business aspect. What I like most about this course is the discussions, they re-enforced I hope in people that when given a chance we will choose to conduct ourselves with integrity first doing the right thing whenever possible.
Service is another value I think is strongly relevant to this course as well. When conducting business it is a desire to service others that forces a person's inner being to act with integrity. So integrity and service works hand in hand. I'll take from this course a spirit of service as we discussed numerous chapters throughout the past six weeks.

2) Bequai, August: Safeguards for IT managers and staff under the Sarbanes-Oxley Act. Computers & Security 22(2): 124-127 (2003)
4) Gusmorino, Paul A., III. "Main Causes of the Great Depression." Gusmorino World (May 13, 1996).
5) Morgan, E.V., W.A. Thomas. The Stock Exchange Its History and Functions. London: Elek Books, 1962
Return to