SIE Knowledge of Capital Markets Question 13: Answer and Explanation

Question: 13

Which of the following statements is true regarding stock market regulation?

• A. One purpose of the 1933 Securities Act was to discourage investment in the stock market.
• B. One purpose of the 1934 Securities Exchange Act was to repeal the 1933 Securities Act, which had led to an increased level of speculation in the stock market.
• C. During the late 1920's, business expansion was accompanied by a declining level of speculation in the stock market, which led to increased regulation in the early 1930's.
• D. One purpose of the 1933 Securities Act was to provide fair disclosure of new stock issues.

Correct Answer: D

Explanation:

D: Choice D correctly describes one requirement of the 1933 Securities Act, fair disclosure of new stock issues. Choice A is incorrect because the 1933 Securities Act was enacted to encourage investment in the stock market. It was the first act of Congress to regulate securities at a national level. Choice B is incorrect because the 1933 Securities Act did not encourage more speculation, and the 1934 Securities Exchange Act did not replace the 1933 Securities Act. The 1933 Act regulated the primary market by requiring, for each primary offering, complete and honest documentation to the investor community about the security to be issued by an issuer. Choice C is incorrect because, during the 1920's, business expansion was accompanied by an increasing level of speculation in the stock market.