Question

What legislation has been passed specifically to protect investors who use investment banks directly or indirectly to purchase securities? Give some examples of the types of abuses for which protection is provided.

a) Sarbanes-Oxley Act, protecting against insider trading
b) Dodd-Frank Act, protecting against market manipulation
c) Glass-Steagall Act, protecting against fraudulent activities
d) Securities Act of 1933, protecting against false disclosures

Answer 1

Legislation such as the Sarbanes-Oxley Act, Dodd-Frank Act, Glass-Steagall Act, and the Securities Act of 1933 have been enacted to protect investors from abuses like insider trading, market manipulation, fraud, and false disclosures.

Step-by-step explanation:

Several pieces of legislation have been passed to protect investors in the securities market, particularly those using investment banks. Among these:

• Sarbanes-Oxley Act of 2002 was enacted in response to major accounting scandals. It aims to protect investors by improving the accuracy and reliability of corporate disclosures and combating corporate and accounting fraud.
• Dodd-Frank Act, passed in response to the 2008 financial crisis, aimed to prevent market manipulation by increasing regulation and oversight within the financial industry.
• The Glass-Steagall Act of 1933, which established the FDIC and included provisions to separate commercial banking from investment banking, aimed to prevent conflicts of interest that could lead to fraudulent activities.
• The Securities Act of 1933 requires companies publicly offering securities to disclose transparent and accurate financial information to prevent false disclosures and ensure investors are informed.

These laws address abuses such as insider trading, market manipulation, fraudulent activities, and false disclosures, providing a regulatory framework to foster transparency and stability in the market.