Capital Market and Security Law

Capital Market

• A capital market is a system that enables the buying and selling of long-term debt or equity-backed securities.
• It provides a platform for companies to raise capital from investors to finance their business activities.
• Key players in the capital market:
  • Issuers (companies issuing securities)
  • Investors (individuals, institutions, and governments)
  • Intermediaries (stock exchanges, brokers, investment banks)

Security Law

• Security law, also known as securities law, is a set of regulations that govern the issuance, trading, and ownership of securities.
• Primary objectives:
  • Protect investors from fraudulent activities
  • Promote fair and efficient markets
  • Ensure transparency and disclosure of information

Types of Securities

• Equity securities:
  • Stocks (common and preferred)
  • Warrants
• Debt securities:
  • Bonds (government and corporate)
  • Debentures
• Hybrid securities:
  • Convertible bonds
  • Preference shares

Regulatory Framework

• Securities and Exchange Commission (SEC) is the primary regulator in the United States.
• Key regulations:
  • Securities Act of 1933 (registration and disclosure requirements)
  • Securities Exchange Act of 1934 (trading and exchange requirements)
  • Investment Company Act of 1940 (regulation of investment companies)
  • Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (reforms and oversight)

Insider Trading and Fraud

• Insider trading: using material non-public information to trade securities.
• Fraudulent activities:
  • Misrepresentation
  • Omission of material facts
  • Manipulation of market prices
• Penalties for violations:
  • Civil liabilities
  • Criminal penalties (fines and imprisonment)

Disclosure and Reporting Requirements

• Issuers must disclose material information to investors through:
  • Registration statements (e.g., Form S-1)
  • Periodic reports (e.g., Form 10-K, Form 10-Q)
  • Proxy statements
• Reporting requirements:
  • Form 8-K (current events and material changes)
  • Form 4 (insider transactions)

Capital Market

• A platform for buying and selling long-term debt and equity-backed securities, facilitating capital raising for companies.
• Key players include:
  • Issuers: Companies that issue securities.
  • Investors: Individuals, institutions, and governments participating in the market.
  • Intermediaries: Entities like stock exchanges, brokers, and investment banks that act as facilitators.

Security Law

• A framework of regulations governing the issuance, trading, and ownership of securities.
• Main objectives include:
  • Protecting investors from fraud.
  • Promoting market fairness and efficiency.
  • Ensuring transparency and adequate information disclosure.

Types of Securities

• Equity Securities:
  • Includes stocks (common and preferred) and warrants.
• Debt Securities:
  • Comprises bonds (issued by governments and corporations) and debentures.
• Hybrid Securities:
  • Features convertible bonds and preference shares, combining traits of both equity and debt.

Regulatory Framework

• The Securities and Exchange Commission (SEC) primarily regulates the U.S. capital market.
• Important regulations:
  • Securities Act of 1933: Establishes registration and disclosure mandates.
  • Securities Exchange Act of 1934: Governs trading practices and exchange operations.
  • Investment Company Act of 1940: Regulates investment companies.
  • Dodd-Frank Act of 2010: Introduces reforms and enhances oversight of the financial system.

Insider Trading and Fraud

• Insider trading involves trading securities based on material non-public information.
• Common fraudulent activities include:
  • Misrepresentation of facts.
  • Omission of crucial information.
  • Manipulation of market prices.
• Penalties for violations can result in civil liabilities and criminal repercussions, including fines and imprisonment.

Disclosure and Reporting Requirements

• Issuers are obligated to disclose material information via:
  • Registration statements, like Form S-1.
  • Periodic reports, such as Form 10-K (annual) and Form 10-Q (quarterly).
  • Proxy statements for shareholders’ meetings.
• Key reporting requirements include:
  • Form 8-K for current events and material changes.
  • Form 4 detailing insider transactions.

Test your knowledge of capital markets, including key players and security law, which enables companies to raise capital from investors.