During an initial public offering (IPO), the issuer and the underwriter must follow specific rules. These rules come from the Securities Act of 1933, which regulates the primary market (the market where new securities are first sold to investors).
In the early 1900s, financial markets saw widespread fraud, misleading sales practices, and price manipulation. These problems helped set the stage for the Great Depression. To protect investors, Congress passed the Securities Act of 1933. The law requires issuers to fully disclose important information about any securities they plan to sell so investors can make informed decisions.
Most securities fall under the Securities Act of 1933. When a security or transaction is not covered by the Act, it’s considered “exempt.” When it is covered, it’s “non-exempt.” We’ll look at specific exemption situations in a later chapter.
In the following sections, you’ll learn the key rules in the Securities Act of 1933 that shape the IPO process.
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