Overview

During an initial public offering (IPO), the issuer and underwriter must follow strict guidelines and rules. These regulations come from the Securities Act of 1933, which oversees the primary market.

The financial markets were full of fraud, deceit, and manipulation in the early 1900s, some of which contributed to the Great Depression. Signed into law to protect the investing public, the Securities Act of 1933 requires issuers to fully divulge the characteristics of the securities they intend to sell.

Most securities are regulated under the Securities Act of 1933. When securities or transactions are not covered, they are considered “exempt,” and when they are covered, they’re “non-exempt” — we’ll discuss specific situations in a later chapter.

In the following sections, we’ll learn about the rules and regulations within the Securities Act of 1933 that govern the IPO process.