The USA & Federal Securities Acts
Overview
Welcome to the world of laws and regulations. If you’ve already prepared for the SIE, Series 6, or Series 7 exams, you likely have some familiarity with the major securities laws. This unit builds on that foundation.
🔑 You’ll want to be comfortable with the following securities laws:
| # | Law | Level | What it governs |
|---|---|---|---|
| 1 | Uniform Securities Act (USA) | State | State securities laws and regulations (“blue sky” laws) |
| 2 | Securities Act of 1933 | Federal | Primary market sales of securities |
| 3 | Securities Exchange Act of 1934 | Federal | Secondary market transactions and market participants |
| 4 | Investment Company Act of 1940 | Federal | Investment companies |
| 5 | Investment Advisers Act of 1940 | Federal | Federal-covered advisers |
| 6 | Insider Trading Act of 1988 | Federal | Use of inside information |
All of the securities acts after the USA are federal securities laws. Depending on the question, you may need to identify whether a law is state or federal. The USA is the only state-level law in this list.
Uniform Securities Act (USA)
The Uniform Securities Act (often called the USA) is a model law that states can adopt.
In other words, it provides a framework that states can use to regulate the securities industry.
Using a shared framework makes compliance more practical for firms and professionals who operate in multiple states. Without the USA, each state could create very different rules, and a firm doing business across state lines would have to track and comply with a separate set of requirements in every state.
Versions of the act
Most of this course is based on the USA. There have been multiple versions of the act, but states primarily rely on two:
| Version | Notes |
|---|---|
| The Uniform Securities Act of 1956 | One of the two versions states primarily rely on |
| The Uniform Securities Act of 2002 | One of the two versions states primarily rely on |
The two versions are broadly similar, and the differences are generally not important for the exam. If you’d like to read the original text, use the links above. Otherwise, this program focuses on the key testable points.
“Blue sky” laws
State securities laws were originally referred to as “blue sky laws.” The idea was that some advisors and brokers would go so far as to “sell the blue sky” by taking advantage of unknowing investors.
Scope of state laws under the USA
State laws and regulations created under the USA tend to be similar from state to state. They cover a wide range of issues, including:
- Registration requirements for professionals
- Rules and regulations for professionals
- Registration of securities
- Rules and regulations for issuers
- Enforcement of anti-fraud laws
- Legal jurisdiction
- Ethical duties and fiduciary obligations
- Communications with investors
The Administrator
These laws and regulations are enforced by the state administrator. You can think of the administrator as the state-level counterpart to the SEC.
Even though the term administrator sounds like a single person, it refers to an office (a group of people) responsible for enforcement. In practice, states often use different names for this office. For example, California’s state administrator is the Department of Financial Protection and Innovation.
Securities Act of 1933
The Securities Act of 1933 governs primary market sales of securities at the federal level.
When an issuer offers securities interstate (in more than one state), the offering is subject to this act. The details are covered later in this material.
Securities Exchange Act of 1934
The Securities Exchange Act of 1934 governs secondary market securities transactions and market participants at the federal level.
Many of the exam-relevant rules here relate to market manipulation and prohibited actions, which are covered later in this unit.
1933 = primary market. 1934 = secondary market. Classic swap trap.
Investment Company Act of 1940
The Investment Company Act of 1940 regulates investment companies
Including:
| Investment company type covered |
|---|
| mutual funds |
| closed end funds |
| unit investment trusts (UITs) |
Relevant rules and regulations from this act are covered in the chapters linked above.
Investment Advisers Act of 1940
The Investment Advisers Act of 1940 regulates federal-covered advisers.
You’ll learn more about the basics of investment advisers and the relevant rules and regulations later in this unit.
Investment Company Act of 1940 vs. Investment Advisers Act of 1940 — same year, different subjects (investment companies vs. federal-covered advisers).
Insider Trading Act of 1988
The Insider Trading Act of 1988 addresses the use of inside information, primarily by making it illegal to trade based on it.
Definitions
By definition, insider trading involves trading on material, non-public information.
| Term | Definition | Example |
|---|---|---|
| Material information | > “Material information is information that could influence an investment decision.” | Knowledge of a groundbreaking new medical product before it’s announced publicly |
| Non-public information | > “Non-public information is information that isn’t widely available or broadly disseminated.” | Information held internally by executives that has not been announced |
| Tipper | “the person providing the information (the tipper)” | An executive who passes along the unannounced product news |
| Tippee | “the person receiving the information and trading on it (the tippee)” | A customer who receives the tip and places a trade |
| Contemporaneous trader | “any investor who traded in the security at the time of the insider trade (a contemporaneous trader)” | An unrelated investor trading the same stock at the same time, who may then sue |
| Treble damages | Civil liability of “up to three times the profit achieved or loss avoided” | $100,000 profit → up to $300,000 in civil damages |
| Fair Fund | “the SEC’s Fair Fund, which holds and distributes money to victims of financial fraud” | Collected insider trading fines distributed to harmed investors |
How it works
Insiders of publicly traded companies may have access to large amounts of material non-public information. For example, executives at a biotechnology company might know about a new medical product before it’s announced publicly. If the product is groundbreaking, those executives could buy shares before the announcement. Once the product is announced, demand for the stock could rise, increasing the stock price and creating profits for the insiders.
This is a serious issue if the SEC discovers it. Insiders may possess and discuss inside information, but they can’t trade on it. Once a trade occurs, both the tipper and the tippee may face significant consequences.
If a customer tells you they have inside information and asks you to place a trade, you can’t do it. You may be held liable and could be sued by the SEC.
Penalties
Regardless of the size of the profit made or the loss avoided, the SEC treats insider trading as a major violation.
| Type | Who | Penalty |
|---|---|---|
| Civil | Perpetrators | Sued for up to three times (treble damages) the profit achieved or loss avoided |
| Civil | Contemporaneous traders | May sue those responsible for insider trading for up to this same amount |
| Criminal | Individual | Fined up to $5 million |
| Criminal | Individual | Sentenced to up to 20 years in jail |
| Criminal | Firm (if misconduct is widespread across a financial firm) | Fined up to $25 million |
Collected fines are typically distributed through the SEC’s Fair Fund.
Key points
Uniform Securities Act
- State securities laws and regulations
- Also known as ‘blue sky’ laws
Securities Act of 1933
- Federal primary market law
Securities Exchange Act of 1934
- Federal secondary market law
Investment Company Act of 1940
- Federal investment company law
Investment Advisers Act of 1940
- Federal-covered adviser law
Insider information
- Trade based on material non-public info
- Both tipper and tippee liable for penalties
- Subject to treble damages in civil court
- Individual criminal penalties:
- Up to $5 million fine
- Up to 20 years in jail
- Firm criminal penalties:
- Up to $25 million fine
Sources
Primary/official references for the material in this chapter. Every link was fetched and returned HTTP 200 on 2026-08-15.
| # | Source | Publisher |
|---|---|---|
| 1 | The federal securities statutes, in order | SEC |
| 2 | Uniform Securities Act 1956 with NASAA updates — the tested statute | NASAA |
| 3 | Securities Act 1933 — definition of security, issuer | Cornell LII (15 U.S.C. 77b) |
| 4 | Exchange Act 1934 — broker, dealer, exchange definitions | Cornell LII (15 U.S.C. 78c) |
| 5 | Achievable Series 65 — chapter 4.1 | Achievable (course text) |