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Information about Investment Company Act Of 1940

The Investment Company Act of 1940 is an act of Congress. It was passed as a United States Public Law and is codified at through .

Background and purpose

Following the founding of the mutual fund in 1924, investors welcomed the new investment vehicle with open arms and invested in this new asset class heavily. Five and a half years later, on October 24, 1929, Black Thursday took the thrill out of the stock market and led to the Great Depression. Learning from the mistakes of the past, the United States Congress wrote into law the Securities Act of 1933 and the Securities Exchange Act of 1934 in order to regulate the securities industry in the interest of the public.

Investment companies were still a new idea in 1940. In order to instill investors' confidence in these companies and to protect the public interest from this unique type of security, Congress passed the Investment Company Act. The new law set separate standards by which investment companies should be regulated. The act defined and regulated investment companies, including mutual funds (which were virtually undefined prior to 1940).

The act's purpose, as stated in the bill, is "to mitigate and... eliminate the conditions... which adversely affect the national public interest and the interest of investors." Specifically, the act regulated conflicts of interest in investment companies and securities exchanges. It protected the public primarily by legally requiring disclosure of material details about the investment company. However, the act did not create provisions for the SEC to make specific judgments about or even supervise an investment company's actual investment decisions. Rather, the act required investment companies to publicly disclose information about their own financial health.

Jurisdiction

The Investment Company Act applies to all investment companies, but exempts several types of investment companies from the act's coverage. The most common exemptions are found in Sections 3(c)(1) and 3(c)(7) of the act and include hedge funds.

Scale

When the Congress wrote the act into federal law, rather than leaving the matter up to the individual states, it justified its action by including in the text of the bill its rationale for enacting the law:

“The activities of such companies, extending over many states, their use of the instrumentalities of interstate commerce and the wide geographic distribution of their security holders, make difficult, if not impossible, effective state regulation of such companies in the interest of investors.”

Type

The act divides the types of investment company to be regulated into three classifications:

Face-amount certificate company: an investment company in the business of issuing face-amount certificates of the installment type.


Unit Investment Trust: an investment company which is organized under a trust indenture, contract of custodianship or agency, or similar instrument, does not have a board of directors, and issues only redeemable securities, each of which represents an undivided interest in a unit of specified securities; but does not include a voting trust.


Management Company: any investment company other than a face-amount certificate company or a unit investment trust. The most well-known type of management company is the mutual fund.

See also

External links

An Act of Congress is a statute enacted by the United States Government which legally must be specifically empowered by the United States Constitution. An Act of Congress does not create power, but merely legislates how the existing power of the Constitution is to be used.
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"E Pluribus Unum"   ("From Many, One"; Latin, traditional)
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Public law is the law governing the relationship between individuals (citizens, companies) and the state. Constitutional law, administrative law and criminal law are sub-divisions of public law.
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mutual fund is a professionally-managed form of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.
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20th century - 21st century
1890s  1900s  1910s  - 1920s -  1930s  1940s  1950s
1921 1922 1923 - 1924 - 1925 1926 1927

Year 1924 (MCMXXIV
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An investor is any party that makes an investment.

The term has taken on a specific meaning in finance to describe the particular types of people and companies that regularly purchase equity or debt securities for financial gain in exchange for funding an expanding company.
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October 24 is the 1st day of the year (2nd in leap years) in the Gregorian calendar. There are 0 days remaining.

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19th century - 20th century - 21st century
1890s  1900s  1910s  - 1920s -  1930s  1940s  1950s
1926 1927 1928 - 1929 - 1930 1931 1932

Year 1929 (MCMXXIX
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Wall Street Crash of 1929, also known as the Crash of ’29, was one of the most devastating stock market crashes in American history. It consists of Black Thursday (October 24, 1929), the initial crash and Black Tuesday
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A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately.
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United States Congress

Type Bicameral
Houses Senate
House of Representatives
President of the Senate
President pro tempore Dick Cheney, (R)
since January 20, 2001
Robert C.
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Securities Act of 1933

Congress enacted the Securities Act of 1933 (the “1933 Act,” the "Truth in Securities Act" or the "Federal Securities Act") 48 Stat. 74 (May 27, 1933), codified at et seq.
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The Securities Exchange Act of 1934, 48 Stat. 881 (June 6, 1934), codified at et seq., was a sweeping piece of legislation. The Act and related statutes form the basis of regulation of the financial markets and their participants in the United States.
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19th century - 20th century - 21st century
1910s  1920s  1930s  - 1940s -  1950s  1960s  1970s
1937 1938 1939 - 1940 - 1941 1942 1943

Year 1940 (MCMXL
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security is a fungible, negotiable instrument representing financial value. Securities are broadly categorized into debt securities, such as bonds and debentures, and equity securities, e.g. common stocks. The company or other entity issuing the security is called the issuer.
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A hedge fund is an investment fund structured to avoid direct regulation and taxation in major host countries and which charges a performance fee based on the increase of the value of the fund's assets.
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Federal law is the body of law created by the federal government of a nation. A federal government is formed when a group of political units, such as states or provinces join together in a federation, surrendering their individual sovereignty and many powers to the central
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Article I, Section 8, Clause 3 of the United States Constitution, known as the Commerce Clause, states that Congress has the exclusive authority to manage trade activities between the states and with foreign nations and Indian tribes.
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State law in the United States, is the law of each separate U.S. state, as passed by the state legislature (and signed into law by the state governor). It exists in parallel, and sometimes in conflict with, United States federal law.
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An investment company which offers an Investment Certificate as defined by the Investment Company Act of 1940

A face-amount certificate (FAC) is a contract between an investor and an issuer in which the issuer guarantees payment of a stated (face amount) sum to the investor at some
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For the UK fund type, see .
A Unit Investment Trust (UIT) is a US investment company offering a fixed (unmanaged) portfolio of securities having a definite life. UITs are assembled by a sponsor and sold through brokers to investors.
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director is an officer (that is, someone who works for the company) charged with the conduct and management of its affairs. A director may be an inside director (a director who is also an officer or promoter or both) or an outside, or independent, director.
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The Investment Advisers Act of 1940, codified at through , is a United States federal law that was created to regulate the actions of investment advisers (also spelled "advisors") as defined by the law.

The law provides in part:

:§ 80b–1.

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