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Stock Exchange: Securities
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In the 1970s the Securities and Exchange Commission (SEC), Congress, and other government and private institutions were instrumental in establishing further regulations on stock exchanges. In 1972 the SEC developed a Consolidated Tape System, which provides trading information to investors from all exchanges and the OTC market. In 1975 Congress created the National Market System, which provides that prices of stocks and bonds from all exchanges be available simultaneously at each exchange. This encouraged competition among exchanges. A particular provision of this system ... required that all commissions be competitively negotiated rather than fixed. In response to this provision, many discount brokerage firms opened.
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By providing a centralized, ready market for the exchange of securities, stock exchanges greatly facilitate the financing of business through flotation of stocks and bonds. However, speculation in stocks can sometimes accentuate the instability of an economy. The reality of the Great Depression was emphasized by the stock market crash in 1929. The interstate sale of securities and certain stock exchange practices in the United States are regulated by federal laws administered by the Securities and Exchange Commission. Today, a large percentage of stocks are traded through such over-the-counter organizations as Nasdaq (National Association of Securities Dealers Automatic Quotations) and its European equivalent, Nasdaq Europe (formerly Easdaq). Through these organizations, many securities not listed on a major stock exchange may be traded by dealers using computer and telecommunications technology; in 1994, Nasdaq, on which many computer and other high-technology stocks are traded, surpassed the NYSE in annual share volume.
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Investors lost faith in the stock markets partly because of unfair practices and a lack of strict rules in the exchanges before and during the 1920s. Large investors were able to cheat small investors because few laws existed to forbid these practices. For the laws that did exist there was little in the way of enforcement. Recognizing that regulation was insufficient, the U.S. Congress passed the Securities Act of 1933. This act regulated the issuing of new securities. It mandated registration for all securities to be sold and required that a prospectus be prepared providing detailed information about each security to be issued.
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