The Act also contains provisions for the transactions of certain related persons and insurers; Accounting; record-keeping requirements; examination requirements; how securities may be distributed, reclaimed and redeemed; changes in investment policy; and action for fraud or breach of fiduciary duty. The Investment Companies Act applies to all investment companies, but excludes various types of investment companies from the scope of the Act. The most common exceptions are found in sections 3(c)(1) and 3(c)(7) of the Act and include hedge funds. The laws of the Investment Companies Act of 1940 are enforced and regulated by the Securities and Exchange Commission (SEC). The Act sets out the responsibilities and requirements of investment companies, as well as requirements for all publicly traded investment product offerings, such as open-ended mutual funds, closed-end mutual funds and mutual funds. The law primarily targets listed investment products for retail investors. The Investment Company Act of 1940 was introduced after the stock market crash of 1929 and the Great Depression that followed to protect investors and bring more stability to financial markets in the United States. The Investment Companies Act of 1940 requires the registration of investment companies and requires the control of product offerings issued by investment companies on the public market. This decree clearly explains the importance and conditions of investment companies and the specifications of listed investment product offerings.
The investment companies covered are generally open-ended mutual funds, mutual funds and closed-end investment funds. The Investment Companies Act of 1940 focuses on small investment products traded openly. Various provisions limit the management powers of investment companies, in particular in transactions with associated enterprises[2], including Article 10. These laws were passed in response to self-acting excesses in the 1920s and 1930s, where, for example, funds poured worthless shares into certain funds and taxed their losses on investors. [11] The Investment Company Act of 1940 (commonly referred to as the `40 Act) is an act of Congress that regulates mutual funds. It was adopted on August 22, 1940 as the United States Public Law (Pub.L. 76–768) and is codified in 15 U.S.C. §§ 80a-1–80a-64. With the Securities Exchange Act of 1934, the Investment Advisers Act of 1940 and the extensive rules of the Securities and Exchange Commission; It is at the heart of financial regulation in the United States. It was updated by the Dodd-Frank Act of 2010.
It is the primary source of regulation for mutual funds and closed-end funds, maintaining a multi-trillion-dollar investment industry. [1] The 1940 law also affected the operations of hedge funds, private equity funds and even holding companies. Under the Act, investment firms with more than 100 investors must register with the SEC. They must also have a board of directors, with 75% of board members being independent. In addition, the law requires mutual funds to limit the use of leverage and hold a certain amount of cash that covers investors who wish to sell their shares at any time. Dodd-Frank influenced the Investment Advisers Act of 1940 more than the Investment Company Act of 1940, but hedge funds were influenced by Dodd-Frank. James Chen, CMT is an experienced trader, investment advisor and global market strategist. He has written books on technical analysis and forex trading published by John Wiley and Sons and has been a guest expert for CNBC, BloombergTV, Forbes and Reuters, among others. The Investment Companies Act of 1940 is the main legislation that controls investment companies and their investment product offerings. The Dodd-Frank Act of 2010 affected this with numerous revisions.
Law 40 sets out the requirements applicable to investment companies according to the offer and classification of products. Its provisions include rules on the transactions of certain related persons and insurers; record-keeping requirements; Accounting; the method of distribution of securities; examination requirements; changes in investment policy; redeemed and redeemed; and what to do in the event of fraud or breach of fiduciary duty. In addition, it provides specific guidance for various types of classified investment companies and includes provisions to regulate companies that apply product rules, including open-ended mutual funds, mutual funds, closed-end mutual funds, etc. Other necessary requirements of the Investment Companies Act of 1940 are: A 75% independent board of directors. Limit the investment strategy, e.g. leverage. Maintain a certain percentage of cash assets for investors who might want to sell. Publication of the structure of the investment company, the investment policy, the financial situation and the objectives of the investors. In 1935, Congress requested the SEC report on the industry and the study on investment funds between 1938 and 1940. [2] The law as originally presented was different from the law that was passed; The original bill gave more powers to the SEC, while the final bill was a compromise between the SEC and industry, drafted by joint SEC and industry members and submitted to Congress, and Congress eventually passed a similar version. [3] David Schenker, who became head of investment firms at the SEC,[4] was one of the original authors.
[5] Under the provisions of the Investment Company Act of 1940, any company designated as an “investment company” must register with the SEC. Companies fit into different classifications depending on the type of product or product line they wish to manage and issue to the investing public. Management Investment Company is a case of classification of investment company. An investment management company is the most common type of investment company registered with the Securities and Exchange Commission. It is possible to diversify investment management companies. Diversified investment management firms can take many forms and offer a variety of market-based products. In October 2021, more than 60 law firms issued a “highly unusual joint statement” that special purpose acquisition corporations (SPACs) are subject to regulation under the Act if PSPC does not acquire an operating business within one year of the company`s public offering.