Definition
Securities regulators are government or quasi-government bodies responsible for overseeing securities markets, protecting investors, and ensuring fair, transparent, and efficient markets. They set the rules for public offerings, trading, disclosures, and market conduct.
Major Global Regulators
| Region | Regulator | Key Responsibilities |
|---|---|---|
| US | SEC (Securities and Exchange Commission) | Regulates securities issuance, trading, disclosures, insider trading. |
| UK | FCA (Financial Conduct Authority) | Regulates financial markets, conduct, and consumer protection. |
| India | SEBI (Securities and Exchange Board of India) | Regulates stock exchanges, IPOs, insider trading, and mutual funds. |
| EU | ESMA (European Securities and Markets Authority) | Harmonizes regulations across EU member states. |
| Hong Kong | SFC (Securities and Futures Commission) | Oversees market integrity and intermediaries. |
| Singapore | MAS (Monetary Authority of Singapore) | Acts as both the central bank and financial market regulator. |
Mechanism
Regulators issue licenses, review public offering filings (like an IPO prospectus), monitor trading for manipulation, and enforce rules through fines, suspensions, or delisting actions.
Example
Elon Musk’s 2018 “funding secured” tweet led to an SEC investigation under Regulation FD (Fair Disclosure) and anti-fraud laws. The outcome was a $40 million fine and stricter governance oversight for Tesla.
Definition
Publicly listed companies must periodically disclose financial and operational information to ensure transparency and fair access to data for all investors.
Types of Reports (US-centric examples)
| Report | Frequency | Content |
|---|---|---|
| Form 10-K | Annual | Audited financials, management discussion, risk factors. |
| Form 10-Q | Quarterly | Unaudited quarterly financials. |
| Form 8-K | Event-driven | Material events like CEO changes, M&A, or major litigation. |
| Proxy Statement (DEF 14A) | Annual (before AGM) | Governance details, executive compensation, and items for shareholder vote. |
| Insider Trading Reports (Form 4) | Within 2 days | Insiders must disclose their trades in the company's stock. |
Example
Investors analyze Apple’s 10-K filing to understand its revenue by segment (iPhone, Mac, Services), assess risks like supply chain dependencies, and review its capital return policy.
Definition
- Insider Trading: Buying or selling a security while in possession of material, non-public information (MNPI).
- Market Abuse: A broader term that includes manipulation, spreading false rumors, front running, or spoofing.
Types of Market Abuse
| Type | Description |
|---|---|
| Front Running | A broker trading on their own account ahead of a large client order they know is coming. |
| Pump and Dump | Artificially inflating a stock's price through false promotion, then selling the shares at the high. |
| Spoofing | Placing large, fake orders to create a false appearance of supply or demand, then canceling them before execution. |
Controls
Companies implement controls like insider lists, trading windows, blackout periods, and employee pre-clearance for trades. Regulators use surveillance systems to detect anomalies, with penalties including fines, disgorgement, and imprisonment.
Example
Martha Stewart was convicted for insider trading in 2004 for selling her shares in ImClone Systems after receiving a non-public tip about a negative FDA decision.
Definition
Market conduct compliance ensures ethical and lawful behavior in trading, investing, and client relationships, with a major focus on preventing financial crime.
Key Components
| Component | Description |
|---|---|
| AML (Anti-Money Laundering) | Procedures to prevent the use of financial markets for laundering illicit funds, including filing Suspicious Activity Reports (SARs). |
| KYC (Know Your Customer) | The process of identifying and verifying a client’s identity, beneficial ownership, and source of funds to assess their risk profile. |
| Sanctions Screening | Prohibiting dealings with individuals, entities, or countries on official blacklists (e.g., OFAC sanctions in the US). |
Definition
These are the rules and standards that a company must meet to list its shares on a stock exchange and maintain its trading eligibility.
Key Listing Criteria (Examples)
| Requirement | NYSE Example | LSE Example | NSE India Example |
|---|---|---|---|
| Min. Shareholders’ Equity | $4 million | £700,000 market cap | ₹10 crore paid-up capital |
| Shareholders Count | 400 round-lot holders | Sufficient free float | 1,000 public shareholders |
| Free Float (Public Ownership) | 1.1 million public shares | 25% free float | 25% minimum public shareholding |
| Corporate Governance | Independent directors, audit committees | UK Corporate Governance Code | SEBI (LODR) Regulations |
Example
When Alibaba held its IPO on the NYSE in 2014, it had to comply with U.S. listing rules, including providing audited financial statements, having independent board committees, and meeting minimum public float requirements.
Definition
Regulations that ensure fair treatment of shareholders, transparency, and healthy competition during mergers and acquisitions.
Key Elements
| Category | Description |
|---|---|
| Takeover Code | Rules governing the acquisition of a controlling stake (e.g., UK Takeover Code, SEBI SAST Regulations in India). |
| Tender Offers | An obligation to make an offer to all shareholders at the same price when a certain ownership threshold is crossed (e.g., SEBI's open offer rule). |
| Antitrust / Competition Review | Regulators (e.g., FTC/DOJ in the US, CMA in the UK) review mergers to prevent the creation of monopolies. |
| Foreign Investment Review | National security reviews of foreign acquisitions (e.g., CFIUS in the US). |
Example
The Microsoft-Activision Blizzard merger underwent extensive antitrust reviews by regulators globally, including the CMA in the UK and the FTC in the US, to ensure it would not harm competition in the gaming market.
Summary Table
| Topic | Key Mechanism | Interview Highlight |
|---|---|---|
| Securities Regulators | Oversight of markets, filings, conduct | Know global regulators (SEC, FCA, SEBI). |
| Reporting Requirements | Periodic filings for transparency | Understand 10-K, 10-Q, 8-K. |
| Insider Trading | Misuse of MNPI | Give examples like the Galleon case or spoofing. |
| Listing & Governance | Exchange eligibility rules | Mention free float and independent directors. |
| Takeover Control | Fairness, antitrust | Mention open offers and competition review. |
Final Interview Tips
Be ready to explain what triggers an insider trading violation (MNPI + a breach of duty). Understand Regulation FD, which prohibits public companies from selectively disclosing material information. Know key listing criteria and open offer triggers in your local jurisdiction.