Financial Exchange Law Assignment

Charles Grassl

Investment Company Act of 1940

  • Regulates the organization of companies, including mutual funds, that engage primarily in investing, reinvesting, and trading in securities, and whose own securities are offered to the investing public.
  • Designed to minimize conflicts of interest that arise in the complex operations.
  • Requires these companies to disclose their financial condition and investment policies to investors when stock is initially sold and, subsequently, on a regular basis.
  • Focuses on the disclosure of information to the investing public about the fund and its investment objectives, as well as on investment company structure and operations.
  • Act does not permit the SEC to directly supervise the investment decisions or activities of these companies or judge the merits of their investments.

Suggestions for the Public

The act regulates the structure and operations of investment companies through a combination of registration and disclosure requirements and restrictions on day-to-day operations. This basically means good for the customer, bad for the business. It also requires the registration of all investment companies with more than 100 investors. Among other things, the Act addresses investment company capital structures, custody of assets, investment activities (particularly with respect to transactions with affiliates and other transactions involving potential conflicts of interest), and the duties of fund boards. The law helps greatly with your everyday Joe or your big time investor. Without it, businesses would have few restrictions and would be stealing more of your money.