Meuser Introduces Bill to Promote Market Expansion

WASHINGTON — Congressman Dan Meuser (PA-09) recently introduced the Restoring the Secondary Trading Market Act, which seeks to promote and facilitate interstate commerce for secondary trading in companies that make current information publicly available.

“Blue Sky Laws” pose a significant concern for traders and brokers as they create a burdensome patchwork of compliance regulations that vary from state to state. These laws often restrict broker-dealers from providing investment advice, distributing research to retail customers, and facilitating trading in managed accounts on behalf of investors.

"States should not be imposing these burdensome laws on markets,” Meuser said. “The Constitution gives Congress – not the states – the power to regulate interstate commerce. My bill reasserts the correct Constitutional jurisdiction while also preempting burdensome regulations so that our markets can expand.”

Text of the bill can be found here.

Background:

There are two types of markets to invest in securities – primary markets and secondary markets. The primary market is where companies sell new securities to investors for the first time, usually through an initial public offering. The secondary market is where investors buy and sell securities from other investors. When people refer to the “stock market,” they are referring to the secondary market. These secondary market transactions can take place on-exchange or off-exchange. The New York Stock Exchange and the NASDAQ are examples of on-exchange secondary markets. Off-exchange transactions are carried out directly between two parties, without the supervision of an exchange.

The sale of securities is regulated both on the federal and state levels. “Blue Sky Laws” are state securities regulations that, among other things, seek to alleviate fraud. “Blue Sky Laws” originated in the early 1900s, decades before Congress passed the federal securities acts, from concerns that investors need to be protected from highly speculative or fraudulent investment schemes. By 1933, when Congress began regulating securities, most states had “Blue Sky Laws.” Thus, securities regulation in the U.S. consisted of a nationwide patchwork of federal and state securities laws, which often duplicated each other. As securities markets grew and became more complex, the federal and state laws that regulate them became more complex and burdensome as well.

While there have been efforts to provide greater clarity and uniformity between federal and state laws by providing exemptions from certain “Blue Sky Laws,” federal and state securities regulation remains a burdensome patchwork system.

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