The stock market crash of 1929 is the most devastating stock market crash in the U.S. history. The Dow Jones Industrial Average dropped by 13% on October 28 and 12% on October 29, which is the 2nd and 3rd largest single day percentage losses of the Dow index in history. It was the starting of the decade long Great Depression, the largest financial crisis of the 20th century. When the crisis bottomed in 1932-1933, the Dow industry is about only 20% of its pre-crisis peak value. Around 40% of the commercial banks suspended operations and 25 percent of the total workforce remained unemployed. Depositors lost $1.3 billion (about $23 billion in today’s dollars) because of the bank failures[1][2].
The Senate Banking Committee started an investigation into the reasons that caused the Great Depression (The Pecora Investigation) on March 4, 1932. The investigation found large variation in the listing disclosure requirement even within the same stock exchange, and that “some companies cloaked their operations and presented a false or misleading financial conditions to the public”. As a consequence, the normal operation of the law of supply and demand in a free market is largely distorted.
To help the investors make enlightened judgement based on honest, complete and correct information regarding the securities listed, the congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934, and both were signed into the federal laws by President Roosevelt.
The Securities Act of 1933 was the first federal legislation used to regulate the stock market. It requires companies to disclose important financial information timely in the primary market. The Securities Exchange Act of 1934 created SEC as the security market regulator, and extend the disclosure and filing requirement to the secondary market. SEC prescribes the filing forms in which the required information is set force, the items or details to be shown in financial statements, and other matters reasonably necessary to make available an accurate representation of each corporation’s condition as of a recent date. These two regulations significantly increased the overall market transparency and rebuilt the public confidence in the security market.
One of the major effort recently made by SEC to increase the transparency in the security market is to launch the e-filing platform: EDGAR (Electronic Data Gathering, Analysis, and Retrieval System). The e-filing improves the market transparency, fairness and efficient as investors from any locations can access public companies’ filings at the same time.
The early testing of the system started in 1993 with 450 voluntary filers. All public domestic companies were required to file on EDGAR starting from May 6, 1996, which mean any filings filed since May 6, 1996 can all be searched and found on EDGAR[3].
[1] Federal Deposit Insurance Corporation. (n.d.). Retrieved from https://www.fdic.gov/about/history/timeline/1930s.html.
[2] Amadeo, K. (2019, November 20). Great Depression Timeline. Retrieved from https://www.thebalance.com/great-depression-timeline-1929-1941-4048064.
[3] EDGAR Filings & Forms. (2014, January 15). Retrieved from https://www.sec.gov/edgar.