Investment Company Act of 1940

Search Dictionary

Definition of 'Investment Company Act of 1940'

The Investment Company Act of 1940 (the 1940 Act) is a United States federal law that regulates investment companies, which include mutual funds, closed-end funds, and exchange-traded funds. The 1940 Act was enacted in the wake of the stock market crash of 1929 and the Great Depression, which had been caused in part by the failure of many investment companies. The 1940 Act was designed to protect investors by requiring investment companies to disclose information about their operations and to operate in a fair and honest manner.

The 1940 Act defines an investment company as "any company or association which is or holds itself out as being engaged primarily in the business of investing, reinvesting, or trading in securities." Investment companies are subject to a number of requirements under the 1940 Act, including:

* Registration with the Securities and Exchange Commission (SEC).
* Disclosure of information to investors.
* Prohibitions on fraud and misrepresentation.
* Restrictions on the use of leverage.
* Requirements for diversification of investments.
* Requirements for independent directors.

The 1940 Act has been amended numerous times over the years, most recently in 2010. The 2010 amendments were designed to address concerns about the growth of the hedge fund industry and to provide more protection for investors in exchange-traded funds.

The 1940 Act is a landmark piece of legislation that has played a significant role in the development of the investment management industry. The 1940 Act has helped to protect investors and to promote the integrity of the investment markets.

Do you have a trading or investing definition for our dictionary? Click the Create Definition link to add your own definition. You will earn 150 bonus reputation points for each definition that is accepted.

Is this definition wrong? Let us know by posting to the forum and we will correct it.