Opinion ID: 411108
Heading Depth: 2
Heading Rank: 4

Heading: The Analogy to the Securities Laws

Text: 29 Plaintiffs suggest that we may infer Congress' intent from its use of the term security in two contemporaneous statutes--the Securities Act of 1933 and the Securities Exchange Act of 1934. Both acts define security to include any note. 60 There is no reason, however, to assume that Congress intended that term to bear the same meaning in these different statutory contexts. Congress enacted the Glass-Steagall Act primarily to protect bank depositors. 61 By contrast, [t]he primary purpose of the [Securities] Acts of 1933 and 1934 was to eliminate serious abuses in a largely unregulated securities market. The focus of the Acts is on the capital market of the enterprise system: the sale of securities to raise capital for profit-making purposes, the exchanges on which securities are traded, and the need for regulation to prevent fraud and to protect the interest of investors. 62 30 Therefore, although Congress used the term securities in both the Glass-Steagall and the Securities Acts, different interpretations of securities may follow upon the differing regulatory purposes behind the Acts. 63 Because securities transactions are economic in character Congress intended the application of [the Securities Acts] to turn on the economic realities underlying a transaction .... 64 Similarly, the Court has defined the term securities in the Glass-Steagall Act by analyzing the economic policy behind the Act--to protect bank depositors from the hazards which ensue when commercial banks enter the investment banking business. 65 In short, the Glass-Steagall Act uses the term security to fence off investment banking activities from commercial banks; the securities laws use the term to define the capital markets whose economic functioning is to be regulated by the securities laws. Clearly, the scope of the term may differ in these differing contexts. We must assign the term security a different meaning in the Glass-Steagall and the Securities Acts if a different interpretation is called for by the respective policies of those Acts. 66 31 The Supreme Court recently reaffirmed this approach to the Securities Acts in Marine Bank v. Weaver. 67 The [Securities Exchange] Act was adopted to restore investors' confidence in the financial markets .... We have repeatedly held that the test [of whether an instrument is a security] 'is what character the instrument is given in commerce by the terms of the offer, the plan of distribution, and the economic inducements held out to the prospect.'  68 Therefore, [e]ach transaction must be analyzed and evaluated on the basis of the content of the instruments in question, the purposes intended to be served, and the factual setting as a whole. 69 32 In deciding that a certificate of deposit was not a security, Marine Bank noted two facets of the economics of these certificates: first, holders receive a fixed rate of interest rather than dividends based on profits; second, [i]t is unnecessary to subject issuers of bank certificates of deposit to liability under ... the federal securities laws since the holders of bank certificates of deposit are abundantly protected under federal banking laws. 70 In short, the Court focused on the potential economic gains and losses of the investors, who are the intended beneficiaries of federal securities regulation, in deciding whether the purposes of that regulation would be furthered by its application to the instrument in question. A different focus of analysis is called for under the Glass-Steagall Act, which aims at protecting the integrity of banks and the financial resources of depositors rather than investors. 33 We conclude that the meaning of the term securities under the securities laws is of little immediate relevance to the problem before us; rather, the example of these laws suggests the need for a careful economic analysis of the commercial paper market itself.