Trust Indenture Act of 1939

A law passed in 1939 that prohibits bond issues valued at over $5 million from being offered for sale without a formal written agreement (an indenture), signed by both the bond issuer and the bondholder, that fully discloses the particulars of the bond issue. The act also requires that a trustee be appointed for all bond issues, so that the rights of bondholders are not compromised.

Investopedia Says:
The Trust Indenture Act of 1939 was passed for the protection of bond investors. In the event that a bond issuer becomes insolvent, the appointed trustee may be given the right to seize the bond issuer's assets and sell them in order to recoup the bondholders' investments.

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Federal law, an amendment to the Securities Act of 1933 that requires issuers of corporate bonds, mortgage-backed bonds, and other debt instruments to disclose terms and conditions under which securities are issued. These disclosures are contained in an Indenture agreement, a document specifying the legal obligations of the issuer and any restrictions, such as call provisions applying to the securities. The act requires issuers to name a trust corporation to administer terms of the indenture. The trustee, who must be free of conflict of interest, also makes semiannual disclosures of pertinent information to the securities holders. The act also prohibits impairment of the holders' right to sue individually, and requires the trustee to make available a list of the holders so they can communicate with one another. The act also exempts securities (mostly municipal bonds) that are not subject to securities registration requirements.

The United States Trust Indenture Act of 1939 (TIA), codified at 15 U.S.C. § 77aaa through 15 U.S.C. § 77bbbb, supplements the Securities Act of 1933 in the case of the distribution of debt securities. Generally speaking, the TIA requires the appointment of a suitably independent and qualified trustee to act for the benefit of the holders of the securities, and specifies various substantive provisions for the trust indenture that must be entered into by the issuer and the trustee. The TIA is administered by the U.S. Securities and Exchange Commission (SEC), which has made various regulations under the act.

History

Section 211 of The Securities Exchange Act of 1934 mandated that the SEC conduct various studies. Although not expressly required to study the trustee system then in use for the issuance of debt securities, SEC Chairman William O. Douglas was convinced by November 1934 that the system required legislative reform. In June, 1936, the Protective Committee Study "Trustees Under Indentures" was published.

See also

Securities regulation in the United States

External links

• Text of the TIA
• SEC rules under the TIA
• SEC forms under TIA
• ABA Section of Business Law Committee on Trust Indentures and Indenture Trustees

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