Legal Definitions - Trust Indenture Act

The Trust Indenture Act is a federal law that was passed in 1939 to protect investors who purchase certain types of bonds. The law requires that:

1. The Securities and Exchange Commission (SEC) approves the trust indenture
2. The indenture includes certain protective clauses and excludes certain exculpatory clauses
3. The trustees are independent of the issuing company

For example, if a company wants to issue bonds to raise money, they must create a trust indenture that outlines the terms of the bond. The Trust Indenture Act requires that the SEC approves this indenture to ensure that it is fair and protects the investors. The indenture must also include certain clauses that protect the investors, such as a clause that requires the company to make timely interest payments. Additionally, the trustees who oversee the bond must be independent of the company to prevent any conflicts of interest.