Spotlight on the U.S. Securities and Exchange Commission

What is the U.S. Securities and Exchange Commission (SEC)?

In the wake of the U.S. stock market crash of 1929, securities issued by some companies became worthless, resulting in a lack of confidence in the integrity of the securities markets. In response, Congress passed the Securities Act of 1933 and the Securities and Exchange Act of 1934, which remain the primary source of securities law today.

  • The Securities Act of 1933 regulates the issuance of securities by public companies. Specifically, investors must receive financial and other crucial information concerning the securities before they are offered for sale. Additionally, the Act prohibits deceit, misrepresentation, and fraud in a securities sale. 

  • The Securities Exchange Act of 1934 governs the trading, purchase, and sale of securities. This Act provides the SEC with the power to register, regulate, and oversee brokerage firms, transfer agents, and self-regulatory organizations.

Established by the passage of the Securities and Exchange Act of 1934, the SEC is the U.S. government oversight agency that regulates the securities markets and protects investors. The SEC’s primary responsibility was to ensure that companies made truthful statements about their businesses and that brokers, dealers, and exchanges treated investors honestly and fairly.

According to its website, the SEC’s mission is three part:

  • Protect investors from investment fraud
  • Maintain fair, orderly, and efficient markets
  • Facilitate capital formation

Who runs the SEC?

The president appoints five commissioners who are confirmed by the U.S. Senate to serve a five-year term. One commissioner is designated as chair. The current SEC chair is Gary Gensler, who took office on April 17, 2021. To promote nonpartisanship, the law requires that no more than three of the five commissioners come from the same political party. The SEC is accountable to Congress as it operates under the authority of federal laws. The SEC is not federally funded; it receives its funding from transaction fees that the U.S. Treasury requires stock exchanges and broker-dealers to pay.

The SEC consists of six divisions. Their goals are to interpret and take enforcement actions on securities laws, issue new rules, provide oversight of securities institutions, and coordinate regulation among different levels of government. The divisions are:

  • Corporation Finance: ensures investors are provided with material information in order to make informed investment decisions, provides interpretive assistance to companies with respect to SEC rules and forms, and makes recommendations to the Commission regarding new rules and revisions to existing rules

  • Economic and Risk Analysis: integrates financial economics and rigorous data analytics into the core mission of the SEC, while taking an active role in policy-making, rule-making, enforcement, and examination

  • Enforcement: conducts investigations into possible violations of the federal securities laws, and prosecutes the Commission’s civil suits in the federal courts as well as its administrative proceedings

  • Investment Management: administers the Investment Company Act of 1940 and Investment Advisers Act of 1940, which includes developing regulatory policy for investment companies ( e.g., mutual funds, including money market funds, closed-end funds, business development companies, unit investment trusts, variable insurance products, and exchange-traded funds) and for investment advisers

  • Trading and Markets: establishes and maintains standards for fair, orderly, and efficient markets by regulating the major securities market participants, including broker-dealers, self-regulatory organizations (such as stock exchanges, FINRA, and clearing agencies), and transfer agents

What is the SEC’s connection to the Stock Market?

The SEC oversees close to $82 trillion in securities that trade on U.S. financial markets every year. It also regulates exchanges like the New York Stock Exchange, the Nasdaq, and alternative trading systems.

In addition, the SEC monitors the activities of over 25,000 licensed investment firms, mutual funds, and broker-dealers, which employ nearly one million financial professionals.

Finally, the SEC provides critical financial information through its online EDGAR database so investors can research public companies to make informed decisions regarding their investments.

SEC Enforcement

The SEC brings civil actions for violations of federal securities laws and regulations either in federal court or within the SEC before an administrative law judge. The SEC can also bring both proceedings simultaneously.

Though the SEC does not bring criminal actions, which fall under the jurisdiction of law enforcement agencies within the Department of Justice, the SEC often works closely with these agencies to provide evidence and assist with court proceedings.

The SEC also serves as the first level of appeal for actions sought by the securities industry’s self-regulatory organizations, such as FINRA or the New York Stock Exchange.

How does the SEC Help Individual Investors

The materials provided by the SEC are designed to help investors better understand the market and make sound investment decisions. The SEC has created various educational tools for investors, including calculators to estimate how your money can grow over time, detailed guides on choosing an investment adviser, information on investment products, breakdowns of typical investment fees, and how to detect different types of fraud. The SEC’s website is a great resource whether you are new to investing or have been doing it for years. There are lots of tools out there for investors, and you should take advantage of as many as possible to ensure you are protecting yourself and your investments.

– written by Lauren Levi

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