SEC: Everything you need to know

What is the SEC?

• The SEC, which stands for the United States Securities and Exchange Commission, is a federal agency of the United States government, responsible for enforcing the nation’s securities laws and regulating the financial markets. More specifically, the SEC is responsible for regulating and overseeing the nation’s stock and options exchanges, as well as the other electronic securities markets in the United States.

• The SEC was created to regulate the securities industry in the United States. During the Great Depression and after the Stock Market Crash of 1929, private investors were skeptical as to the true nature and motivation of the markets and their participants. Because consumer confidence is a vital to the health of the markets, the Federal Government created the organization to ensure that investment professionals and public corporations acted in a moral fashion.

• The SEC was created through the passing of the 1934 Securities and Exchange Act; that being said, the SEC also enforces the provisions of the following federal acts: the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940 and the Sarbanes-Oxley Act of 1940.

Basic Overview of the SEC:

• The SEC was formally created by the United States Congress in 1934 to operate as independent, quasi-judicial regulatory agency during the Great Depression. The primary reason as to why the SEC was created was to instill government regulations over the stock market and to prevent corporate abuse relating to the offering and sale of stocks. Furthermore, the SEC was responsible for overseeing corporate reporting; prior to the creation of the SEC rules regarding corporate reporting were extremely lax, enabling corporations to smudge or embellish earnings and other key statistics.

• When created, the SEC was awarded the power to license and regulate stock exchanges, the companies whose securities were listed on them and the security professionals (broker and dealers) who took part in the trading.


What does the SEC look for?

• The enforcement authority given to the SEC allows the organization to bring civil suits against individuals or companies who are suspected of committing accounting fraud, providing false information, or engaged in insider trading. Furthermore, the SEC works with criminal law enforcement agencies to prosecute individuals and companies for offenses that warrant criminal punishments.

• To achieve its mandate, the SEC enforces statutory requirements on American companies, the most crucial of which being that public companies must submit quarterly and annual reports to shareholders and the government. In addition to these reports, company executives must provide narrative accounts to outline the previous year of operations and explain how the company fared in that time period. Organizational Structure of the SEC:

• The SEC consists of five Commissioners who are each appointed by the President of the United States; the President chooses these individuals based on consent of the United States Senate. Each commissioner will serve a 5-year terms; the terms are staggered so that one Commissioner’s term will end on June 5th of each year.

• To ensure that the SEC remains unbiased, no more than three Commissioners may belong to the same political party.

• The President will designate one of the commissioners as the chairman of the SEC. That being said, the President does maintain the authority to fire any of the commissioners.

• The SEC is organized into the following five branches: Corporation Finance, Trading and Markets, Investment Management, Enforcement and Risk, Strategy and Financial Innovation.

NEXT: Securities Act of 1933