The Securities and Exchange Commission, or SEC, is an independent U.S. federal government regulator charged with protecting investors and maintaining efficient financial markets.

Established in 1934, largely in response to the Great Depression, the agency proposes and enforces securities laws, prevents fraud, democratizes access to information, and acts as a regulator and mediator between the public and companies seeking capital.

In overseeing the activities of those who buy and sell securities and provide financial advice, the SEC prioritizes the interests of investors over those of brokers, asset managers and companies. With safeguards in place, the agency maintains confidence in US financial markets worth more than $100 trillion.

How the SEC Works

Before companies can sell securities to the public, the SEC requires all foreign and domestic companies to submit a registration statement, including audited financial information, status of operations, risk factors and other key information. . Similarly, financial services companies, fund managers and those who provide financial advice must abide by the rules governing their conduct.

The SEC seeks to detect potential problems early on through rigorous and periodic legal and financial reviews, thereby minimizing the risk of scams, insider trading and other abuses. Additionally, the SEC makes all company filings available to the public through an electronic database known as EDGAR, which is short for Electronic Data Collection, Analysis, and Retrieval.

Because all public companies are required to disclose material information through the EDGAR system, such as quarterly and annual financial statements, the SEC grants everyone quick access to material information and data. This information has been available to investors since at least 1995. With a standardized approach, the SEC seeks to level the playing field for all market participants.

Similarly, the SEC oversees initial public offerings (IPOs) and other means for companies and entrepreneurs to raise funds and access US capital markets – the most liquid markets in the world. In 2021, for example, 1,033 IPOs took place in the United States – a record year, according to Nasdaq data. These companies raised a total of $286 billion. In turn, these agreements support economic and employment growth.

Another vital task of the SEC is to maintain fair, orderly and efficient markets. As technological advancements influence the investment landscape and new investment options emerge, the SEC monitors the activities of all market participants. For example, the agency regulates more than 28,000 financial sector entities, including mutual fund and ETF providers, ensuring that prospectuses and other information give a clear picture of investment risks and other factors.

Who runs the SEC?

The SEC has five commissioners appointed by the President of the United States, one of whom is the chairman or senior executive of the SEC. The current president is Gary Gensler. Each commissioner serves a five-year term, with the option to remain in office for another 18 months. The terms of commissioners are staggered, with one appointment expiring each year, meaning a new commissioner is appointed each year. Additionally, the SEC ensures political impartiality by having no more than three commissioners from the same political party.

How is the SEC structured?

The SEC’s headquarters in Washington, DC, consists of six divisions and 25 offices. Each group has specific duties and responsibilities, such as enforcing actions on securities laws, and reviewing and implementing new rules, among others.

The six divisions and their functions are as follows:

  • Corporate Finance Division: Ensure investors receive timely and accurate material information.
  • Economic and Risk Analysis Division: Uses data analytics to detect potential violations, assess market risk, and spot market trends, adding commissioners to the rule-making process.
  • Enforcement Division: Pursue investigations of possible violations of securities laws and initiate civil suits and administrative proceedings.
  • Examinations Division: Issues licenses, manages compliance and sets qualification requirements for people working in the financial industry.
  • Investment Management Division: Regulates fund managers, analysts, advisers and other professionals in the investment industry.
  • Trading and Markets Division: Monitors the activities of traders, brokers, clearinghouses and other market participants.

How does the SEC enforce violations?

Although the SEC can only bring civil actions, the agency works closely with Department of Justice agencies to enforce criminal cases.

In civil actions, SEC officials are pursuing monetary penalties such as disgorgement of illegal profits and other penalties, such as suspension or revocation of record licenses, prohibition from participating or working in the financial sector and additional fines.

In addition to conducting internal operations, the SEC relies on its whistleblower program, an initiative that rewards people who share information resulting in law enforcement penalties of more than $1 million. By partnering with the SEC, whistleblowers can receive 10-30% of sanction proceedings.

History of the SEC

Congress created the SEC as part of President Franklin Roosevelt’s New Deal programs to restore public confidence in the US stock market after the stock market crash of October 1929.

With billions of dollars lost, banks failing, personal bankruptcies, job losses and other calamities resulting from the crash, lawmakers passed the Securities Act of 1933, which required registration of securities sold in the states. -United. increase the transparency of financial information and establish laws against market manipulation.

Then the Securities Exchange Act of 1934 established how securities could be traded in secondary markets, drafted rules of professional conduct, and formally created the SEC.

Since the SEC’s inception, other notable laws have supported and redefined its mission, including the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Jumpstart Act. Our Business Startups (JOBS) of 2012.

Prior to the creation of the SEC, oversight of commerce and securities laws was virtually non-existent, leading to frenzied financial speculation, shady get-rich-quick schemes, and other unfair acts. Today, the agency files multiple civil lawsuits against individuals and financial institutions each year. He is implicated in all major financial misconduct cases, and the government’s primary watchdog on the markets is essential to maintaining fair practices.

About The Author

Related Posts