Overview of the Securities and Exchange Commission
The Securities and Exchange Commission (SEC) was created in 1934 to enforce the new securities laws (both the Securities Act of 1933 and Securities Exchange Act of 1934), regulate securities, encourage stable markets and protect investors. Today, the SEC is still the main enforcer of federal securities laws and works to maintain fair, efficient markets and safeguard investors.
The main way the SEC protects investors today is by requiring public companies to disclose relevant information to the public. The goal is for all investors to have certain basic information about a potential investment so that they can make informed decisions. The SEC is the chief regulator of securities and oversees securities exchanges (such as the New York Stock Exchange), brokers, dealers, investment advisors and mutual funds in an effort to encourage disclosure, maintain fairness and prevent fraudulent activity.
Organization and Responsibility of the SEC
The SEC has five commissioners appointed by the president, who designates one as Chairman. Commissioners serve staggered five-year terms. No more than three of the Commissioners can be from the same political party. According to the SEC Web site, the Commission has the following responsibilities:
- Interpret federal securities laws
- Issue rules
- Oversee securities firms, brokers, investment advisors and ratings agencies
- Oversee private regulatory organizations that deal with securities, auditing and accounting issues
- Coordinate federal securities regulation with state and foreign officials
The SEC is organized into four divisions and nineteen offices, each with different responsibilities. The four divisions are:
Division of Corporation Finance - The Division of Corporation Finance ensures that investors have material information about investments so they can make informed decisions. Companies must disclose material information when they initially offer stock to the public. Public companies also have an ongoing responsibility to disclose certain information about their finances and business operations in annual statements and other documents. This division reviews required public company filings such as registration statements; annual reports to shareholders; proxy materials; and documents relating to tender offers, mergers and acquisitions. Corporation Finance also gives registrants and the public guidance about securities laws compliance.
Division of Trading and Markets - The Division of Trading and Markets helps maintain efficient and fair markets by regulating players in securities markets such as broker-dealers, transfer agents, credit rating agencies and self-regulatory organizations like stock exchanges and the Financial Industry Regulatory Authority (FINRA). Trading and Markets is in charge of the Securities Investor Protection Corporation (SIPC), which insures cash and securities held by member brokerage firms in the event those firms fail. This division also runs the SEC's broker-dealer financial-integrity program.
Division of Investment Management - The Division of Investment Management regulates investment companies and advisors, and ensures that information about investments such as mutual funds are helpful to consumers. This Division also interprets laws and regulations; responds to no-action requests; assesses filings made by investment companies and advisors; and helps with enforcement matters related to investment companies and advisors.
Division of Enforcement - The Enforcement Division is probably the most recognizable division of the SEC. This division privately investigates potential violations of securities laws, recommends that the Commission bring civil enforcement actions and prosecutes such cases. The SEC brings enforcement actions against companies and individuals for securities law violations including insider trading, securities fraud, accounting fraud and illegal investment schemes.
The SEC offices include the Offices of General Counsel, Chief Accountant, Economic Analysis, Compliance Inspections and Examinations, International Affairs, Investor Education and Advocacy, Information Technology, Executive Director, Risk Assessment, Legislative Affairs and Intergovernmental Relations, Public Affairs, Secretary, Equal Employment Opportunity, Inspector General and Administrative Law Judges.
