The Securities and Exchange Commission (SEC) is the government agency in charge of regulating the stock market.
To protect investors, ensure the smooth operation of the securities markets, and promote capital formation, the United States federal government established the Securities and Exchange Commission (SEC).
The SEC is the original federal securities market regulator, having been established in 1934. It is the mission of the SEC to safeguard investors from fraud and market manipulation and to promote the open disclosure of all relevant information regarding corporate takeovers in the United States. In addition, it validates registration statements submitted by underwriting firms’ bookrunners.
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It is customary for the SEC to require registration prior to the sale of securities that will be offered in interstate commerce, including sales made via mail or the Internet.
A broker-dealer, advisory firm, or asset manager, as well as any salespeople representing them, must register with the SEC before they can legally sell securities. This group would, for instance, have to okay all official bitcoin swaps before they could occur.
KEY POINTS
- American investors are protected by the Securities and Exchange Commission (SEC), a government agency charged with monitoring the securities markets.
- The U.S. Securities Act of 1933 and the Securities and Exchange Act of 1934 created the SEC in large part as a reaction to the 1929 stock market crash that triggered the Great Depression.
- The SEC collaborates with the Justice Department on criminal cases, and it also has the authority to pursue civil actions against violators.
Origins of the SEC
As a result of the collapse of the American stock market in October 1929, the value of securities issued by many businesses plummeted. As a result of many people providing false or misleading information in the past, public confidence in the honesty of the securities markets plummeted.
The SEC was established by Congress after the Great Depression after they passed the Securities Act of 1933 and the Securities Exchange Act of 1934 to help restore investor confidence.
The SEC’s main responsibility was to watch over the stock market and make sure that companies were being truthful in their disclosures and that investors were being treated fairly by brokers, dealers, and exchanges.
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The SEC: An Overview of Its Operations
Securities exchanges, brokerage firms, dealers, investment advisors, and investment funds are just some of the entities that fall under the SEC’s purview of regulation.
Disclosure and sharing of market-related information, fair dealing, and protection against fraud are all encouraged by the SEC’s established securities rules and regulations.
Through its Electronic Data Gathering, Analysis, and Retrieval database (EDGAR), the SEC makes investor documents like registration statements, quarterly financial reports, and other securities forms available to the public.
Five commissioners are appointed by the president to run the SEC, and one of them is given the role of chair. Each commissioner serves for a maximum of five years, though they may stay on for up to an additional 18 months if necessary.
Gary Gensler has been serving as chair of the SEC since April 17 of 2021. The law mandates that no more than three of the five commissioners can be members of the same political party in an effort to ensure impartiality.
The SEC has 23 different offices and five different departments. Their mission is to enforce and interpret securities laws, create guidelines for the industry, monitor financial institutions, and ensure that regulations are consistent across jurisdictions. This article will go over the five departments and what they do:
- Division of Corporate Finance: Ensures investors are provided with material information (that is, information relevant to a company’s financial prospects or stock price) in order to make informed investment decisions.
- Division of Enforcement: In charge of enforcing SEC regulations by investigating cases and prosecuting civil suits and administrative proceedings.
- Division of Investment Management: Regulates investment companies, variable insurance products, and federally registered investment advisors.
- Division of Economic and Risk Analysis: Integrates economics and data analytics into the core mission of the SEC.
- Division of Trading and Markets: Establishes and maintains standards for fair, orderly, and efficient markets.
Only in federal court or before an administrative judge can the SEC file a civil action. Although the Department of Justice’s law enforcement agencies have primary responsibility for investigating and prosecuting criminal cases, the SEC frequently assists these agencies by providing evidence and providing other courtroom support.
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