What is the securities and exchange commission (SEC)?

Views 31KAug 9, 2023

Key takeaways

● As a federal agency established by the US Congress, the Securities and Exchange Commission (SEC) is responsible for regulating the securities markets and is the top agency in the US securities industry.

● The SEC was created by the passage of the Securities Act of 1933 and the Securities Exchange Act of 1934.

● The commission can itself bring civil persecutions against lawbreakers, and also works with the Justice Department on criminal cases.

Understanding the SEC

The SEC is a special agency responsible for regulating the securities markets and protecting the rights and interests of investors.

The US SEC was established according to the Securities Exchange Act of 1934. Since it’s the oldest SEC in the world, we generally refer to it when talking about SEC.

Established by the US Congress, the SEC is an independent quasi-judicial agency subordinate to the federal government. It is the top agency in the US securities industry.

The SEC was created to protect investors, maintain fair, orderly, and efficient functioning of the securities markets, and facilitate inflow of household and state capital into the capital markets.

Under its influence, Thailand, the Philippines, Sri Lanka, Nigeria, Ghana, and many other countries have set up their own SECs.

History of the SEC

When the US stock market collapsed in 1929, securities issued by numerous companies became worthless. Because many had previously provided false or misleading information, the public lost confidence in the integrity of the securities markets.

To right the economy and restore confidence in the capital markets, the US Congress held hearings to search for solutions. Based on its conclusions, Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934, trying to regulate the securities markets and protect the rights and interests of investors with the two acts.

Finally, Congress established the SEC in 1934.

How the SEC works

After nearly 90 years of development, the SEC is now headquartered in Washington DC. It is headed by five commissioners appointed by the president, whose terms all last five years and one of whom is designated as chair.

According to the introduction on the official website of the SEC (https://www.sec.gov/), the commission now consists of six divisions, namely the Division of Corporate Finance, the Division of Examinations, the Division of Economic and Risk Analysis, the Division of Investment Management, the Division of Enforcement, and the Division of Trading and Markets. Under the six divisions, there’re 26 offices responsible for specific affairs including the Office of Acquisitions and the Office of Investor Education and Advocacy.

The two acts allow the SEC to pursue civil actions against wrongdoers and also work with the Justice Department on criminal cases.

As mentioned in its official website, in civil suits, the SEC seeks two main sanctions to regulate the securities markets:

1. Injunctions. A person or company that ignores an injunction is subject to fines or imprisonment for contempt.

2. Civil monetary penalties or the return of illegal profits. The SEC also reserves the right to seek a court order barring or suspending individuals from acting as corporate officers or directors, and bring proceedings including revoking or suspending registration.

In addition, the SEC has adopted its own whistleblower bounty rules. In September 2014, the SEC announced an award of over $30 million to an overseas whistleblower, the largest-ever whistleblower award by that time since the inception of the whistleblower program.

Disclaimer: The above content does not constitute any act of financial product marketing, investment offer, or financial advice. Before making any investment decision, investors should consider the risk factors related to investment products based on their own circumstances and consult professional investment advisors where necessary.