What is the Securities and Exchange Commission?

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In a Nutshell

The Securities and Exchange Commission is a federal agency that regulates securities markets in the United States. The SEC is responsible for enforcing securities laws, regulating the securities markets and related entities and working to ensure investors are treated fairly.
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The Securities and Exchange Commission is a federal agency with important regulatory powers. The SEC seeks to ensure fair play in the market and that wrongdoers don’t get away with defrauding investors.

In addition to securities products and markets, such as the stock market, the SEC also keeps tabs on key players in the industry like investment advisers.

The SEC frequently gets big news coverage during major instances of investor fraud. For example, the Securities and Exchange Commission investigated the Enron scandal, the Bernie Madoff pyramid scheme, and trading improprieties during the 2008 Financial Crisis.

Let’s take a closer look at the SEC and why it’s important.

What is the SEC?

As a federal regulatory entity with oversight of the stock markets and larger securities industry, the SEC seeks to protect investors from bad players in the investment markets, working hard to prevent fraud, uncover illegal investment schemes, and investigate insider trading and other securities crimes.

The SEC enforces disclosure requirements and financial filings for companies and investment advisers, and maintains the EDGAR system as a public data repository for many of those filings. From investor complaints to investigations to prosecuting white-collar crimes, the SEC is busy working toward a fair-and-level playing field every time you buy or sell securities.

The three-part mission of the SEC sets out to protect investors; maintain fair, orderly and efficient markets; and facilitate capital formation.

The SEC is managed by five commissioners appointed by the president of the United States. The SEC Commission is designed to be nonpartisan — no more than three commissioners can be from the same political party. The SEC operates offices across the country, with its headquarters in Washington, D.C.

What financial filings are monitored by the SEC?

The SEC oversees a number of important filings. For example, before a company has an initial public offering it must prepare a registration statement to give potential investors information about the company aimed at helping them make an informed investment decision.

The SEC has a number of divisions. Some of the main divisions of the SEC include corporate finance, investment management, enforcement, and economic and risk analysis. And it utilizes a range of secretaries, chairs and offices to support its mission.

Brief history of the SEC

During the Great Depression, Congress started thinking about ways to protect the country from future economic crises. Ultimately, Congress passed the Securities Act of 1933 and then the Securities Exchange Act of 1934. The latter created the Securities and Exchange Commission in an effort to restore public confidence in the financial markets, among other goals.

Based on these laws, the SEC has two primary functions. One is to ensure that companies selling securities to the public tell the truth about their businesses, the securities being sold, and the risks associated with the company and investing in its securities. The other is to try to ensure that securities professionals treat investors fairly and honestly.

The agency is sometimes criticized as overreaching in the investment world, but has also been faulted for failing to protect against the very scenarios it works to prevent, such as the previously mentioned Great Recession and Bernie Madoff scandal.

Overall, the SEC is an accomplished institution with a strong track record for protecting investors. Individual and institutional investors alike should appreciate the work the SEC does to keep the stock market fair for everyone involved.

Why the SEC is important

The Securities and Exchange Commission is important for investors. It works to ensure that anyone wanting to buy and sell stocks or other securities can do so without fear of being manipulated, and that the SEC will take action against offenders.

While it may be easy to get caught up in the securities cases that make the news, like Martha Stewart’s insider trading scandal, the SEC works daily to protect the public from harm.  Financial crimes are not victimless crimes — we can all suffer from unfair gains and market manipulation.

Unlike putting your money in a savings account, where your money is pretty safe, you can lose if you invest in the stock market. That’s why the SEC’s role — monitoring the securities market and working to ensure investors are treated fairly — is so important.

Without trust in the integrity of the financial markets, we probably wouldn’t have the confidence to invest in — for example — a 401(k) account for retirement. Without the SEC, companies may not be able to raise the funds they need from investors to grow and expand. It would be tough to be an investor in the U.S. without the SEC!

If you ever encounter questionable securities practices, be sure to contact the SEC. They can’t protect you if they don’t know what’s happening in the market.

Next steps

The Securities and Exchange Commission is an important federal agency that helps to protect investors and works to ensure the financial markets run fairly. While the SEC can’t guarantee honest behavior in the financial markets, the agency does its best to catch anyone breaking the rules and keep investor confidence high.

About the author: Eric Rosenberg is a finance, travel and technology writer in Ventura, California. He has an MBA in finance from the University of Denver. When he’s away from the keyboard, Eric enjoys exploring the world, flying small… Read more.