Securities And Exchange Commission

The Securities and Exchange Commission (SEC) is the United States government's supervisory institution. It is obligated to protect investors and regulate the securities market. It also has to oversee and facilitate capital formation by ensuring complete disclosure of financial data and encouraging capital formation. The SEC came into existence in 1934 to eliminate the loss of confidence in the securities market in the USA.

It has been managed by a group of five commissioners selected and hired by the US president, with a chairman from amongst them. Although all members have a tenure of five years, in case a suitable replacement is not found, their tenure gets extended by 18 months. At present, the SEC's chairman is serving his five-year tenure, having taken the role in April 2022. Moreover, only three members can belong to one party to encourage nonpartisanship.

It works through various divisions like corporate finance, enforcement, investment management, economic and risk analysis, and trading divisions to monitor compliance and investigate fraud. It ensures companies' disclosures of vital financial information, thereby maintaining the capital markets' integrity needed for economic stability. As a result, investors get wealth and details of financial information & registration statements through the EDGAR Securities and Exchange Commission filings database. It leads to transparency, allowing institutional and individual investors to make informed decisions to navigate the securities environment with the help of securities and exchange commission company search on EDGAR.

In the financial world, it has successfully set the standards of the market, promoting the ethical and moral compass of market participants. It has thwarted many financial crises, protected traders' and investors' capital, and evolved with technology to bring trading to the commoner with full protection and trust.

SEC was established to restore the lost confidence of investors in the securities market and bring transparency to companies' financial affairs. Its chronology is shown below:

• Blue Sky laws used to regulate the securities at the state level, which were ineffective in prohibiting fraud.
• Then, in light of the stock market crash of 1929, the Securities Act of 1933 was set up to monitor and regulate interstate securities sales and bring back the confidence of investors in the market.
• Next, the Securities Exchange Act of 1934 was created to regulate secondary securities sales and established the SEC as per section 4 of the act.
• SEC was given the power to ensure companies gave accurate and true financial disclosures of their operations and enforce federal securities regulations.
• The SEC gained the power to monitor the securities industry and regulate and register clearing agencies, dealers, and brokers.
• Its primary aim was to investigate irregularities in the New York Stock Exchange's work to instill trust amongst investors by eliminating shady sales practices and fraudulent stock manipulations.
• It prohibits stock buys in the absence of sufficient funds, establishes laws for the securities market, and mandates full disclosure of appropriate financial and other information by businesses.
• It also undertakes the role of adviser to courts pertaining to corporate bankruptcy cases.
• By 1970, its focus changed to market manipulation and insider trading.
• With the establishment of the Commodity Futures Trading Commission (CFTC) in 1974, tensions between the SEC and CFTC started and intensified, ending with the signing of the Shad-Johnson Accord in 1982.
• In 1996, it implemented the National Securities Markets Improvement Act and the Sarbanes-Oxley Act in 2002 to adapt to technological changes from 1980 to 2000.

These are some guidelines and laws that oversee the functioning of securities to protect investors and encourage ethical and fair market practices. As per the SEC, the following are significant rules and regulations:

• The Securities and Exchange Commission Act of 1933 necessitates firms to disclose vital information regarding their securities offerings and prevents misleading or false statements to eliminate fraud.
• The Securities Exchange Act of 1934 monitors the secondary market, mandating companies' registration with the SEC disclosing financial information while providing authority to the SEC to enforce rules and monitor stock exchanges.
• The Investment Company Act of 1940 administers laws governing investment companies and mutual funds, mandating their disclosure of investment strategies and financial information and levying operational restrictions.
• The Investment Advisers Act of 1940 supervises investment advisers using laws requiring them to disclose conflicts of interest and fees while stopping specific fraudulent practices.

It works through seven main divisions using 37 offices to track compliance and investigate violations like:

Corporate finance and enforcement division:

It ascertains that investors get relevant material information about a firm's price to help them make investment decisions or improve their financial prospects.

#1 - Enforcement division:

It enforces regulations of the SEC through case investigation and civil suit initiation in administrative proceedings and federal court. It collaborates with various law-implementing agencies like state investigatory units, the US Secret Service, and the FBI. It also refers cases to deportment of justice for criminal proceedings as and when needed.

#2 - Investment Management Division:

It regulates investment advisors who are federally registered variable insurance products and investment companies.

Economic and Risk Analysis Division:

It serves as the data and economics analysis unit of the SEC.

#1 - Trading and Markets Division 

It formulates and maintains benchmarks for efficient, fair, and orderly markets.

#2 - Economic and Risk Analysis Division

The Division of Economic and Risk Analysis (DERA) aids the SEC's mission by reapplying data analytics and financial economics to determine and resolve market issues, develop tools, and manage data for examining economic and financial trends.

#3 - Examinations Division

It ensures adherence to federal securities regulations by undertaking onsite evaluations of registrants to authenticate their compliance with disclosures, supervisory systems, and legal requirements.

All these divisions aim to infer and enforce securities regulations, oversee security organizations, coordinate regulations between various state bodies, and create new rules. 

SEC has the following common enforcements:

• It can suspend or bar any individual from the securities industry if found to be involved in misconduct or serious violations to stop it from spreading further.
• Civil fines could be levied on violators comprising thousands to millions of dollars to deter future violations and punish them.
• It might necessitate firms to execute compliance programs or hire independent monitors to end unethical and illegal practices.
• It can also forward cases of a criminal nature to the DOJ, resulting in imprisonment, fines, and restitution concerning gross misconduct.
• Disgorgement pushes the violators to give up on profits obtained through illegal activities to restore the losses of victims.
• It can also use court injunctions to put a stop to continuing illegal activities and prohibit any future misconduct.