Securities and Exchange Commission

Definition

The Securities and Exchange Commission (SEC) is an independent agency of the United States federal government responsible for regulating the securities industry, including stocks and options exchanges, to protect investors, maintain fair and orderly functioning of securities markets, and facilitate capital formation. It plays a crucial role in ensuring financial integrity and addressing criticisms and whistleblowing within companies.

5 Must Know Facts For Your Next Test

1. The SEC was established in 1934 after the stock market crash of 1929 and the Great Depression to restore public confidence in the securities markets.
2. The SEC is responsible for administering and enforcing federal securities laws, which include the Securities Act of 1933 and the Securities Exchange Act of 1934.
3. The SEC requires public companies to disclose meaningful financial and other information to the public, enabling investors to make informed decisions.
4. The SEC has the authority to investigate and take enforcement actions against companies and individuals for violations of securities laws, such as insider trading, accounting fraud, and market manipulation.
5. The SEC's Division of Corporation Finance oversees the disclosure of information by public companies, while the Division of Investment Management regulates investment companies and advisers.

Review Questions

• Explain how the establishment of the Securities and Exchange Commission (SEC) was a response to the business ethics issues that arose during the Great Depression.
  • The SEC was created in 1934 in the aftermath of the stock market crash of 1929 and the Great Depression, which exposed widespread unethical and fraudulent practices in the securities industry. The SEC was established to restore public confidence in the financial markets by regulating the securities industry, requiring public companies to disclose accurate and timely information, and enforcing federal securities laws. This helped address the business ethics issues that had contributed to the economic crisis, such as insider trading, market manipulation, and lack of transparency, thereby improving financial integrity and accountability.
• Describe the SEC's role in ensuring financial integrity within companies and how it relates to the criticism of companies and whistleblowing.
  • The SEC plays a crucial role in promoting financial integrity by requiring public companies to disclose accurate and comprehensive financial information, which enables investors to make informed decisions. The SEC also has the authority to investigate and take enforcement actions against companies and individuals for violations of securities laws, such as accounting fraud and market manipulation. This oversight function helps address criticisms of companies and encourages whistleblowing, as the SEC provides a channel for employees and insiders to report unethical or illegal activities within their organizations. The SEC's enforcement actions and the threat of whistleblowing serve as deterrents against financial misconduct, thereby enhancing the overall financial integrity of the markets.
• Analyze how the SEC's evolving role and responsibilities over time have influenced the broader landscape of business ethics, particularly in the context of financial integrity and corporate accountability.
  • The SEC's role and responsibilities have expanded over time to address emerging ethical and regulatory challenges in the financial markets. As the securities industry has become more complex, the SEC has had to adapt its oversight and enforcement mechanisms to ensure the continued integrity of the markets. This has included addressing issues such as the rise of high-frequency trading, the increasing use of complex financial instruments, and the growing importance of cybersecurity. The SEC's actions, such as imposing penalties on companies for accounting fraud or insider trading, have set precedents and shaped the broader understanding of ethical business practices, particularly in the realm of financial integrity. Additionally, the SEC's whistleblower program has empowered employees to report misconduct, further enhancing corporate accountability and the overall business ethics landscape. The SEC's evolving role has thus been instrumental in shaping the ethical standards and practices within the financial industry and the broader business community.

Related terms

Securities: Financial instruments, such as stocks, bonds, and derivatives, that hold monetary value and can be traded on financial markets.

Financial Regulation: The framework of rules, laws, and oversight mechanisms that govern the financial industry to promote stability, transparency, and consumer protection.

Whistleblowing: The act of an employee or insider disclosing information about an organization's unethical or illegal activities to the public or authorities.