Securities and Exchange Commission

Definition

The Securities and Exchange Commission (SEC) is an independent agency of the United States federal government that is 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 overseeing various aspects of business ethics, administrative law, regulatory agencies, and the framework of securities regulation.

5 Must Know Facts For Your Next Test

1. The SEC was created in 1934 in the aftermath of the 1929 stock market crash to restore public confidence in the securities markets.
2. The SEC is responsible for administering and enforcing federal securities laws, proposing securities rules, and regulating the securities industry, including brokerage firms and stock exchanges.
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 investigates and prosecutes insider trading, market manipulation, and other securities fraud to maintain the integrity of the securities markets.
5. The SEC oversees key participants in the securities field, including securities exchanges, broker-dealers, investment advisors, and mutual funds.

Review Questions

• Explain how the Securities and Exchange Commission's role in regulating the securities industry relates to business ethics.
  • The SEC plays a crucial role in promoting ethical conduct in the securities industry. By enforcing regulations against insider trading, market manipulation, and other fraudulent practices, the SEC helps to maintain the integrity and fairness of the securities markets. This, in turn, fosters investor confidence and supports the ethical functioning of businesses that rely on the capital markets for financing and growth. The SEC's disclosure requirements also promote transparency, enabling investors to make informed decisions and holding companies accountable for their actions.
• Describe how the SEC's administrative authority and regulatory oversight relate to the broader framework of administrative law.
  • As an independent regulatory agency, the SEC derives its authority from administrative law. The SEC is empowered to promulgate rules and regulations, investigate violations, and enforce compliance with securities laws. Its actions are subject to judicial review, and its decisions can be challenged through administrative procedures and the court system. The SEC's role in shaping and interpreting securities regulations, as well as its quasi-judicial functions in adjudicating disputes, are integral components of the administrative law framework that governs the securities industry.
• Evaluate the Securities and Exchange Commission's effectiveness in fulfilling its mandate to protect investors and maintain the fairness and efficiency of the securities markets.
  • The SEC's effectiveness in fulfilling its mandate can be assessed by examining its track record in detecting and punishing securities fraud, promoting transparency and disclosure, and maintaining the overall stability and integrity of the securities markets. While the SEC has faced criticism for occasional regulatory failures or perceived leniency towards certain market participants, its role in safeguarding investor interests and fostering a fair and efficient securities environment remains crucial. Ongoing challenges, such as the rapid evolution of financial technologies and the increasing complexity of financial instruments, require the SEC to continuously adapt its regulatory approach to effectively fulfill its mission and maintain public trust in the securities markets.

Related terms

Securities: Financial instruments that represent an ownership position in a publicly-traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership as represented by an option.

Insider Trading: The trading of a public company's stock or other securities by individuals with access to non-public information about the company, in violation of their fiduciary duty.

Disclosure Requirements: The obligation of public companies to regularly report and disclose financial information, material events, and other data to the SEC and the investing public.