U.S. Securities and Exchange Commission (SEC)

Definition

The U.S. Securities and Exchange Commission (SEC) is a federal agency responsible for regulating the securities industry, enforcing securities laws, and protecting investors. Established in 1934 in response to the stock market crash of 1929, the SEC's primary mission is to ensure transparency, fairness, and efficiency in the securities markets, fostering public trust and investment.

5 Must Know Facts For Your Next Test

1. The SEC is composed of five commissioners appointed by the President of the United States, with one serving as the chairperson.
2. The agency's primary functions include overseeing securities exchanges, regulating brokers and dealers, and enforcing compliance with federal securities laws.
3. The SEC has the authority to bring civil enforcement actions against individuals and companies for violations of securities laws, including fraud and insider trading.
4. The SEC's Office of Investor Education and Advocacy provides resources to help educate investors about their rights and how to avoid investment fraud.
5. The agency operates a public database called EDGAR (Electronic Data Gathering, Analysis, and Retrieval system), where companies are required to file periodic reports about their financial performance.

Review Questions

• How does the SEC promote transparency in the securities markets?
  • The SEC promotes transparency in the securities markets primarily through its mandate to require full disclosure from companies that issue securities. This is done by enforcing regulations that necessitate companies to file registration statements and periodic reports with detailed financial information. By ensuring that investors have access to reliable and timely information about a company's financial performance and operations, the SEC helps build investor confidence and maintains fair market conditions.
• What are some key differences between the Securities Act of 1933 and the Securities Exchange Act of 1934?
  • The Securities Act of 1933 focuses on the initial offering of securities by requiring issuers to provide detailed disclosures through registration statements. In contrast, the Securities Exchange Act of 1934 regulates trading practices in the secondary market after securities have been issued. While both acts aim to protect investors, the former addresses issues related to new offerings, whereas the latter establishes ongoing reporting requirements and oversight for traded securities.
• Evaluate the role of the SEC in preventing insider trading and its impact on market integrity.
  • The SEC plays a crucial role in preventing insider trading by enforcing strict regulations that prohibit individuals with non-public, material information from buying or selling stocks based on that information. By investigating and prosecuting insider trading cases, the SEC upholds market integrity and promotes fairness among all investors. The agency's enforcement actions not only serve as a deterrent against potential violations but also foster a level playing field where all investors can make informed decisions based on publicly available information.

Related terms

Securities Act of 1933: A law that requires issuers of securities to provide full disclosure of material information through registration statements and prospectuses to protect investors during the sale of securities.

Securities Exchange Act of 1934: This act governs the trading of securities in the secondary market, creating regulations for broker-dealers and establishing the SEC's authority to oversee and enforce securities laws.

Insider Trading: The buying or selling of a publicly-traded company's stock based on non-public, material information about the company, which is illegal and regulated by the SEC.