The Purpose of the Securities and Exchange Commission (SEC)

 

One of the most significant regulatory organisations in the financial industry is the Securities and Exchange Commission (SEC). It was founded in 1934 with the major goals of safeguarding investors, preserving equitable and effective markets, and promoting capital formation. For the financial markets to remain transparent, accountable, and stable overall, the SEC's operations are essential. This essay will examine the SEC's mission, background, primary duties, and importance in today's financial markets.

The SEC's past
The terrible 1929 stock market crash, which set off the Great Depression, prompted the establishment of the SEC. Serious flaws in the American securities markets, such as insider trading, fraud, and opaque financial reporting, were made clear by the crash. These problems hampered economic growth and damaged investor trust.

President Franklin D. Roosevelt advocated for extensive measures to stabilise and control the financial markets in reaction to this catastrophe. Restoring confidence in the American financial system was the main objective of the Securities Exchange Act of 1934, which Roosevelt signed into law and established the SEC. Enforcing securities laws and making sure investors have access to accurate and trustworthy information were the SEC's two main responsibilities.

The SEC's mission and purpose
The SEC's primary goals are to safeguard investors, uphold efficient, just, and orderly markets, and promote capital formation. The SEC's regulatory structure and supervision of different securities market participants help achieve these goals. Let's dissect these three main objectives to comprehend the SEC's role:

1. Safeguarding Investors
Protecting the interests of both individual and institutional investors by making sure they have timely and accurate information about the securities they are purchasing and selling is the SEC's main duty. The SEC seeks to lower the possibility of fraud, manipulation, and unfair trading activities that could endanger investors by promoting openness in the financial markets.

The SEC uses the following strategies to provide this protection:

Disclosure Requirements: Material information on a public company's activities, performance, and financial status must be disclosed. Filing current reports (Form 8-K), quarterly reports (Form 10-Q), and yearly reports (Form 10-K) with the SEC is part of this. The purpose of these disclosures is to provide investors with the knowledge they require in order to make wise investment choices.
Preventing Fraudulent Activities: Laws prohibiting dishonest activities like insider trading, market manipulation, and accounting fraud are enforced by the SEC. If people or businesses break these laws, the agency has the power to file a lawsuit against them.
Investor Education: The SEC is dedicated to teaching investors about investing tactics, financial markets, and how to avoid falling victim to scams.

Keeping Markets Equitable and Effective
The SEC works to make sure that the securities markets are efficient, fair, and orderly—that is, that everyone in the market has equal access to opportunities and information. To do this, an atmosphere free from unfair advantages, fraud, and manipulation must be established for market players to trade securities.

The following are essential elements of preserving equitable and effective markets:

Market Oversight: The SEC keeps an eye on the operations of stock exchanges, including the NASDAQ and the New York Stock Exchange, as well as other market players, such as dealers, brokers, and investment advisors. The SEC seeks to guarantee that these organisations follow rules and guidelines intended to uphold ethical business practices.

Regulation of Trading techniques: To stop market manipulation, the SEC regulates a number of trading techniques. This involves regulating practices such as pump-and-dump schemes, which employ false or misleading information to artificially increase the price of a company, and insider trading, in which people exploit material, non-public information to obtain an advantage.
Avoiding Conflicts of Interest: The SEC makes sure that brokers and investment advisers, among other market players, behave in their clients' best interests. This includes mandating that businesses reveal any conflicts of interest that might occur when a financial expert has several connections that could compromise their objectivity.

Encouraging the Creation of Capital
Ensuring that businesses may effectively raise capital through the issuing of securities is one of the SEC's main objectives in order to promote economic growth. This include managing the IPO procedure, making certain that businesses adhere to relevant legal requirements, and granting investors access to a range of investment options.

The SEC encourages capital formation in a number of ways:

Regulating Securities offers: The SEC is in charge of the procedure by which businesses raise money by selling securities to the general public, including secondary offers and initial public offerings (IPOs). By ensuring that these offerings are carried out in a fair and open manner, the agency provides investors with the knowledge they need to make wise choices.

Lowering Entry Barriers: The SEC seeks to establish a regulatory environment that protects investors while promoting investment and entrepreneurship in developing sectors. By issuing securities to the public with less regulatory burden than standard public offerings, the SEC's Regulation A+ program, for instance, makes it easier for small businesses to raise cash.
Encouraging Alternative Capital Channels: The SEC has acknowledged the growth of alternative capital formation strategies like private placements and crowdfunding. These techniques give companies a substitute for conventional equity markets while guaranteeing that investors receive sufficient disclosures to safeguard their interests.

Important Roles and the SEC's Regulatory Structure
The securities business in the United States is governed by a strong legislative framework that the SEC operates within. The following important laws are enforced by the agency:

1. The 1933 Securities Act
The first significant piece of legislation intended to control the securities markets was the Securities Act of 1933. Before making their securities available to the general public, businesses must register them with the SEC. By requiring businesses to reveal pertinent financial data, the act empowers investors to make well-informed choices. Its objective is to stop securities sales fraud.

2. The 1934 Securities Exchange Act
The SEC was established by this statute, which also gave it extensive regulatory power over the financial markets. Its main objective is secondary market regulation.

3. The 1940 Investment Advisers Act
Investment advisers that advise customers on securities are subject to regulation under the Investment Advisers Act of 1940. It mandates that these advisors follow a fiduciary duty to operate in their clients' best interests, register with the SEC, and disclose any potential conflicts of interest.

4. The 2002 Sarbanes-Oxley Act
The Sarbanes-Oxley Act was passed to tighten regulations on public businesses' financial reporting in the wake of corporate accounting scandals. It established more stringent guidelines for internal controls, corporate governance, and auditor independence.