Securities and Exchange Commission (SEC)

What is the SEC?

The U.S. Securities and Exchange Commission (SEC) is an independent federal government regulatory agency responsible for:

• Informing and protecting investors
• Facilitating capital formation
• Enforcing federal securities laws
• Regulating securities markets
• Providing data

The basis for the SEC is the idea that all investors and traders should have equal access to relevant information before making decisions to buy or sell financial instruments.

Established in the wake of the Great Depression during the 1930s, the SEC has evolved to become a cornerstone of investor protection and market integrity.

Techopedia Explains

Before the SEC was created, U.S. financial markets were marked by fraud, insider trading, and a lack of transparency. The stock market crash of 1929, followed by the Great Depression, highlighted the need for regulatory reforms to restore investor confidence.

The U.S. Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934, which led to the creation of the SEC on 6 June 1934 as an independent governmental agency.

Financial services providers, such as exchanges, brokers and dealers, asset managers, investment funds, and advisory firms, as well as their professional representatives, are required to register with the SEC to conduct business. Issues of securities sold to the public must also be registered. Public companies must submit quarterly and annual reports to the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) database.

How the SEC Operates

The SEC is divided into six major operating units:

• Division of Corporation Finance
• Division of Trading and Markets
• Division of Investment Management
• Division of Examinations
• Division of Enforcement
• Division of Economic and Risk Analysis

The SEC works alongside the Commodity Futures Trading Commission (CFTC), which is focused on regulating derivatives markets, including options and futures contracts.

The Dodd-Frank Wall Street Reform and Consumer Protection Act that the U.S. government passed after the 2008 financial crisis granted the SEC and CFTC increased authority.

What Are the SEC’s Responsibilities?

The SEC is entrusted with several key responsibilities:

• Regulation of securities markets. The SEC regulates exchanges, including the New York Stock Exchange (NYSE) and the NASDAQ, to ensure they operate fairly and transparently. This aims to prevent market manipulation and promote fair competition among market participants.
• Enforcement of securities laws. The SEC enforces federal securities laws, including those related to insider trading, accounting fraud, and the misrepresentation of financial information. It conducts investigations and legal action to hold individuals and organizations accountable for securities violations.
• Disclosure requirements. The SEC oversees the disclosure process for publicly traded companies to ensure that they provide timely and transparent financial statements and other material information.
• Investor education. The SEC educates investors about their rights and responsibilities and provides resources to help them make informed investment decisions.
• Regulation of investment advisers and funds. The SEC regulates investment advisers and mutual funds, ensuring that they operate in the best interests of their clients and shareholders.
• Market monitoring. The SEC monitors the securities markets continuously for suspicious activities and potential threats to market stability. This helps detect and prevent market abuses.

The SEC can bring civil actions against perpetrators of illegal activity and works with the Justice Department on criminal cases. In civil cases, the SEC is authorized to seek financial penalties and injunctions to prohibit future violations.

What Is the SEC’s Role in Cryptocurrency Markets?

The role of the U.S. in regulating crypto markets is evolving and gaining attention as digital assets increase in popularity and mainstream investment interest.

The involvement of the SEC and other U.S. regulatory bodies, such as the CFTC and the Financial Crimes Enforcement Network (FinCEN), in regulating decentralized and borderless digital assets is controversial, as many industry participants argue that they are beyond SEC jurisdiction.

However, the SEC has argued that cryptocurrencies are securities that must be registered and comply with its regulations.

The Bottom Line

The SEC is the U.S. financial regulator formed to protect investors, maintain market integrity, and facilitate capital formation. By enforcing securities laws and promoting transparency, the SEC aims to ensure that investors can trust the markets and make informed investment decisions.

The SEC’s expanding role in crypto market regulation makes it vital for users and traders to understand its involvement and impact before investing in big cryptocurrencies.