Securities and Exchange Commission
The Securities and Exchange Commission (SEC) is a regulatory agency responsible for administering the U.S. laws regarding securities. The purpose of these laws is to ensure fair markets and to provide accurate information to investors. The major securities laws were enacted in the 1930s after the 1929 stock market crash and the anemic performance of the market in the early 1930s.
Congress passed the Securities Act of 1933 to regulate the primary market—the market for new securities. Sometimes called the "truth in issuance act," the 1933 act required a company to submit independently verified financial information, a registration statement, and a prospectus to the Federal Trade Commission.
The Securities and Exchange Act of 1934 created the Securities Exchange Commission, giving it the power to regulate the stock exchanges and the trading practices of the secondary market (a market for currently traded shares). In 1935 the Public Utility Holding Company Act was enacted to regulate all interstate holding companies (a holding company controls other companies by owning their stock) in the utility business.
In 1940 Congress passed two laws covering the people working in the security business. The Investment Company Act of 1940 provided for the regulation of investment companies, including those involved with mutual funds. The Investment Advisers Act of 1940 established regulation of investment advisers and their activities. In 1974 the Employee Retirement Income Security Act gave the SEC jurisdiction over pension funds. Other legislation addressed foreign activities, insider trading, and further clarification of existing legislation.
The SEC consists of five commissioners who are appointed by the president, only three of whom can be from the same political party. Terms are staggered; thus, each June 5, a person rotates off the Commission. To accomplish their duties, the commissioners have office staffs of accountants and lawyers and regional offices in eleven cities.
The organizational structure of the SEC includes eight divisions. The Division of Corporate Finance is responsible for reviewing registration statements, tender offers, and mergers and acquisitions. Overseeing the markets and the market participants is the duty of the Division of Market Regulation. The Division of Investment Management is responsible for the enforcement of three statutes: the Investment Company Act of 1940, the Investment Advisers Act of 1940, and the Public Utility Holding Company Act of 1935. The Division of Enforcement is the investigating arm of the SEC. The Office of Compliance, Inspections, and Examinations determines whether all investment organizations are in compliance with federal securities laws. The remaining divisions' duties are defined by their titles: the Office of General Counsel, the Office of Municipal Securities, and the Office of Investor Education and Assistance.
In enforcing the securities laws, the SEC acts as a guide and adviser whose actions are largely remedial. One common activity of each division is rulemaking. New rules and rule modifications are usually accomplished in open meetings. Those industries or parties affected by rule changes are allowed to present their positions and make comments in an open meeting. Any SEC investigations are conducted by the Division of Enforcement and the field offices. If the evidence indicates a violation, the SEC can take administrative action (such as suspension) or instigate a civil action in an U.S. District Court. If evidence indicates a criminal action, the SEC turns the case over to the Justice Department.
More information is available from the U.S. Securities and Exchange Commission, 450 Fifth St. NW, Washington, D.C. 20549; (202) 942-7114; or www.sec.gov.
Bibliography
Hirt, Geoggrey A., and Block, Stanley, B. Fundamentals of Investment Management, 4th ed. Irwin Publishing.
Levy, Haim. (1996). Introduction to Investments. Southwestern College Publishing.
SEC. http://www.sec.gov/asec.
SEC Enforcement Division. http://www.sec.gov/enforce.
Securities and Exchange Commission (SEC). "Current SEC Rulemakers." Archived at: http://www.sec.gov/rulemake.
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