Securities and Exchange Commission

Introduction

The Securities and Exchange Commission (SEC) is a large independent agency of the United States federal government that was created following the stock market crash in the late 1920s. The SEC's primary function is to enforce the law against market manipulation.

History

The SEC was established by the United States Congress in 1934 as an independent, quasi-judicial regulatory agency following years of depression caused by the 1929 Stock Market Crash. The main reason for the creation of the SEC was to regulate the stock market and prevent corporate abuses relating to the offering and sale of securities and corporate reporting.

Purpose and Functions

The SEC has a three-part mission: to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. To achieve its mandate, the SEC enforces the statutory requirement that public companies and other regulated companies submit quarterly and annual reports, as well as other periodic reports. In addition to annual financial reports, company executives must also provide a narrative account, called the “management discussion and analysis” (MD&A), that outlines the previous year of operations and explains how the company fared in that time period.

Structure

The SEC is headed by five Commissioners appointed by the President of the United States, with the advice and consent of the United States Senate. Their terms last five years and are staggered so that one Commissioner's term ends on June 5 of each year. The President also designates one of the Commissioners as Chairman, the SEC's top executive. However, in a departure from the usual practice, the President does not designate the serving Commissioner of the opposing party as the Chairman.

Regulatory Actions

The SEC oversees securities exchanges, securities brokers and dealers, investment advisors, and mutual funds. In this aspect, the SEC is interested in ensuring the disclosure of important market-related information, maintaining fair dealing, and protecting against fraud. Crucial to the SEC's effectiveness in each of these areas is its enforcement authority. Each year the SEC brings hundreds of civil enforcement actions against individuals and companies for violation of the securities laws. Typical infractions include insider trading, accounting fraud, and providing false or misleading information about securities and the companies that issue them.

Criticisms and Controversies

Like many other organizations, the SEC has also faced various criticisms and controversies. It has been accused of being too lenient with some firms, while being too harsh with others. The SEC has also been criticized for its lack of transparency and accountability.