What Is the Securities and Exchange Commission (SEC)? How Does It Protect Investors?

The SEC regulates the exchange of financial instruments and enforces federal securities laws.

ablokhin via iStockphoto; Canva

What Is the SEC? What Does It Do?

The goal of the Securities and Exchange Commission, popularly known as the SEC, is to make a positive impact on the U.S. economy by promoting a trustworthy financial market environment through the regulation and enforcement of federal securities laws.

It does this in three ways:

It protects investors from investment fraud by investigating corporate misconduct.It ensures that securities markets operate fairly and efficiently.It publishes corporate information, including annual financial statements and quarterly reports, to help the public make sound investment choices.

How Is the SEC Structured? Who Is Its Chair?

The SEC is headquartered in Washington, DC and has regional offices in 11 cities:

AtlantaBostonChicagoDenverFort WorthLos AngelesMiamiNew YorkPhiladelphiaSalt Lake CitySan Francisco

The SEC is composed of five commissioners who are appointed by the U.S. President. From the five commissioners, the President also appoints a chair. The current chair of the SEC is Gerry Gensler. His term expires in June 2026.

In order to avoid political-based actions, no more than three commissioners may be affiliated with the same political party. Each commissioner serves a five-year term.

Is the SEC a Government Agency?

The SEC is an independent agency that is not federally funded, although it is considered part of the U.S. government. It receives its funding from transaction fees that the U.S. Treasury requires stock exchanges and broker-dealers to pay.

Why Is the SEC Important? How Does It Help the Public?

To put it simply, the work the SEC does helps investors maintain confidence in the stock markets. Due to its regulations and mandates, the SEC requires corporations to provide transparency to investors, who in turn can assess whether or not these corporations’ securities are the right investments for them.

The SEC also provides oversight of stock exchanges, broker-dealers, investment advisors, and mutual funds. It is this consistent and shared flow of knowledge that allows investors to trust the financial markets.

How Is the SEC Connected with the Stock Market? 

The SEC oversees nearly $82 trillion in securities that trade on U.S. financial markets every year. In addition, it regulates exchanges such as the New York Stock Exchange, the Nasdaq, and alternative trading systems.

It also monitors the activities of over 25,000 licensed investment firms, mutual funds and broker-dealers, which employ nearly 1 million financial professionals. Finally, the SEC provides critical financial information to the public through its EDGAR database so that diligent investors can make the best possible decisions.

How Does the SEC Protect investors?

The SEC states its number-one mission is to “protect investors.” The SEC takes civil enforcement actions against individuals and corporations who engage in unlawful practices like insider trading, accounting fraud, or providing false statements about securities. It typically penalizes an average of 500 corporations and individuals every year.

When Was the SEC Established? Why Was the SEC Created?

Interestingly, the 1929 crash and subsequent Great Depression led to the formation of the SEC because, after the devastating stock market crash, investors lost faith in the financial markets.

Before the SEC was established, securities trading was regulated by a set of state-specific laws known as blue sky laws, but they were widely ineffective—for instance, traders could escape state jurisdictions simply by mailing securities offerings elsewhere.

The U.S. Congress held hearings to address the issue and passed the Securities Act of 1933, which required every sale of securities to be publicly registered. The next year, it passed the Securities Exchange Act of 1934, which established procedures for regulating financial markets and created what is today known as the SEC. President Franklin Delano Roosevelt named Joseph Kennedy to serve as the first SEC chair.

Is the SEC Still Around Today?

Established after the stock market crash of 1929 to restore public confidence in financial markets, the SEC has been operating for over 85 years. Today, it continues to carry out its original mission to protect investors through the regulation and enforcement of securities laws.

How Do You Register with the SEC?

All businesses that work with the Federal government must register with the SEC. In order to register, they should visit www.sec.gov and create an account in the SAM system, which stands for System for Award Management.

Investment advisors must also register with the SEC if they meet one of the following criteria:

They have more than $100 million in assets under management.They are online-only advisors.They operate in more than 15 states.Their firm is headquartered in New York City with more than $25 million in assets under management.They provide advice to an investment company, according to guidelines set forth in the Investment Company Act of 1940.

In order to become an SEC-licensed Registered Investment Adviser, or RIA, an investment professional must first become licensed in their state of residence. The next step is to take a FINRA-administered qualifying exam, and then establish an account through its Investment Adviser Registration Depository. Applications take about a month to prepare, and the SEC typically delivers its results within 45 days of receipt of the application.

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