September 22, 2018

SEC – An Overview Of The Securities And Exchange Commission

SEC – An Overview Of The Securities And Exchange Commission

The United States Securities and Exchange Commission or SEC was established by congress in 1934 to enforce the new securities laws passed in 1933; promote stability in the stock markets and exchanges and to protect the investors from unscrupulous trading practices.


The SEC was created in part due to the reasons behind the “Black Friday” that day in 1929 when the stock market crashed and took America into the “Great Depression.” Although long before the crash there were proposals before congress to enact laws that would force companies to full financial disclosure in an effort to prevent the sales of any fraudulent stocks, there was little support to allow any federal regulation within the securities markets. This was especially true during the prosperous days just after World War I.

Just after World War I, Americans went through a very prosperous stage. At this time 20 million people decided to try their luck at investing in the stock market. Tempted with easy credit and stories of “rags to riches” many investors did not consider the risks from unreliable information about the stocks they were considering investing in and the widespread abuses in margin financing. It is estimated that at least one-half of the $50 billion new securities offered for trade at that time became worthless.

After October of 1929 when the great stock market crash occurred, congress set up hearings to try and discover exactly what had happened and to find a way to restore the public’s faith in the stock market.

To that end there were several laws enacted under the titles Securities Act and Securities Exchange Act, which was responsible for the creation of the Security Exchange Commission. The laws and the SEC were designed to restore the faith of the investors in the system and boiled down to basic common sense read:

Any companies that are publicly offering securities for investment monies must disclose the full truth about the business, the securities to be traded and risk associated with investing in those securities.

Any person who sells or trades securities including dealers, brokers, and the exchanges must practice fair and honest trading by putting investors first.

In 1934, President Franklin Delano Roosevelt appointed Joseph P. Kennedy as the first Chairman of the Security Exchange Commission to enforce the new laws.

Today the SEC consists of 5 Commissioners who are appointed by the President and serve staggered 5 year terms. To ensure a standard of non partisanship, no more than three of these presidentially appointed officers may be members of the same political party. The agency is divided into five Divisions and 16 Offices to handle the many functional responsibilities of the SEC.

The current responsibilities of the SEC include:

The interpretation of federal securities laws

To oversee the inspections of brokers, investment advisers, securities firms, and ratings agencies

To oversee the private regulatory sectors in the securities auditing and accounting fields

To coordinate the United States securities regulations with the state, foreign and federal authorities.

The world of investing can be fascinating, complex and rewarding. But there are no guarantees.

The SEC is in place to ensure that all investors whether private or corporate should have access to some basic information about any investment prior to making that investment to ensure the accurate knowledge needed to make an informed choice.

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  1. marcus says:

    nice post. thanks.

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