Overview

The United States Securities and Exchange Commission (SEC) is a quasi independent agency of the United States federal government, created in the aftermath of the Wall Street crash of 1929. Its primary purpose is to enforce laws against market manipulation.

Created by Section 4 of the Securities Exchange Act of 1934 (now codified as 15 U.S.C. § 78d and commonly referred to as the Exchange Act or the 1934 Act), the SEC enforces the Securities Act of 1933, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, and the Sarbanes–Oxley Act of 2002, among other statutes.

Overview

The SEC has a three-part mission: to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.

Quarterly and semiannual reports from public companies are crucial for investors to make sound decisions when investing in capital markets. Unlike banking, investment in capital markets is not guaranteed by the federal government. The potential for large gains needs to be weighed against that of sizable losses.

Mandatory disclosure of financial and other information about the issuer and the security itself gives private individuals as well as large institutions the same fundamental facts about the public companies they invest in, thereby increasing public scrutiny while reducing insider trading and fraud.

In an attempt to level the playing field for all investors, the SEC maintains an online database called EDGAR (the Electronic Data Gathering, Analysis, and Retrieval system) from which investors can access information filed with the agency, such as reports. The same online system also accepts tips and complaints from investors to help the SEC track down violators of the securities laws, as well as offering publications on investment-related topics for public education. The SEC maintains a strict policy of refraining from commenting on the existence or status of any ongoing investigation.

Background

Prior to the enactment of the federal securities laws and the creation of the SEC, securities trading was governed by so-called blue sky laws. These laws were enacted and enforced at the state level and regulated the offering and sale of securities to protect the public from fraud. Though the specific provisions of these laws varied among states, they all required the registration of all securities offerings and sales, as well as of every U.S. stockbroker and brokerage firm. However, blue sky laws were generally considered ineffective.

For example, as early as 1915, the Investment Bankers Association told its members that they could circumvent blue sky laws by making securities offerings across state lines through the mail.

Founding

The SEC's authority was established by the Securities Act of 1933 and Securities Exchange Act of 1934; both laws are considered parts of Franklin D. Roosevelt's New Deal program.

After the Pecora Commission hearings on abuses and frauds in securities markets, Congress passed the Securities Act of 1933 (15 U.S.C. § 77a), which federally regulates original issues of securities across state lines, primarily by requiring that issuing companies register distributions prior to sale so that investors may access basic financial information and make informed decisions. For the first year of the law's enactment, the enforcement of the statute rested with the Federal Trade Commission.

The subsequent Securities Exchange Act of 1934 (15 U.S.C. § 78d) regulates secondary markets for securities. The 1934 Act regulates secondary trading between individuals and companies which are often unrelated to the original issuers of securities. Entities under the SEC's authority include securities exchanges with physical trading floors such as the New York Stock Exchange, self-regulatory organizations, the Municipal Securities Rulemaking Board, NASDAQ, alternative trading systems, and any other persons engaged in transactions for the accounts of others.

Section 4 of the 1934 Act transferred the FTC's enforcement authority under the 1933 Act to the newly created Securities and Exchange Commission and tasked the new commission with enforcing both acts.

21st century

In 2019, the Securities and Exchange Commission Historical Society introduced an online gallery to illustrate changes in the US securities market structure since the 1930s. The online gallery features a narrative history supported by dozens of documents, papers, interviews, photos and videos.