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SEC


The U. S. Securities and Exchange Commission (SEC) has a simple (yet complex) 3-part mission:

  1. Protect investors
  2. Maintain fair, orderly and efficient markets
  3. Facilitate capital formation

After that, it gets kind of complicated.

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Born In Congress

One must go back all the way to the stock market crash of 1929 to hunt down the inspiration for the SEC. When the market crashed, the public lost confidence in U.S. markets. Congress held hearings to seek solutions.

The search for solutions became the Securities Act of 1933, quickly followed a year later by the Securities Exchange Act of 1934. While the legislation was lengthy, the purpose was not. In brief, the SEC was created to ensure two things: That public companies must tell the truth about their business including the risks involved when people invest in those companies and those who sell and trade securities – brokers, dealers and the exchanges themselves, must treat investors fairly and honestly.

What The SEC Does

Knowing what the SEC stands for, understanding its lofty ideals is important. But what does it do? By providing transparency into how companies operate, the SEC makes sure investors get accurate information, especially regarding profitability.

This act alone makes it possible for investors to determine the fairest price for a company’s stock. Without the transparency, prices would fluctuate based on hidden information that was revealed. The SEC isn’t perfect, but when it uncovers deception, it prosecutes. This was the case with Enron, a company that lied on SEC filings.

Five Commissioners And Five Divisions

The SEC has five commissioners, appointed by the president of the United States. In addition, there more than 3,000 staff members in 18 offices all over the country. U.S. president. They are supported by 3,100 staff located in 18 offices across the country.

In addition, the organization is made up of five divisions. The Division of Corporation Finance reviews corporate filing requirements. The Division of Trading and Markets maintains the standards that regulate the stock markets. The Division of Investment Management regulates investment management companies, including mutual funds and variable annuities.

The Division of Enforcement investigates and prosecutes violations of securities laws and regulations. Finally, the Division of Economic and Risk Analysis provides economic and risk analyses to the other divisions.

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Putting It All Together

The SEC makes it safer for you to buy stocks, bonds, mutual funds and ETFs. It provides information that helps you decide how to invest. It does not, however, regulate hedge funds or derivatives. Dodd-Frank required the SEC to evaluate the financial literacy of the average investor. It found that most investors don’t understand the basics of how the markets or the economy work.

The most helpful tool the SEC offers for the individual investor is Investor.gov. This site provides basic education, including how to select a broker. It also includes financial planning tools that tell you how much you need to retire, how fees impact your investments and even how to manage finances for an incapacitated family member.



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