United States Securities and Exchange Commission
The
United States Securities and Exchange Commission (commonly known as the
SEC) is a
United States government agency having primary responsibility for enforcing the Federal securities laws and regulating the
securities industry. The SEC was created by section 4 of the
Securities Exchange Act of 1934 (now codified as ). In addition to the 1934 Act that created it, 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, the
Sarbanes-Oxley Act of 2002 and other statutes.
Appointed by
George W. Bush,
Christopher Cox is the current chairman of the SEC.
President
Franklin Delano Roosevelt appointed
Joseph P. Kennedy, Sr, father of future President John F. Kennedy, to serve as the first Chairman of the SEC. For a full list of SEC chairs and commissioners, see:
Securities and Exchange Commission appointees.
The SEC was established by the
Congress in 1934 as an independent, non-partisan, quasi-judicial regulatory
agency following
years of depression caused by the
Great Crash of 1929. The main charter of the SEC was to enforce newly enacted federal
securities laws in order to restore and uphold public confidence in the
capital markets.
["Securities and Exchange Commission". West's Encyclopedia of American Law. The Gale Group, Inc, 1998.] Currently, SEC is responsible for administering seven major laws that governs the securities industry. They are:
Securities Act of 1933,
Securities Exchange Act of 1934,
Public Utility Holding Company Act of 1935,
Trust Indenture Act of 1939,
Investment Company Act of 1940,
Investment Advisers Act of 1940 and, most recently,
Sarbanes-Oxley Act of 2002.
The enforcement authority given by Congress allows the SEC to bring civil enforcement against individuals or
companies found to have committed accounting
fraud, provided false information, engaged in
insider trading or violations of other provision of the
securities law. The SEC also works with
criminal law enforcement agencies to prosecute individuals and companies alike for severe offenses.
To achieve its mandate, the SEC requires that
public companies submit quarterly and
annual reports, as well as other periodic reports. As part of the annual reporting requirement, the company's top management must provide a
narrative account in addition to the numbers called the "management discussion and analysis" which provides an overview of the previous year of operations and how the company fared in that time period. Management will usually also touch on the upcoming year, outlining future goals and approaches to new projects. The SEC has an online database called "EDGAR," from which investors can access this information - this helps to attempt to obtain a level-playing field for all investors.
Quarterly and annual reports from public companies are crucial for investors to make sound decisions when investing in the capital markets. Unlike
banking,
investment in the capital markets is not
guaranteed by the federal government. The potential for big gains needs to be weighed against equally likely losses. Mandated disclosure of financial and other information gives private individuals as well as large institutions the same basic facts about public companies they invest in, increasing public scrutiny while reducing insider trading and fraud.
SEC makes reports available to the public via the
EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system
online. SEC also offers publications on investment-related topics for public education. The same online system also takes tips and complaints from investors to help SEC track down non-conforming companies.
Prior to the creation of the SEC, there existed so called
Blue Sky Laws which were enacted and enforced at state-level.
[Blue Sky Laws] These were found to be lacking during and after the Great Crash. After holding
hearings on abuses on interstate frauds, Congress passed the
Securities Act of 1933 () which regulates interstate sales of securities (
original issues) at federal level. The subsequent
Securities Exchange Act of 1934 () regulates sales of securities in the
secondary market. Section 4 of the 1934 Act created the U.S. Securities and Exchange Commission to enforce federal securities laws.
The Securities Act of 1933 is also known as the "Truth in Securities Act" or the "Federal Securities Act". Its goal is to increase public trust in the capital markets. The law requires that originating companies register securities with the SEC prior to interstate sales of these securities, so that investors have access to basic financial information about issuing companies and risks involved by investing on these securities. After 1996, most of these registered documents can be accessed via SEC's online system,
EDGAR.
[Securities Act of 1933] The Securities Exchange Act of 1934 is also known as "the Exchange Act" or "the 34 Act". This Act regulates secondary trading between individuals and companies which are often unrelated to the original issuers of securities. Entities under SEC's authority include securities exchanges with physical trading floors such as the
New York Stock Exchange (NYSE), other self-regulatory organizations such as the
National Association of Securities Dealers (NASD),
Municipal Securities Rulemaking Board (MSRB), online trading platforms such as
NASDAQ and ATS, and any other persons (e.g. brokers) engaged in transactions for the accounts of others.
[Securities Exchange Act of 1934]Headquartered in
Washington, D.C., the SEC consists of five Commissioners appointed by the
President of the United States with the advice and consent of the
Senate. Their terms last five years and are staggered so that one Commissioner's term ends on June 5 of each year. To ensure that the SEC remains
non-partisan, no more than three Commissioners may belong to the same political party. The President also designates one of the Commissioners as Chairman, the SEC's top executive.
Within the SEC, there are four Divisions, 18 Offices and approximately 3,100 staff. Beside its headquarters in Washington, D.C., the SEC has 11 regional and district Offices throughout the United States.
The SEC's four main divisions are: Corporation Finance, Market Regulation, Investment Management and Enforcement.
[Policing The Securities Market: An Overview Of The SEC." Investopedia. Investopedia Inc., 21 Oct, 2005]Corporation Finance is the division which oversees the disclosure made by public companies as well as the registration of transactions, such as mergers, made by companies. The same division is also responsible for operating EDGAR.
The Market Regulation division oversees
Self-Regulatory Organizations (SROs) such as
NYSE,
NASD and
MSRB, and all other
broker-dealer firms and
investment houses. Market Regulation also interprets proposed changes to regulations and monitor operations of the industry. In practice, the SEC delegates most of its enforcement and rulemaking authority to NYSE and NASD. In fact, all trading firms not regulated by other SROs must register as a member of NASD. Individuals trading securities must pass examines administered by NASD to become
registered representatives.
[ National Association of Securities Dealers] ["How does the NASD differ from the SEC?" Investopedia. Investopedia Inc.]The Investment Management Division oversees investment companies and their advisory professionals. This division administers federal securities laws. The SEC can interpret such laws and make rules to improve disclosure of information and to minimize risk to investors, without imposing undue burden on regulated companies.
The Enforcement division works with the other three divisions to investigate violations of laws and rules, and to bring actions against violators. The SEC conducts investigation in private first, via information interviews. It then issues formal order of investigation and can compel witness to testify and companies to produce records for the investigation. The SEC can bring a
civil action in a
U.S. District Court or an
administrative proceeding which is heard by an independent
administrative law judge (ALJ). For criminal charges, the SEC must work with
law enforcement offices to bring actions against violators.
In addition to working with various
SROs such as NYSE and NASD, the Securities and Exchange Commission also works with other
federal agencies, state securities regulator and law enforcement agencies.
[Regulatory Structure]Executive Order 12631 in 1988 established the
President's Working Group (Working Group) on
Financial markets. The Working Group is chaired by the
Secretary of the Treasury, and includes the Chairman of the SEC, the Chairman of the
Federal Reserve and the Chairman of the
Commodity Futures Trading Commission. The goal of the Working Group is to enhance integrity, efficiency, orderliness and competitiveness of the financial markets, and maintaining investor confidence.
[U.S. Treasury]The
Securities Act of 1933 was originally administered by the
Federal Trade Commission (FTC). The
Securities Exchange Act of 1934 transferred this responsibility from FTC to the SEC. The main mission of the FTC is to promote consumer protection and to eradicate
anticompetitive business practices. The FTC regulates general business practices, while the SEC focuses on the securities markets.
The
Municipal Securities Rulemaking Board (MSRB) was established in 1975 by Congress to develop rules companies involved in
underwriting and trading of
municipal securities. The MSRB is monitored by the SEC, but the MSRB does not have the authority to enforce its rules.
While most violations of securities laws are enforced by the SEC and various SROs it monitors, state securities regulators can also enact and enforce state-wide securities laws which are known colloquially as
Blue sky laws.
States may require securities to be registered in the state before they can be sold. The
National Securities Markets Improvement Act of 1996 (NSMIA) addresses this dual system of federal-state regulation by amending Section 18 of the 1933 Act to exempt nationally traded securities from state registration. The NSMIA, however, preserve state's anti-fraud authorities over all securities traded in the state.
[NSMIA]The SEC also works with federal and state law enforcement agencies to carry out actions against companies found in violation of securities laws.
* 1964 -
Securities Act Amendments PL 88-467
* 1968 -
Securities Disclosure Act PL 90-439
* 1975 -
Securities and Exchange Act PL 94-29
* 1980 -
Depository Institutions and Deregulation Money Control Act PL 96-221
* 1982 -
Garn-St. Germain Depository Institutions Act PL 97-320
* 1984 -
Insider Trading Sanctions Act PL 98-376
* 1988 -
Insider Trading and Securities Fraud Enforcement Act PL 100-704
* 1989 -
Financial Institutions Reform, Recovery, and Enforcement PL 101-73
* 1999 -
Gramm-Leach-Bliley Act PL 106-102
* 2000 -
Commodity Futures Modernization Act of 2000* 2002 -
Sarbanes-Oxley ActComment letters
Comment letters are letters by the SEC to a public company, raising issues and requested comments. For example, in October 2001, the SEC wrote to
Computer Associates, covering fifteen items, mostly about CA's accounting, including five about revenue recognition. The
chief financial officer of CA, to whom the letter was addressed, pleaded guilty to fraud at CA in 2004.
In June 2004, the SEC announced that it would publicly post all comment letters, to give investors access to information in them. In mid-2005, Allan Beller, former head of the SEC's division of corporation finance, said that the SEC believed that "it is appropriate to expand the transparency of our comment process by making this information available to an unlimited audience."
An analysis in May 2006 of regulatory filings in the past 12 months indicates, however, that the SEC has not accomplished what it said it would do. The analysis found 212 companies who had reported receiving comment letters from the SEC, but only 21 letters (for these companies) posted on the SEC's website. John W. White, the current head of the corporation finance division, told the
New York Times: "We have now resolved the hurdles of posting the information ... We expect a significant number of new postings in the coming months."
[Gretchen Morgenson: "Deafened by the S.E.C.'s Silence, He Sued", New York Times, May 28, 2006, section 3, p. 1 ]No-action letters
No-action letters are letters by the SEC indicating that no legal action will be taken against an individual engaging in a particular action. They are sent in response to requests made when the legal status of the activity is not clear. These letters are publicly released and increase the body of knowledge on what exactly is and is not allowed.
See
SEC Forms List by category*
SEC Form 4 (stock and stock options ownership and exercise disclosure)
*
SEC Form S-1 (IPO)
*
Form 8-K*
SEC Form 10-KPresident
Franklin D. Roosevelt appointed
Joseph P. Kennedy, Sr., father of future President
John F. Kennedy, to serve as the first Chairman of the SEC. For a list of other appointees, see:
Securities and Exchange Commission appointees.
*
Financial regulation*
Regulation D*
Take a Look at the Securities and Exchange Commission*
U.S. Securities and Exchange Commission website*
What the SEC does*
SEC Historical Society - Archive and Museum -- nonprofit and independent from the SEC*
Association of Securities and Exchange Commission Alumni, Inc.*
Introduction to the Federal Securities Laws*
TheCorporateCounsel.net (USA)Home of popular securities law blog and related resources
*
Understanding the Securities Exchange Commission--About.com
