Bill has taught college undergraduate and MBA classes in finance, economics & management, 40 years of finance experience and has a MBA degree.
The Securities and Exchange Commission, created by the Securities Exchange Act of 1934, came out of the wild speculation and fraud that occurred in the late 1920s. This was a leading cause of the stock market crash of 1929 and the subsequent failure of many banks, pushing the country into the Great Depression.
The SEC has been given broad jurisdiction to regulate all public securities markets and the financial reporting of public companies. Their authority covers anyone working for investment firms and public companies as well as the accountants providing services to these companies. They amend rules as necessary and enforce the security laws and regulations.
The SEC's primary purposes are:
The SEC has sole authority to regulate and oversee all investment banks under the Banking Act of 1933 commonly called the Glass-Steagall Act. This jurisdiction and oversight covers licensing, compensation, filing, accounting, advertising, product offerings, and fiduciary responsibilities.
In this example, the SEC's concern is making sure that investment banks/firms are being properly managed so they are not in danger of going bankrupt or leaving the investor's portfolios at risk. There are standards that the firms and the individual brokers and employees of the firm have to meet and the SEC ensures that those standards are met.
One of the principal areas of jurisdiction for the SEC is to enforce securities laws concerning trading and financial dealings to make the security markets fair for all investors. They ensure that anyone that has inside information of a public company does not take advantage of that information.
As you can see from this example, the SEC is able to track all market trades and transactions and look for unusual trading activity, especially when a major company announcement or event occurs. They also look at the activity where large profits are being made. The enforcement division then investigates the people involved in those trades to determine whether they had insider information or were colluding with someone inside the company. Just the threat of legal action is often enough to keep the investment community honest.
The SEC requires companies to follow a specific process when they want to raise more capital by selling new stock or issuing bonds. Companies have to file a registration statement with the SEC including current financials. The SEC reviews the company's history and financial reports before approval. Then, the SEC has to approve the prospectus the company prepares to give to investors.
The SEC's jurisdiction is to ensure that investors are protected. They ensure that companies doing new issues of stocks or bonds are providing full and accurate financial and company information including a discussion of the risks to people investing in the issue.
One of the basic functions of the SEC is to regulate and collect financial reports from all public companies. Public companies are required to file financial statements in a 10Q every quarter and, at the end of the fiscal year, a 10K containing the audited financial statements as well as a management discussion of the company's markets, operations, products, issues, and challenges.
Most public companies now file their financial reports with the SEC electronically through an online system called Edgar. The electronic filing is easier for companies to prepare and is accessible to the investing public. Also, it is easier for the SEC to review and store these filings.
The Securities and Exchange Commission has significant authority and jurisdiction over public securities markets and the public companies that issue stock, bonds and financial instruments in those markets. Their authority covers every facet of those markets including the transactions of individuals working for security firms.
The SEC regulates all firms that do transactions in the securities markets. They enforce the securities laws of the U.S. to prevent corruption and illegal actions. They monitor the financial reports of all public companies to ensure that they are accurately following accounting rules and that they are not misleading the investing public. Raising capital is a major activity of public companies and the SEC ensures that the public is protected during this process.
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