The U.S. Securities and Exchange Commission (SEC) is a federal agency that provides protection for investors and regulates the bulk of the securities industry -- including U.S. stock exchanges, options markets, and other electronic exchanges and securities markets.
It was created by The Securities Exchange Act of 1934 -- a law governing the secondary trading of securities in the U.S. The commission's division of enforcement investigates possible violations of federal securities-related laws and can take civil action with other law enforcement agencies when it comes to criminal cases.
Continue Reading Below
The stock market crash of 1929 The market crash of 1929 and subsequent Great Depression took a toll on the public's trust in capital markets. Investors looking to go from rags to riches turned to the stock market during the roaring 20s. According to the SEC, an estimated $50 billion in new securities were offered, and half became worthless.
The Securities Exchange Act of 1934Thus, Congress passed The Securities Act of 1933 and The Securities Exchange Act of 1934 (which created the SEC) in an effort to restore confidence in the markets. Publicly-traded companies were now obligated to disclose investment risks and provide full information about the state of their business.
Brokers, dealers and exchanges were now legally required to put the interests of the investors first and treat them in a fair and honest manner. Congress established the SEC to enforce these laws for the sake of the investors and the future of market stability.
Appointments To this day, the president appoints five commissioners who each serve five-year staggered terms. The chairman of the commission functions as the SEC's chief executive and is chosen by the president. Joseph P. Kennedy, President John F. Kennedy's father, was the first SEC chairman. No more than three of the five commissioners can belong to the same political party, and their responsibilities include issuing new rules, amending old ones and coordinating U.S. securities with federal, state and foreign authorities.
The Securities Acts Amendments of 1975 The Securities Acts Amendments of 1975 created the Municipal Securities Rulemaking Board (MSRB), an organization that writes rules governing broker dealers engaged in municipal securities transactions. MSRB rules are approved by the Securities and Exchange Commission (SEC).
This event is often overlooked in the history of the SEC, and has continuing relevance, according to John H. Walsh, partner in Sutherland's Financial Services Group and a member of its securities enforcement and litigation team.
"Much of what the SEC does in the area of market structure and oversight of FINRA, the New York Stock Exchange, the options markets, and other SROs, has been determined by the 1975 amendments," says Walsh, a 23-year veteran of the Securities and Exchange Commission.
Sarbanes-Oxley Act of 2002 This law set new standards for all U.S. public company boards, management and public accounting firms, and requires the Securities and Exchange Commission to implement rulings on requirements to comply with the law. Harvey Pitt, the 26th chairman of the SEC, led the SEC to implement dozens of rules to comply with the Sarbanes-Oxley Act.
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 This financial regulatory reform legislation was passed as a response to the late-2000s recession, and among the new reforms is one that permits the SEC to rule on "proxy access." This means that qualifying shareholders can modify the corporate proxy statement sent to shareholders to include their own director nominees, with the rules set by the SEC.