""To achieve the noble objective of competitiveness, the SEC has proposed dismantling the regulatory structure built up since the Depression to protect investors." - Investing For Good, Peter Kinder, et al., 1993, p. 234
What is the Securities and Exchange Commission?
Q. What is the SEC?
A. The SEC is an independent, nonpartisan, quasijudicial regulatory agency with responsibility for administering the federal securities laws. The purpose of these laws is to protect investors in securities markets that operate fairly and to ensure that investors have access to disclosure of all material information concerning publicly traded securities. The Commission also regulates firms engaged in the purchase or sale of securities, people who provide investment advice, and investment companies. The Commission enforces the following laws:
[NOTE: Texts of Securities Acts are available from U. of Cincinnati College of Law]
Securities Act of 1933
Often referred to as the "truth in securities" law, the Securities Act of 1933 requires that investors receive financial and other significant information concerning securities being offered for public sale. This act also prohibits deceit, misrepresentations and other fraud in the sale of securities.
Securities Exchange Act of 1934
This Act requires that investors have access to current financial and other information regarding securities, particularly those that trade publicly on exchanges or over-the-counter. This Act also prohibits companies, securities brokerage firms and others from engaging in fraudulent and unfair behavior, for example sales practice abuses and insider trading. Rules concerning the operation of the markets and participants, including proxy solicitations by companies and shareholders, tender offers and buying securities on credit (margin), are also part of this Act.
Investment Company Act of 1940
Activities of companies, including mutual funds, engaged primarily in investing, reinvesting, and trading in securities, and whose own securities are offered to the investing public, are subject to certain statutory prohibitions and to Commission regulation under this act. Also, public offerings of investment company securities must be registered under the Securities Act of 1933.
Investment Adviser Act of 1940
This law establishes a pattern of regulating investment advisers. In some respects, it has provisions similar to the Securities Exchange Act that governs the conduct of securities brokers and dealers. With certain exceptions, this act requires that persons or firms compensated for advising others about securities investment must register with the Commission and conform to statutory standards designed to protect investors.
Public Utility Holding Company Act of 1935
Interstate holding companies engaged, through subsidiaries, in the electric utility business or in the retail distribution of natural or manufactured gas are subject to regulation under this act. These companies, unless specifically exempted, are required to submit reports providing detailed information concerning the organization, financial structure, and operations of the holding company and its subsidiaries. Holding companies are subject to SEC regulations on matters such as structure of the system, acquisitions, combinations, and issue and sales of securities.
Trust Indenture Act of 1939
This act applies to debt securities, including bonds, debentures and notes, offered for public sale. Even though such securities may be registered under the Securities Act, they may not be offered for sale to the public unless a formal agreement between the issuer of bonds and the bondholder, known as the trust indenture, conforms to the statutory standards of this act.
Q. Who runs the SEC?
A. Five Commissioners sit on the SEC, with one designated as Chairman by the President of the United States. All Commission members are appointed by the President, with the advice and consent of the Senate, for fixed five-year terms. Terms are staggered; one expires on June 5th of every year. Not more than three members may be of the same political party.
The Commission employs lawyers, accountants, financial analysts and examiners, investigators, economists and other professionals. The Commission is headquartered in Washington, D.C. and operates regional or district offices in eleven cities. The principal divisions of the Commission are:
Division of Corporation Finance
Corporation Finance has the overall responsibility of ensuring that disclosure requirements are met by publicly held companies registered with the Commission. Its work includes reviewing registration statements for publicly traded corporate securities, as well as documents concerning tender offers, proxy solicitations, mergers, and acquisitions.
Division of Market Regulation
Market Regulation is responsible for overseeing the securities markets, for registering and regulating brokerage firms, for overseeing the securities self-regulatory organizations (such as the nation's stock exchanges), and for overseeing other market participants, such as transfer agents and clearing organizations. The Division of Market Regulation also sets financial responsibility standards, and regulates trading and sales practices, policies affecting operation of the securities markets and surveillance.
Division of Investment Management
Investment Management has responsibility for administering three statutes: the Investment Company Act of 1940; the Investment Advisers Act of 1940; and the Public Utility Holding Company Act of 1935. The division staff ensures compliance with regulations regarding the registration, financial responsibility, sales practices, and advertising of investment companies and of investment advisers. New products offered by these entities also are reviewed by staff in this division. The division reviews and processes investment company registration statements, proxy statements, and periodic reports under the Securities Act.
Division of Enforcement
This division is charged with enforcing federal securities laws. Enforcement responsibilities include investigating possible violations of the federal securities laws and recommending appropriate remedies for consideration by the Commission.
Office of Compliance Inspections and Examinations
This office is responsible for conducting and coordinating all compliance inspection programs of brokers, dealers, self-regulatory organizations, investment companies and advisers, clearing agencies, and transfer agents. The Office determines whether these entities are in compliance with the federal securities laws, with the goal of protecting investors.
[NOTE: Some banking institutions do not file reports with the Securities Exchange Commission's EDGAR database. They file with the FDIC.]
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