U. S. Securities and Exchange Commission

The SEC regulates the stock market. Photo: Getty Images

Definition: The U.S. Securities and Exchange Commission is a federal government agency that oversees and regulates the U.S. securities markets.  It was created in 1934 to restore the public’s confidence in the stock market after the Great Depression of 1929. The first Chairman was Joseph Kennedy, President John F. Kennedy's father.

Today, the SEC consists of five commissioners who are appointed by the U.S. president.

They are supported by 3,100 staff located in 18 offices across the country.

There are four divisions, including:

  1. Division of Corporate Finance, which reviews corporate filing requirements.
  2. Division of Market Regulation, which maintains the standards that regulate the stock markets.
  3. Division of Investment Management, which regulates investment management companies, including mutual funds.
  4. Division of Enforcement, which investigates and prosecutes violations of securities laws and regulations.

What the SEC Does

Most importantly, the SEC maintains confidence in the U.S. stock market, which is critical to the strong functioning of the U.S. economy. It does this by providing transparency into the workings of U.S. companies, so investors can get accurate information about the profitability of the companies in which they would like to invest.

In this way, investors can determine a fair price for the stock of the company.

Without this transparency, the stock market would be vulnerable to sudden shifts as hidden information came out. This lack of transparency was the reason for Enron’s failure, although in this case they simply lied on the SEC submissions.

The SEC also assures investor confidence in the markets by prosecuting offenders like Enron, as well as insider trading, deliberate manipulation of the markets and selling stocks and bonds without proper registration.

How the SEC Affects the U.S. Economy

The SEC increases transparency and trust in the U.S. stock market, which makes it the most sophisticated and popular stock exchange in the world. This attracts much business to U.S. financial institutions, including banks, investment banks, and legal firms.

It also makes it easier for companies to “go public,” when they have grown large enough to need to sell stock to finance their next phase of development. The ease of going public helps U.S. companies grow larger and faster than those of other countries with less developed markets.

How the SEC Affects You

The SEC affects you by making it safer for you to buy stocks, bonds and mutual funds. In addition, by helping the U.S. economy, the SEC contributes to the high standard of living we enjoy today. Not to sound like a commercial, but thanks to the SEC, there is little chance that we will again experience a Great Depression.