Continuing Commissions in Connection With the Sale of Investment Company Securities
Securities and Exchange Commission (SEC)
The US federal agency responsible for responsible for implementing federal securities laws and proposing securities rules
What is the Securities and Exchange Commission (SEC)?
The US Securities and Exchange Commission, or SEC, is an independent agency of the US federal government that is responsible for implementing federal securities laws and proposing securities rules. It is also in charge of maintaining the securities industry and stock and options exchanges, as well as regulating electronic securities markets and other activities in the country.
With headquarters in Washington, D.C. and operating in 11 regional offices throughout the US, the SEC aims to provide protection to investors and ensure that markets are fair, efficient, and in order. It also strives to create a market environment that people can trust.
History of the Securities and Exchange Commission
Before the creation of the US Securities and Exchange Commission, there were blue sky laws that were enforced at the state level. They were in charge of regulating the sale of securities to protect the investing public against fraud. However, said laws were found to be ineffective.
Congress then passed the Securities Act of 1933 to regulate interstate sale of securities at the federal level, while the Securities Exchange Act of 1934 regulates the sale of securities in the secondary market. The SEC was created by Section 4 of the Securities Exchange Act of 1934, also called the Exchange Act or the 1934 Act, to enforce federal securities laws.
Organizational Setup of the SEC
The Securities and Exchange Commission comprises five Commissioners who are appointed by the US President. One of them is designated as the Chairman of the Commission. The law dictates that no more than three Commissioners may come from the same political party, to ensure non-partisanship.
Here are the five divisions within the SEC:
1. Division of Corporation Finance
This division is responsible for helping the Securities and Exchange Commission in performing its role of overseeing the corporate disclosure of important information to investors. When stock is sold, a corporation is required to adhere to regulations related to disclosure. The Division of Corporation Finance is tasked to review on a regular basis disclosure documents that are filed by corporations. It also helps interpret the rules of the SEC. It likewise gives recommendations related to new adoption rules to the SEC.
2. Division of Trading and Markets
This division assists the SEC in ensuring that markets are fair, orderly, and efficient. It oversees the day-to-day activities of major securities market participants, securities firms, securities exchanges, self-regulatory organizations, clearing agencies, transfer agents, credit rating agencies, as well as securities information processors.
3. Division of Investment Management
The division of Investment Management helps the Securities and Exchange Commission in executing its role of protecting investors and promoting capital formation. It oversees and regulates the country's investment management industry. It ensures that disclosures about investments such as mutual funds and exchange-traded funds are useful to retail customers. The division also ensures that the regulatory costs are not too high.
4. Division of Enforcement
The division of Enforcement is responsible for the enforcement of securities laws. It gives recommendations on the commencement of investigations of securities law violations. It is also in charge of working closely with law enforcement agencies to take on criminal cases.
5. Division of Economic and Risk Analysis
This division is in charge of protecting investors and keeping markets fair, orderly, and efficient. It also provides economic analyses and data analytics, and interacts with almost all divisions and offices within the Commission.
Related Readings
Thank you for reading CFI's explanation of the Securities and Exchange Commission. CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:
- 2010 Flash Crash
- Ethical vs. Legal Standards
- Fraud Red Flags
- Types of SEC Filings
Source: https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/securities-and-exchange-commission-sec/
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