US Securities Regulation and the SEC Mission

Introduction to Securities and Markets

• Securities: Financial instruments such as stocks, bonds, and mutual fund shares.
• Securities Markets: Platforms such as stock exchanges.
• Market Participants: Entities such as brokers, transfer agents, and investment advisers.
• Non-securities Financial Regulation: For example, banking regulation—that’s a different course.

The primary U.S. regulator of the securities markets is the federal Securities and Exchange Commission (SEC).

The Securities and Exchange Commission (SEC)

History and Leadership

• Created by the Securities Exchange Act of 1934.
• First SEC Chairman: Joseph P. Kennedy (President John F. Kennedy’s father), appointed by President Franklin D. Roosevelt.

Regulatory Powers

The SEC has the power to enforce federal securities law through the following authorities:

Executive Power

• Can issue cease-and-desist orders.
• Impose fines.
• Order disgorgement of profits in administrative proceedings.

Legislative Powers

• Promulgates rules and regulations (which have the force of law).
• Uses interpretive and no-action letters to express its views.

Judicial Powers

• Acts as an original tribunal for disciplinary charges.
• Acts as an appellate tribunal to review disciplinary actions by FINRA, exchanges, and other Self-Regulatory Organizations (SROs).

Mission and Structure

The SEC Mission: "The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."

• Commissioners: The SEC has five commissioners (one serves as chair) appointed by the President and confirmed by the Senate. No more than three may be from the same political party.
• Oversight: The SEC is in charge of overseeing the key participants in the securities universe, such as securities exchanges, securities brokers and dealers, investment advisors, and mutual funds.
• Organization: Headquartered in Washington, D.C., the agency has 11 field offices and approximately 3,000 employees—making it seven times smaller than federal banking regulatory agencies.

Core Federal Securities Laws

Securities Act of 1933

Often referred to as the "truth in securities" law, this act:

• Governs primary offerings: The offer of securities by an issuer to the public in exchange for capital.
• Requires investors to receive significant disclosures about securities offered to the public.
• Prohibits deceit, misrepresentation, and fraud in the sale of securities.
• Requires the registration of securities.