Definition of securities and exchange commission (SEC)
- It is an independent federal government agency that acts as a regulatory agency.
- It was created in the year 1934 to restore investor confidence post the Great Depression in 1929.
- It is responsible for protecting investors in the securities market as well as facilitating capital formation.
Organisation of SEC
- It is headed by 5 commissioners, one of whom is named as the chair of the commission.
- The term of the commissioners is 5 years.
- No more than 3 out of the 5 commissioners can be from the same political party.
- It is made of 5 divisions namely –
- Division of Corporate Finance
- Division of Enforcement
- Division of Investment Management
- Division of Economic and Risk Analysis
- Division of Trading and Markets
Main functions of SEC
- It ensures that there is full public disclosure, fair dealing, protection against fraudulent and manipulative market practices.
- It is responsible for providing approvals for book runners of underwriting firms.
- Financial services firms such as broker dealers, advisory firms and asset managers, must register with the SEC to conduct business.
- With the help of its electronic database, SEC provides investors access to registration statements, periodic financial reports, and other securities forms.
Quasi-Judicial Functions of SEC
- Usual offenses that the SEC is known to prosecute involve accounting fraud, the dissemination of misleading or false information, and insider trading.
- SEC has the power to bring civil actions against defaulters. It can pursue actions such as injunctions and disgorgement of illegal profits.
- The SEC also serves as the first level of appeal against decisions of the Financial Industry Regulatory Authority (FINRA) or the New York Stock Exchange.
