Definition
The Securities and Exchange Commission (SEC) is an independent agency of the United States federal government. Tasked with enforcing federal securities laws and regulating the securities industry, the SEC also oversees the nation’s stock and options exchanges, as well as other electronic securities markets. The primary mission of the SEC is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.
Examples
- Initial Public Offerings (IPOs): When a company decides to go public, the SEC sets the procedures for IPOs and ensures all financial data is made available to the public. For example, when technology giant Facebook went public in 2012, it had to file numerous documents with the SEC delineating its financial status and future plans.
- Insider Trading Cases: The SEC investigates and takes corrective actions against illegal insider trading. For instance, in 2011, the SEC charged Rajat Gupta, a former director at Goldman Sachs, with insider trading.
- Corporate Filings: Companies are required to file regular reports with the SEC, like the quarterly 10-Q and annual 10-K reports. Companies such as Apple, Google, and Amazon regularly file these reports to provide transparency to their investors.
Frequently Asked Questions
What is the main function of the SEC?
The primary function of the SEC is to enforce the law against market manipulation. It aims to protect investors, maintain fair and orderly functioning of the securities markets, and facilitate capital formation.
Who does the SEC regulate?
The SEC regulates the securities exchanges, securities brokers and dealers, investment advisors, and mutual funds in an effort to promote fair dealing, the disclosure of important market information, and protect against fraud.
How does the SEC enforce the laws?
The SEC uses various means to enforce laws including conducting investigations, bringing civil enforcement actions, and referring criminal cases to the Department of Justice.
What are the major divisions of the SEC?
The SEC has five major divisions: Division of Corporation Finance, Division of Trading and Markets, Division of Investment Management, Division of Enforcement, and Division of Economic and Risk Analysis.
How can investors protect themselves from fraud?
Investors can protect themselves by thoroughly researching investments, reading SEC filings, and using resources provided by the SEC such as Investor.gov.
What is an SEC filing?
An SEC filing is a document submitted to the U.S. Securities and Exchange Commission containing financial data or other business information. Examples include Form 10-K, 10-Q, and 8-K.
How is the SEC funded?
The SEC is primarily funded through Congress and, since 2011, by the supplementary fee funding system known as self-funding, where a portion of the fees collected from the activities it oversees, like registration fees and fines, contributes to its funding.
Do I need SEC approval to start investing?
No, individuals do not need SEC approval to start investing. However, brokerage firms and financial advisors that advise individuals on investments must be registered with the SEC or appropriate state agencies.
What are Blue Sky laws?
Blue Sky laws are state securities laws designed to protect investors from securities fraud by requiring sellers to register their offerings and providing disclosure of details of their offerings.
How does the SEC interact with the public?
The SEC interacts with the public through its Office of Investor Education and Advocacy, public announcements, and educational resources available on its website.
Related Terms
- Initial Public Offering (IPO): The first time a company offers shares of its stock to the public.
- Insider Trading: Trading of a public company’s stock or other securities by individuals with access to non-public information about the company.
- Form 10-K: A comprehensive summary report of a company’s performance that must be submitted annually to the SEC.
- Form 10-Q: A comprehensive report of a company’s performance that must be submitted quarterly to the SEC.
- Mutual Fund: An investment program funded by shareholders that trades in diversified holdings and is professionally managed.
Online Resources
- SEC Official Website: www.sec.gov
- Investor.gov: www.investor.gov
- EDGAR (Electronic Data Gathering, Analysis, and Retrieval System): www.sec.gov/edgar.shtml
References
- U.S. Securities and Exchange Commission. “What We Do.” SEC.gov.
- Reuters. “Facebook’s Journey from Dorm Room to Supreme Court.” Reuters.com.
Suggested Books for Further Studies
- “Winning the Loser’s Game” by Charles D. Ellis
- “The Intelligent Investor” by Benjamin Graham
- “Common Stocks and Uncommon Profits” by Philip Fisher
- “Security Analysis” by Benjamin Graham & David L. Dodd
- “Investment Valuation: Tools and Techniques for Determining the Value of Any Asset” by Aswath Damodaran
