Securities and Exchange Commission (SEC): Definition, Purpose, and Function

SEC Definition
Securities and Exchange Commission (SEC): Definition, Purpose, and Function

The Securities and Exchange Commission (SEC) is an independent US government body responsible for maintaining the fair and proper working of the US stock market. SEC structure involves five different appointed presidential Commissioners. The commissioner of the SEC is called the chairman. The Chairman of the SEC has been appointed for five years. SEC protects US Stock investors, helps facilitate capital, enforces securities-related federal laws, and audits securities and companies.  SEC provides “truth in securities” as stated in the Securities act of 1933. Congress propounded the Securities and Exchange Commission (SEC) in 1934 under the leadership of Franklin D. Roosevelt. SEC uses the “Electronic Data Gathering, Analysis, and Retrieval system” (EDGAR) for protecting the stock market purchase and selling information.

SEC was created in the backdrop of the Wall Street Crash of 1929, which had made the public lose their confidence in investing. SEC is still the governmental body that regulates the United States stock market and oversees all the functions and instruments that come under the securities market in the present global economic scenario, . SEC is a statutory body that deals with the issues which crop up in the securities market. They work alongside the judiciary to make decisions pertaining to any issues or fraudulent practices in the stock market.

What is SEC?

The securities and exchange commission is the organization that ensures the proper workings of the United States of America’s stock market. The securities and exchange commission has numerous committees and categories under it, and they all take care of the various aspects of the securities market.  Apart from the committees, the SEC is headed by a team of five commissioners. One of them is the chairman of the SEC, and they are the team’s top executives. In order to ensure that the working of the organization is transparent, the president selects the members for a tenure of five years, and they should also be from different political parties.

How did SEC get started?

The Securities and Exchange Commission started in 1934 during the Roosevelt presidency rule. The securities and exchange commission was formed when the Wall Street crash was in 1929. Many companies went out of business during this crash, and investors were technically robbed of their money. This situation caused investors to lose their confidence in businesses and were scared [1]  to trust the companies anymore. Therefore, Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934  in order to revive the market, the primary purpose of it was to maintain decorum and transparency.

During the time of the great depression, in the initial stages of the formation of the SEC, , the companies were doing whatever they could to stay afloat, including fraudulent practices. Securities and Exchange Commission had then made it their duty to fish out those individuals and companies making money illegally and through malpractices. The securities and the exchange commission had strived to protect the investors and make the US stock market a trustworthy place. Unfortunately, within these years, they have made many businesses own up billions that were made through fraud.

What is the purpose of the SEC?

 The Securities and Exchange Commission has got three primary purposes, including protecting the investors, the formation of capital, formation or rules and regulations, etc. The main purposes of SEC are listed below.

  1. SEC protects investors: The securities and exchange commission has always aimed to protect investors. SEC was created in the first place to enable investors to confidently invest in the US stock market after a period of misfortunes. In the present-day scenario, SEC strives to hold the wrongdoers accountable for their frauds and bring them to the justice department. SEC also gives investor education to protect themselves from these illegal activities.
  2. Capital Formation: Securities and Exchange Commission is an organization that helps in developing and promoting the economy of American society. It gives rise to plenty of jobs directly as well as indirectly. In addition, the Securities and Exchange Commission enables a steady flow of income and capital into the economy.
  3. Fair and orderly markets: Securities and Exchange Commission also helps maintain a fair and orderly securities market. The SEC resolves issues that crop up in the US stock market. They are always under constant vigilance, and timely action can be taken accordingly.

What are the different functions of SEC?

The securities and exchange commission of the US stock market has been working for a long time[2] , and their responsibilities including r regulating the securities markets and protecting investors have been ever-growing.

different functions of SEC
What are the different functions of SEC?

The SEC has the following main functions.

  1. Formulation and application of securities laws: The securities and exchange commission sets up rules and laws regarding securities, their issuance, and trading. First, a concept proposal is released, and then public opinion is considered. Later, a new rule is formulated using public opinion and experts.
  2. Implement new regulations: SEC has been found to implement regulations in the face of a crisis. For example, short selling has prohibited controlling the volatility and manipulation of turbulent markets.
  3. Oversee securities institutions: One of the primary functions of the SEC is to watch over the various financial institutions. The SEC should also look into brokers and financial managers to foresee if any of them are potential frauds or not.
  4. Coordinates regulation at all levels of government: The securities and exchange commission works closely with federal and state law enforcement agencies to impart the rightful and deserved justice to people.

What are the different securities institution that SEC oversee?

The securities and exchange commission is considered the watchdog of Wall Street. The SEC overlooks the functions of the multitudes of stock exchanges and the various players. SEC keeps an eye on the various financial firms and agencies and the different kinds of managers and stockbrokers. Among other functions of SEC, this might be the one where the organization ensures openness.

Is the stock market regulated by SEC?

Yes, the Securities and Exchange Commission is the one to regulate the US stock market and its various financial instruments. The SEC makes rules and restrictions regarding the stock market and implements them. The securities and exchange commission is an independent governmental body that decides independently. But take support from the other branches of the judiciary and executive.

The US stock market is one of the largest in the world, and hence it is also where a large percentage of financial fraud occurs. To control and prevent that, SEC is required and is an indispensable organization.

Are the different security types offered in Stock Market regulated by SEC?

Yes, the securities and exchange commission regulates the different types of securities. The different types of securities are equity, debts, and hybrids. SEC regulates and makes decisions on any of these and others. Stock Exchanges usually trade stocks, options, bonds, etc. And stock markets and every other stock exchange comes under the control and vigilance of the Securities and exchange commission. This, by default, means that all the various financial instruments are regulated by SEC.

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