The U.S. Securities and Exchange Commission

(SEC)

Responsibilities

• Enforces the federal securities laws • Regulates the securities industry, the nation’s

stock and option exchanges and other electronic markets

• SEC created by the Securities Exchange Act of 1934– Also enforces the Securities Act of 1933, the Trust

Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisors Act of 1940, and the Sarbanes-Oxley Act of 2002

Mission of the SEC

• Ensure the integrity of financial markets to prevent another “Great Crash of ‘29”– Do this by making companies who issue stock

and brokers who sold stock disclose all relevant information to stock customers (prevent investors from scams)

– By placing investor interest first, the SEC revitalized investor confidence

Responsibilities of the SEC

• Interpret and enforce federal securities laws• Issue new rules and amend existing rules• Oversee the inspection of securities firms,

brokers, investment advisers, and ratings agencies

• Oversee private regulatory organizations in the securities, accounting, and auditing fields

• Coordinate U.S. securities regulation with federal, state, and foreign authorities

Divisions of the SEC

• Division of Corporation Finance

• Division of Trading and Markets

• Division of Investment Management

• Division of Enforcement

• Division of Risk, Strategy, and Financial Innovation

Division of Corporation Finance

• Oversees the disclosure of information and the registration of transactions, such as mergers, made by public companies

• also responsible for operating EDGAR (Electronic Data-Gathering, Analysis, and Retrieval system)– collects, validates, indexes, accepts, and forwards submissions

by companies and others who are required by law to file forms with the SEC

Division of Trading and Markets

• Helps the SEC to maintain fair, orderly, and efficient markets

• Provides day-to-day oversight of the major securities market participants– Securities exchanges, securities firms, self-regulatory

organizations,

• FINRA (Financial Industry Regulatory Authority) and MSRB (Municipal Securities Rulemaking Board) help facilitate trade settlement, transfer agents (people that maintain records of securities owners), securities information processors, and credit rating agencies

Division of Investment Management

• Oversees investment companies including mutual funds and investment advisors

• Responsibilities include:– assisting the Commission in interpreting laws and regulations for

the public and SEC inspection and enforcement staff;– responding to no-action requests and requests for exemptive

relief;– reviewing investment company and investment adviser filings;– assisting the Commission in enforcement matters involving

investment companies and advisers;– advising the Commission on adapting SEC rules to new

circumstances.

Division of Enforcement

• Works with the other divisions to investigate violations of the securities laws and regulations and to bring actions against alleged violators

• Conduct investigations in private

• Obtains evidence of possible violations from market surveillance activities, investor tips and complains, other Divisions and Offices of the SEC, media reports, and others

• Can bring a civil action case in a US District Court or an administrative proceeding heard by an independent administrative law judge– Does not have criminal authority but can refer matters to state and

federal prosecutors

Actions that may lead to SEC investigations

• Misrepresentation or omission of important information about securities;

• Manipulating the market prices of securities; • Stealing customers' funds or securities; • Violating broker-dealers' responsibility to treat customers

fairly;• Insider trading (violating a trust relationship by trading

while in possession of material, non-public information about a security); and

• Selling unregistered securities.

Division of Risk, Strategy, and Financial Innovation

• Newest division established in Sept 2009• Help identify developing risks and trends in the financial markets• Responsibilities cover risk and economic analysis, strategic

research, and financial innovation• Functions being performed by the Division are:

– (1) strategic and long-term analysis;

– (2) identifying new developments and trends in financial markets and systemic risk;

– (3) making recommendations as to how these new developments and trends affect the Commission's regulatory activities;

– (4) conducting research and analysis in furtherance and support of the functions of the Commission and its divisions and offices;

– (5) providing training on new developments and trends and other matters.