The U.S. Securities and Exchange Commission (SEC) is an independent U.S. government agency which holds the primary responsibility of implementing the federal securities laws and holding the full control of the U.S. securities industries, the options exchanges and nation's stocks, and other securities market.
SEC was formed by the section 4 of the U.S. Securities Act of 1934. Aside from the 1934 Securities Act that formed it, SEC implements the 1933 Securities Act, the 1939 Trust Indenture Act, the 1940 Investment Company Act, the 1940 Investment Advisers Act, the 2002 Sarbanes-Oxley Act, and other related statutes.
Before the ratification of the federal securities laws and the inception of the U.S. Securities and Exchange Commission (SEC), a state law called "Blue Sky Laws" existed. These laws were ratified and implemented at the state level. However, it was found out that these laws were incomplete and in 1915, the Investment Bankers Association appealed to its members to ignore the Blue Sky Laws by offering securities across state lines through mail.
After holding several hearings on Pecora Commission (abuses on the interstate frauds), the Congress passed the 1933 Securities Act to regulate the interstate sales of securities at the federal level. The succeeding 1934 Securities Exchange Act regulates the sales of securities at the secondary market. The Section 4 of the 1934 Securities Act formed the U.S. Securities and Exchange Commission (SEC) to implement the federal securities laws.
These two laws are considered a major part of "New Deal", Franklin Roosevelt's raft of legislation.
The 1933 Securities Act, also known as the "Federal Securities Act" or the "Truth in Securities Act" was formed with the goal of increasing public trust in the capital market by requiring all information about the public securities offerings to be uniformly disclosed. The 1933 Securities Act was drafted primarily by Huston Thompson, ex-chairman of the Federal Trade Commission, and Ollie Butler and Walter.
Two attorneys in the Foreign Service Division of the Commerce Department, with input from Louis Brandeis of Supreme Court Justice. For the first year of enacting the law, the implementation of the statute was given to the Federal Trade Commission; however, this power was transferred to Securities and Exchange Commission following its inception in 1934. This law requires all issuing companies to register their distribution of securities first with the SEC before these securities will be sold at an interstate level.
This way, investors can access basic financial information about the issuing companies as well as the risks associated with investing in the questionable securities. Since 1996, most securities registration statements and other associated materials filed with the SEC office can be accessed through EDGAR, SEC's online system.
The 1934 Securities Exchange Act, also known as the "34 Act" or the "Exchange Act" is responsible for regulating the secondary trading between companies and individuals often unrelated to the company that issued the securities originally.
Entities that fall under the authority of SEC include securities exchanges such as the New York Stock Exchange (NYSE), online trading platforms like ATS and NASDAQ, self-regulatory organizations like the National Association of Securities Dealer (NASD), the Municipal Securities Rulemaking Board (MSRB), and any other individuals engaged in transacting for the account of others.
Today, the U.S. Securities and Exchange Commission (SEC) has broad authority of the U.S. securities industry. It has the power to register, control, and oversee transfer agents, brokerage firms, clearing agencies, and even the country's self-regulatory organizations.
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