What is the Purpose of the Securities and Exchange Commission?

What is the Purpose of the Securities and Exchange Commission?

One of the best asset classes to invest in is stocks. This is basically a unit of ownership of a company. Stocks are a wonderful investment because they generate a regular income and often appreciate in value over time. Before making an investment in stocks, consumers usually spend a lot of time analyzing the financial position of a company, changes in its share price over the years, dividend payouts, and integrity of the management among other things.

They also look at profit projections of a company before making a decision. This means that if a company provides wrong information, stock prices can be affected. For instance, the management of a company that is going under may give unreasonably high profit projections to push up prices before selling all their shares. This means that anyone who buys the stock will lose all their money as stock prices will crumble after news of the company going under becomes public. The SEC was established in 1934, in the aftermath of the 1929 stock market crash that wiped out investor funds. The commission is responsible for ensuring that there is fairness and integrity in the stock market.

What is the Purpose of the Securities and Exchange Commission?

The SEC has five main responsibilities. These are:

  • Interpreting and enforcing federal securities laws
  • Overseeing the inspection of firms that deal in securities, such as investment advisers, brokers, and ratings agencies among others
  • Overseeing private regulatory bodies in the accounting securities, and auditing fields
  • Issuing new rules and amending existing rules
  • Coordinating regulation of securities in the U.S. with state, federal and foreign authorities.

The main goal of the SEC is to protect investors. Another goal is to maintain orderly, fair and efficient markets. The commission is also tasked with facilitating capital formation. Basically, the SEC is there to ensure that publicly traded companies provide the public with truthful information about their business and securities they are offering. The commission also ensures that brokers, exchanges and dealers act in the best interest of the investor.

Main Areas of Enforcement

Insider trading is without a doubt the main area of enforcement for the SEC. Another area of enforcement is accounting fraud. Misleading or false investment information is also another key area of enforcement. That said, the SEC has oversight roles over mutual funds, securities exchanges, investment advisers, securities brokers and dealers.

Structure of the SEC

The SEC has 5 commissioners who are normally appointed by the president. Of the 5 commissioners, only three can belong to the same political party. The president usually appoints one of the 5 commissioners to serve as the chairman of the SEC. The commissioners are usually in office for 5-year terms. Anyone can contact the SEC directly, but discreetly to provide information about insider trading or any inappropriate dealings. They will be protected as whistleblowers.

Sources:

  1. https://www.sec.gov/Article/whatwedo.html
  2. https://www.huffingtonpost.com/entry/the-securities-and-exchange-commission-an-overview_us_58949c09e4b061551b3dfda2
Archie Stephens

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