The Securities and Exchange Commission (SEC) is the primary U.S. federal agency responsible for regulating the securities industry, protecting investors, and maintaining fair and efficient markets.
Created by: The Securities Exchange Act of 1934.
Five commissioners: Appointed by the President, confirmed by the Senate; no more than three from the same political party; 5-year staggered terms. The Chair is designated by the President.
Four main divisions: 1. Division of Corporation Finance — reviews required disclosures from public companies. 2. Division of Trading and Markets — oversees broker-dealers, exchanges, and SROs. 3. Division of Investment Management — oversees investment advisers and investment companies. 4. Division of Enforcement — investigates and prosecutes securities law violations.
SEC rulemaking process: The SEC proposes rules, accepts public comment, then finalizes rules. Congress can override rules through legislation.
Key SEC powers: - Require registration of securities, broker-dealers, advisers, exchanges, and clearing agencies. - Conduct investigations and bring civil enforcement actions. - Impose fines, suspensions, bars, and disgorgement of ill-gotten profits. - Refer criminal matters to the DOJ.
> Exam tip: The SEC does not guarantee the accuracy of prospectus disclosures — it only ensures disclosures are complete. The SEC reviewing a registration statement is not an endorsement of the security. Know that the SEC does not set margin requirements (that's the Fed via Reg T).