SEC: What is it, Where Did it Start, and Why We Have It?
The SEC stands for the Securities and Exchange Commission. Officially, the SEC is designed to ensure fair, orderly, and efficient markets for investors, but what does that really mean. We will break down the SEC a bit more to make it easy to understand where it comes from and why it is an essential part of the stock market today.
Out of the Ashes
The year of 1929 is one that will live on in infamy as one of the darkest days to date in the global stock exchange. Stock prices fell steadily and ultimately bottomed out by the end of the year. However long and arduous the Crash of 1929 and the Great Depression that ultimately followed might have been, it was a turning point for the United States Sock Exchange. It taught us the value and necessity of regulations within the market to keep investors confident in the market and to maintain order throughout all stocks.
In the year 1934 the SEC was formed and its first chairman was none other than Joseph Kennedy himself. The famed father of John F. Kennedy who actually survived and thrived during the Great Depression by listening to a shoe shine boy, of all things. The story goes that while Mr. Kennedy was in the process of getting his shoes shined, the boy gleaning up those shoes offered a few stock tips. Joseph Kennedy made the statement that if the shoe shine boy was giving stock tips, it might be time to get out of the game, so he sold his stocks and cashed in a fortune, just before the bubble burst.
Divisions of the SEC
Like most entities of the United States Stock Exchange, the SEC is not merely one sector, but has cleverly been broken up into 5 divisions each with their own sector of stocks in mind. They have employed about 4,600 people spread across 12 offices throughout the country to keep a close eye on investors, companies, and all portions of the United States Stock Exchange.
Division of Corporation Finance: This area of the SEC focuses primarily on Corporate entities. They oversee disclosures of necessary public information in a quarterly or annually filing system. This division requires proxy materials and or registrations statements to be filed within these filings as well.
Division of Trading and Markets: Within this market sector of the SEC, fair market order is maintained in an orderly fashion. It regulates the major market participants in regard to fair market trade options.
Division of Investment Management: The SEC utilizes the Division of Investment Management to Oversee and maintain regulations within mutual funds, investment advisors, investment management industries, and analysts.
Division of Enforcement: This are of the SEC is like the police force of the entire organization. They ensure that laws within trade commissions are not violated and works closely with the actual law enforcement to bring those to justice who would violate those laws.
Division of Economic Risk Analysis: The final division within the SEC focuses on analytics to protect investors. They analyze data from corporations, stocks, investors, and all parts of the stock market to ensure a fair and safe environment for investors.
Rules for the Securities Industry from the SEC
Protection is the ultimate goal of the SEC. They are essentially in place to regulate the stock market and work to avoid any potential harm to investors in regard to shady dealings from insider trading or any other misuse of the stock market. As a result of all their hard work, the SEC has set apart rules to help regulate the stock market as a whole. If any company decides to become publicly traded, they must adhere to these two main rules:
1. Companies that offer securities in a publicly traded environment must make the entirety of their company public knowledge. They must tell the truth about potential risks to investors. Transparency is the key ingredient here.
2. Fair and honest treatment of other investors within the stock market. This means that any business dealings or mergers with other investing companies must be done in an open and upfront manner.
Without the efforts of the SEC, the broad spectrum within the United States Stock Exchange would quickly spiral out of control. Essentially, the SEC is regarded as the regulatory commission for the stock market here in America. They help alleviate disputes and investigate companies for misrepresentation to basically, keep everyone on the up and up. It is the goal of the SEC to maintain order throughout the stock exchange and it is through their regulations that the United States remains at the top of the Global Stock Exchange currently. Though it was formed from the ashes of a dark period in history, the SEC has made tremendous strides in aiding the stock exchange to new heights.