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Securities And Exchange Commission (SEC): How It Works?

By Fotis Dixon

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Securities And Exchange Commission (SEC)

Securities and Exchange Commission (SEC) is the apex body of the United States that regulates the security market and safeguard investors from various frauds and risks.

It was formed on 6 June 1934 to counter the ill effects of the Wall Street Crash of 1929. SEC was established under the Securities Act of 1933 and the Securities Exchange Act of 1934.

The main responsibilities of the SEC are

  • Educate and protect investors
  • Facilitate capital formation
  • Enforce federal securities laws
  • Regulate the securities market
  • Provide data about Registered Investment Advisers, Exempt Reporting Advisers, and Active Broker Dealers.

The working of SEC is monitored by five commissioners, one of them acts as the chair, elected by the US senate and appointed by the US President.

The present chairman of the SEC is Gary Gensler. Hester M. Peirce, Caroline A. Crenshaw, Mark T. Uyeda, and Jaime Lizárraga are the other commissioners currently in charge of the commission.

How does it Work?

SEC takes care of its responsibilities with the help of various divisions designated to perform special functions.

Securities And Exchange Commission (SEC)

SEC has six divisions that handle various responsibilities. They are explained below.

Corporation Finance

Corporation finance aims to inform investors by providing them with information about the market trends and various rules formed from time to time.

It also helps companies by interpreting the laws and rules of the commission. Erik Gerding is the current director of the Corporation Finance division.

Economic and Risk Analysis

The economic and risk analysis division of SEC acts as a think tank that participates in policy formation, rulemaking, enforcement, and examination.

It provides high-quality analysis of the various data concerned with the economic situations of the country. The current director of this division is Jessica Wachter.

Enforcement

The enforcement division oversees the enforcement of various rules and laws of the SEC. It also conducts investigations into potential violations and takes action against the violators.

The current director of the enforcement division is Gurbir S. Grewal.

Examinations

The examinations division is the apex body that conducts the National Exam Program. It also formulates strategies to improve compliance, mitigate fraud, monitor risks, and inform policy.

Richard R. Best is the current director of the examinations division.

Investment Management

The investment management division is tasked with the enforcement of the Investment Company Act of 1940 and the Investment Advisers Act of 1940.

This division also develops the regulatory policy for mutual funds including money market funds, closed-end funds, business development companies, unit investment trusts, variable insurance products, and exchange-traded funds.

Natasha Vij Greiner is the current director of the investment management division.

Trading and Markets

The trading and markets division sets the standards of the security market and regulates broker-dealers, self-regulatory organizations such as stock exchanges, the Financial Industry Regulatory Authority (FINRA), and clearing agencies and transfer agents.

The Law-Making Process of SEC

SEC follows a well-defined process of law-making. The first step in the law-making process is concept release.

The concept release is followed by the formulation of a detailed proposal. The concept and the proposal are then subjected to public review and the public’s opinions are taken into consideration while finalizing the rules.

A meeting is conducted by the relevant delegates of the commission. The various suggestions are put to voting, and the end laws are formulated with the consent of the majority of members.

What Actions Does the SEC Take on Detecting Rule Violations?

SEC does not have the permission to initiate criminal proceedings against the violators. It can only initiate civil actions before the federal court or an administrative judge. SEC takes the following actions in civil cases.

Injunctions

An injunction is a court order that instructs the concerned parties to stop the current activities, in this case, the violation of law.

The violators will be punished with a fine or imprisonment for alleged violation of the injunction.

Monetary Penalties and Returning of Illicitly-gained Profits

The SEC has the authority to impose orders to cease the activities of the organizations, cancel or suspend registrations, impose monetary penalties, and cease the profit made through illegal means.

The Bottom Line

The Securities and Exchange Commission (SEC) thus plays an important regulatory role in the securities market of the United States.

It is an independent body appointed by the US Senate. Therefore, it has immense responsibilities in managing the market and is critical in the smooth functioning of the securities market of the United States.

Fotis Dixon

Fotis Dixon is a business expert from the UK. He's written lots of articles about the newest market research and trends, especially on cryptocurrencies. Fotis is good at breaking down different topics to give useful information, helping readers stay updated on emerging trends.

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