Securities and Exchange Commission

THE SECURITIES and Exchange Commission, commonly referred to as the SEC, is the primary regulator of the U.S. financial securities markets, and has the overall responsibility for overseeing the federal regulation of the securities industry.

The SEC enforces, among other acts, the Securities Act of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the Investment Advisers Act of 1940. The SEC works closely with many other institutions, including Congress, other federal departments and agencies, the self-regulatory organizations (the stock exchanges), state securities regulators, and various private sector organizations.

The SEC was created in 1934 as a governmental response to the massive stock manipulations and frauds that helped lead to the famous 1929 stock market crash. During the 1920s, the American dream of rags-to-riches was very successful in bringing millions of individual investors into the stock market. When the stock market crashed in October 1929, the market lost almost 89 percent of its value. Thousands of shareholders lost extraordinary sums of money and soon banks and businesses started to collapse.

The stock market crash and the subsequent Great Depression led to a massive loss of confidence among the millions of Americans who had invested on Wall Street. After the crash, Congress conducted hearings to determine the public's faith, or lack of faith, in the capital markets. Based on the findings, Congress passed the Securities Act of 1933 (the 1933 Act) and the Securities Exchange Act of 1934 (the 1934 Act).

The SEC was established as a result of the 1934 Act, which empowered the SEC with broad authority over all aspects of the securities markets. The[Page 723] commission's main purpose was to restore investor confidence by ending misleading trading practices and stock manipulations. President Franklin D. Roosevelt appointed Joseph P. Kennedy, future President John F. Kennedy's father, as its first chairman. The power of the commission extends to registration, regulation, and oversight of brokerage firms, transfer agents, clearing agencies, and self-regulatory agencies. Most importantly, the SEC is responsible for investigating and initiating action when federal securities laws are violated and securities frauds are committed.

There are five commissioners who are appointed by the president with the advice and consent of the Senate. To ensure the commission's impartiality, no more than three of the commissioners can belong to the same political party. The commissioners cannot engage in any other business, vocation, or employment. The commissioners cannot participate in any stock market operations or transactions which are regulated by the SEC. Each term for a commissioner is five years and is staggered relative to the other commissioners. The president appoints one of the commissioners as chairman, the SEC's top executive. The SEC is an independent policing agency with quasi-legislative and quasi-judicial powers.

The commissioners meet to discuss and resolve a variety of issues the staff members bring to their attention. They are responsible for interpreting federal securities laws, amending existing rules, proposing new rules, and enforcing laws and rules. The SEC is supposed to be independent from any influence by representatives of the Executive or Legislative branches of the government. The president has no power to remove any member of the SEC unless he is “inefficient in neglect of duty or malfeasant in office.”

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