Securities and Exchange Commission (SEC)

The U.S. Securities and Exchange Commission (SEC) is the primary federal government regulator of securities markets in the United States. The SEC was created to administer the Securities Act of 1933 and the Securities Exchange Act of 1934. Since its creation, the SEC has been assigned responsibility for administering other laws and amendments to those laws, including the Public Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Advisors Act of 1940, and the Investment Company Act of 1940. The SEC also has responsibility for administering large parts of the Sarbanes-Oxley Act of 2002. These laws were enacted by Congress to achieve the broad policy goals of protecting investors and promoting efficiency and competition in the capital formation process. The SEC's mission is to help achieve these statutory goals. The SEC carries out its mission by issuing rules and regulations based on the authority of the laws it administers. These rules and regulations serve to interpret and implement the laws enacted by Congress. The SEC also carries out its mission by enforcing the nation's securities laws, including the rules and regulations promulgated under the authority of laws enacted by Congress.

To achieve the statutory goal of investor protection, the SEC relies on several regulatory tools. Chief among these tools are rules and regulations promoting the public disclosure of information about key variables influencing investor decisions. Nearly every securities market participant faces some form of SEC mandated information disclosure requirements. For example, securities exchanges, such as the New York Stock Exchange, face SEC mandated transparency requirements promoting the real-time publication of information about market quotations and transactions. Publicly traded firms, like IBM, face SEC mandated disclosure requirements concerning the information contained in the firm's prospectus ahead of its initial public offering. In addition, publicly traded firms are [Page 1866]required by the SEC to disclose, through regular reports to investors, information about the firm's financial condition along with any other information that may be important in influencing investor decisions. Brokers and dealers face SEC mandated disclosure requirements related to the handling of investor funds, sources of potential conflicts of interest, and matters related to fees and trade execution. Mutual funds face SEC disclosure requirements concerning investment risk and performance as well as information concerning advisory relationships, investment objectives, and fund governance. The SEC has continued its policy of mandating more frequent and comprehensive information disclosure requirements over the objections of critics who argue that such policies often have unintended consequences and foreclose an otherwise important dimension of competition among market participants.

To facilitate the SEC's information disclosure policy for public companies, the commission maintains the Electronic Data Gathering and Retrieval system (EDGAR). All companies, foreign and domestic, are required to file registration statements, periodic reports, and other forms electronically through EDGAR. Any member of the public can access and download this information for free over the Internet.

To achieve the statutory goal of promoting efficiency and competition in the capital formation process, the SEC adopts rules and regulations prohibiting trading practices that distort prices and degrade the performance of the securities markets. The SEC regulates aspects of market microstructure to promote competition in securities trading. In addition, the SEC regulates important dimensions of exchange competition as part of its administration of the National Market System amendments to the Securities and Exchange Act of 1934.

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