The Securities and Exchange Commission (SEC) is a federal administrative agency tasked with monitoring markets, enforcing securities laws, and developing new regulations. Congress established the SEC in the Securities Exchange Act of 1934, which was passed in response to the market failures that precipitated the Great Depression.
Structure of the SEC:
15 U.S.C. § 78d establishes the SEC and lays out its composition. It is a body of five commissioners, appointed by the President by and with the consent of the Senate. That is, the SEC is an independent agency with five department heads. Furthermore, so that the SEC would remain independent and apolitical, Congress requires that no more than three commissioners may be members of the same political party. The SEC is headquartered in Washington D.C., but also has many regional offices, the largest of which is in New York. The SEC also divides its staff into five main divisions: the Division of Corporate Finance, the Division of Investment Management, the Division of Enforcement, the Division of Economic and Risk Analysis, and the Division of Trading and Markets.
According to their webpage, the Division of Corporate Finance “seeks to ensure that investors are provided with material information in order to make informed investment decisions, both when a company initially offers its securities to the public and on an ongoing basis as it continues to give information to the marketplace.” The Division of Investment Management, according to their webpage, “oversee[s] mutual funds and other investment products and services that investors may use to help them buy a home, send kids to college, or prepare for retirement.” The Division of Enforcement, according to their webpage, “conducts investigations into possible violations of the federal securities laws, and prosecutes the Commission's civil suits in the federal courts as well as its administrative proceedings.” The Division of Economic and Risk Analysis, per their webpage, “integrate[s] financial economics and rigorous data analytics into the core mission of the SEC,” and “is involved across the entire range of SEC activities, including policy-making, rule-making, enforcement, and examination.” According to their webpage, the Division of Trading and Markets “regulates the major securities market participants, including broker-dealers, self-regulatory organizations (such as stock exchanges, FINRA, and clearing agencies), and transfer agents.”
Overall, the SEC engages in rulemaking and adjudications to create and enforce its regulations. SEC regulations seek to further clarify or supplement the statutes which Congress tasked it with administering, namely the Securities Act of 1933, the Securities and Exchange Act of 1934, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Williams Act of 1968, and the Sarbanes-Oxley Act of 2002. The SEC rulemaking process usually begins with a rule proposal, public comment on the rule, and then publication and finality. Rule 10b–5, which creates a private cause of action for securities fraud, and the SEC gun-jumping rules are some of the most relied on SEC regulations by regulated entities and litigators. For certain causes of action, the SEC may also serve as an administrative adjudicatory body, and administrative law judges conduct hearings, find facts, and issue initial decisions. The SEC also has an appellate body. Opinions by the SEC appellate bodies may be appealable to federal circuit courts of appeal, however.
[Last updated in April of 2021 by the Wex Definitions Team]