Regulator SEC


SEC – Securities and Exchange Commission is an agency of US government. SEC is an organization that has the absolute power for control in the regulation of the stock market (exchange circulation of shares and bonds) and US stock exchanges. It has a high reputation among the financial regulators of the world.

As we told before, financial regulators in the United States constitute a single control system for all markets, brokers, banks, investment companies. However, in order to keep track of all the spheres of financial markets, multiple regulators were created, which work closely with each other, but each remains a leader in its sector – this is the difference between the regulatory system of the United States from European countries, where the leading position is a single regulator covering all markets of the country.

The main stated goal of the organization is the promotion of investor confidence in the stock market of the country. And although this goal is declared by many financial regulators, in this case it is really the primary goal of the SEC. Established in 1934 by Roosevelt, the organization was to prevent a repetition of the great Depression, when the US stock market collapsed in just a few days, which led to the financial crisis in the world. Since then, the SEC strongly contributes to the restoration of confidence in the developed economies of the world and to stock market of the USA, trying to track the possible manipulation and inflating of the bubble. However, the collapse of the dot-com crisis and mortgage derivatives have shown that it is too far to full control of the situation.

SEC is guided by a legislative base, which, in fact, was created for this organization, in the middle of last century:

  • The law that regulates the securities market (1933);
  • The law on the trust agreement (1939);
  • The law on investment companies and investment advisers (both 1940);
  • The Sarbanes-Oxley act (2002) – a law toughening the requirements to financial statements and disclosure of information about organizational structure and top management. Was a result of the disclosure of the biggest fraud schemes in the world – Enron.

At the head of SEC stand 5 commissioners, appointed by US President and approved by the senate.

Main functions and objectives of  SEC:

  • supervision of the observance by all the participants of stock markets (including investors) of Federal laws;
  • control of all operations carried out on stock markets, prevention of fraud, manipulation, insider and contractual transactions, the prevention of speculation in securities in order to artificially inflating (understating) of their value;
  • control over the accessibility of public information about the financial statements and other information about the work of brokers and other financial intermediaries to investors;
  • full control over the private regulators (self-regulating organizations, associations), their financial statements, полный контроль за работой частных регуляторов (саморегулируемых организаций, объединений), их финансовой отчетностью, accounting, audit;
  • monitoring of corporate mergers and acquisitions in the United States. If you purchase more than 5% of the equity of the company, the buyer should notify SEC, because in this case we are talking about possible absorption that falls under the probable monopolization;
  • regulation of exchanges (NYSE, NASDAQ).

What can cause the initiation of an investigation action by the SEC:

  • insider trading;
  • violation of the rules of ethics and law in the process of communication between the investor and the broker-dealer;
  • failure to provide (concealment) the information about securities, providing of illegal information (misrepresentation);
  • theft of securities or money from the client account controlled by the broker;
  • selling of securities, that were not properly registered;

contractual transactions on the stock exchange for the purpose of manipulating the price of securities.

There are quite a lot tools of influence by SEC. Since in addition to stock exchanges another area of influence on the US economy are the banks, the SEC insists that when placing the securities the banks should indicate the most complete information about the Issuer, terms of placement of securities, the possible risks. However, a series of high-profile investigations of manipulations of the banks mortgage derivatives and fines in 115 billion  says not in favor of the SEC.

What SEC regulator license gives to investor:

  • protection from dishonesty of a broker. Regulator fines can exceed $ 200 million. Moreover, the penalty can be appointed not only in the case of fraud or manipulation, but in the case of disclosure of corporate information. Interesting fact: the regulator pays rewards to those who report the broker violations, thus encouraging the work of private auditors;
  • ability for investor of getting full information about the broker. SEC requires the brokers to regularly publish the financial statements;
  • protection of rights of traders (investors) in court. Every year more than 400 claims against brokers, banks, investment funds, are considered.

According to SEC information only in 2015, the organization paid-out more than 700 thousand dollars to their informants, who provided the information to regulator about insider and contractual transactions on stock exchange. Totally during the existence of the program, about 55 million dollars were  paid, while the confidentiality of the informants was fully kept by the regulator. Also, SEC increases the amount of fines. If in 2002-2005 only one company was fined 10 million dollars, for 2005-2015 a similar amount was issued to 110 companies. Every second penalty of corporate entities in 2015 was about 200 000 US dollars, individuals – 12-13 thousand.

To sum up: the activities of regulators in the US are closely intertwined in exchanges, whereas outside each controller is responsible for its financial markets. The lack of licenses of this class from a broker working in the United States, may indicate the presence of pyramid schemes, or the fact that the broker actually is not working on stock, currency, commodity exchanges, and therefore offers non-existing services that fall under the fraud scheme.

Official SEC website:

Previous article

Regulator NFA

Next article

Regulator MFSA

About the author