What is SEC? The Structure and Operation of the SEC in Financial Markets
Hello everyone, it’s me again, I’m Neo — Admin — Community Manager of Optimus Finance and Growth Marketing of lecle_vietnam.
In this article, we will explore SEC as well as its operation and structure in the financial market. Why is their impact significant in finance? and who is Gary Gensler? Now let’s get started!
Table of contents
1. What is SEC?
2. The establishment of SEC
3. The history of operations and prominent achievements of SEC
4. Activities of the SEC
4.1. The role of SEC in the financial market
4.2. Powers of the SEC
4.3. Punitive Measures of SEC
5. Structure and Leadership of the SEC
5.1. General structure
5.2. Department and Office Structure
6. SEC Chairman and Perspective on Crypto
6.1. SEC Chairman Gary Gensler
6.2. His perspective on Crypto
7. Closing thoughts
1. What is SEC?
SEC stands for the U.S. Securities and Exchange Commission. It is a federal agency responsible for regulating the securities industry, enforcing federal securities laws, and protecting investors. SEC oversees a wide range of entities, including publicly traded companies, investment firms, securities brokers and dealers, and self-regulatory organizations like stock exchanges.
Its main goal is to ensure that the securities markets operate in a fair and orderly manner and that investors have access to accurate and reliable information about the companies and securities they invest in.
SEC was created in 1934 as part of the New Deal reforms in response to the stock market crash of 1929.
2. The establishment of SEC
The establishment of SEC originates from the economic crisis of the 1920s. During this time, private companies often used fraudulent practices, deception, and false information to attract investors and increase the value of their stocks. These companies often did not provide complete and transparent financial reports, making it difficult for investors to evaluate the feasibility and sustainability of these companies.
The most famous event in this economic crisis was Black Monday on October 28, 1929, when the US stock market collapsed and caused the largest economic crisis in US history. Investors lost billions of dollars in a matter of hours and millions of Americans lost their jobs.
After Black Monday, US government began to pay attention to stock market issues and started building a legal system to monitor and regulate securities activities.
Within the framework of the Securities Act of 1933 and the Securities Exchange Act of 1934, the SEC was established in 1934.
With the establishment of SEC, the US government aimed to increase transparency and fairness in securities activities, prevent fraudulent and deceptive practices and enhance investor confidence in the securities market.
The new regulations of SEC required companies to provide more complete and transparent financial reports, register new securities with SEC before selling them in the market, and comply with disclosure and distribution regulations. In addition, SEC was granted legal authority to support the supervision of the securities market and related activities.
3. The history of operations and prominent achievements of SEC
Since its establishment, SEC has carried out various missions. Below are some notable events in SEC’s history:
- 1930s: SEC was established after the largest economic crisis in US history, known as the “Great Depression.” SEC was created to help ensure market stability, prevent mistakes and financial inflation.
- 1960s-1970s: SEC implemented new regulations on public information of listed companies, monitored the issuance of securities information, and controlled speculation and fraud.
- 1980s-1990s: SEC continued to reform and strengthen the supervision of the securities market. In 1984, SEC announced new regulations on monitoring and punishing insider trading abuses.
- 2000s: SEC underwent significant organizational restructuring to meet the increasing demands of securities market supervision. In 2002, the Sarbanes-Oxley Act was passed, providing more stringent regulations on financial reporting of listed companies.
- 2008: The global financial crisis broke out, SEC continued to conduct investigations and sue violators of securities laws. SEC also faced criticism for not having enough power to prevent the collapse of the securities market.
- 2010: The Dodd-Frank Act was passed, introducing new regulations on the securities market and enhancing the power of SEC. This law also required listed companies to disclose details of executive compensation and management appointments.
- 2020: SEC conducted investigations and lawsuits against many large technology companies, including Tesla and Alibaba, for violations related to public information and financial reporting.
Overall, SEC has performed many important missions in ensuring the stability and transparency of the US securities market. However, the organization also faces many challenges, including strengthening supervision and dealing with complex and diverse violations in an increasingly large and complex securities market.
4. Activities of the SEC
4.1. The role of SEC in the financial market
The role of SEC in the US financial market is important in overseeing and managing it. The followings are the roles and responsibilities of SEC:
- Protecting investors by ensuring that companies registering with the SEC provide full information about their investment products, ensuring transparency and minimizing risks for investors.
- Promoting transparency by requiring listed companies in the US securities market to provide transparent information about their finances, products, services, management, and business conditions.
- Monitoring the securities market including trading exchanges, investment advisory organizations, securities companies, investment funds, and other related partners. The SEC has the right to require these organizations to provide information and comply with securities-related regulations.
- Regulating the securities market through related activities including regulations on registering and approving new securities, regulations on the bond market, options, and other complex financial products.
- Enforcing securities laws violations, including violations of disclosure, fraud, misuse of insider information, and other fraudulent activities. SEC may impose penalties, including fines, prohibition of operations, and other measures against individuals or organizations who violate the law.
- Ensuring safety and stability of the financial system by monitoring activities related to securities and other financial partners, ensuring transparency and minimizing risks.
- Coordinate with other agencies such as Federal Reserve (FED), the Bureau of Labor Statistics, the Internal Revenue Service, and the Organization for Economic Cooperation and Development.
- Train and educate investors through materials to help investors understand securities regulations and how to invest safely and effectively.
- Propose new regulations to improve the monitoring and management of the US securities market. These new regulations may include investor protection regulations, disclosure requirements, and new financial products.
In summary, SEC has an important role and responsibility in monitoring and managing the US securities market, protecting the rights of investors, ensuring transparency and reducing risk, and ensuring safety and stability for the US financial system.
4.2. Powers of the SEC
The powers of SEC include the ability to monitor and enforce violations by companies in the financial and securities industries.
Some measures that SEC may take against companies include:
- Examining the accounts of companies that provide financial reports and balance sheets to check the validity and transparency of financial information.
- Requesting information on their financial and securities activities to ensure transparency and compliance with regulations.
- Imposing penalties for violations, including fines, revoking operating licenses, and/or prosecuting individuals involved.
- Issuing sanctions against companies that seriously violate SEC regulations to prevent them from engaging in financial and securities activities in the United States.
4.3. Punitive Measures of SEC
SEC has various measures to punish violators and here are the two main methods:
- Issuing injunctions from now until the future. In some cases, SEC may also request an injunction or suspension of individuals not allowed to operate as managers or directors.
- Imposing civil fines and recovering illegal profits. The amount of the fine can range from tens of thousands to hundreds of millions of dollars depending on the severity of the case.
Individuals or companies who do not comply with injunctions will be fined or may face contempt of court charges.
5. Structure and Leadership of the SEC
5.1. General structure
SEC has a complex organizational structure with departments and a highly skilled workforce. The agencies of SEC include:
- SEC Chairman is the head of the leadership team. This position is appointed by the President and confirmed by the Senate. The Chairman is responsible for overseeing the activities of the SEC and ensuring transparency and fairness in the securities market.
- The members of Commission consist of five members, appointed by the President and confirmed by the Senate. These members are responsible for making important decisions regarding SEC policies and management. They also participate in reviewing and approving new regulatory proposals and policies.
- The functional agencies of SEC include several functional offices, such as the Office of Inspections and Examinations, the Office of Investigations, the Office of General Counsel, and the Office of Accountants. Each of these offices is responsible for overseeing different securities activities and providing advice on new regulations and policies.
- The committees of the SEC include the Open Market Committee, the Securities and Investment Banking Committee, the International Finance Committee, and the Policy Advisory Committee. Each of these committees is responsible for overseeing different securities activities and providing advice on new regulations and policies.
- In addition to the Commission members, SEC also has other high-ranking officials, including the Chief Executive Officer, Deputy Chief Executive Officer, and various office directors. These high-ranking officials are responsible for overseeing activities at SEC.
5.2. Department and Office Structure
The U.S. Securities and Exchange Commission (SEC) is overseen by 1 Chairman and 4 Commissioners, who oversee 6 Divisions, 24 Offices and 11 Regional Offices.
- Division of Enforcement: responsible for investigating and monitoring securities law violations.
- Division of Investment Management: oversees asset management companies and investment funds.
- Division of Corporation Finance: evaluates the financial information of publicly traded companies.
- Division of Trading and Markets: monitors securities trading activities and brokers.
- Division of Investment Advisory and Public Policy: provides advice on securities regulations and policy.
- Division of Economic and Risk Analysis: conducts research and evaluates SEC policies and regulations.
Under the chairperson, there are 24 offices including:
- Chief Accountant
- Chief Operating Officer
- Credit Ratings
- Equal Employment Opportunity
- Ethics Counsel
- General Counsel
- International Affairs
- Investor Advocate
- Investor Education and Advocacy
- Legislative and Intergovernmental
- Minority and Women Inclusion Affairs
- Municipal Securities
- Public Affairs
- Secretary
- Strategic Hub for Innovation and Financial Technology
- Acquisitions
- EDGAR Business Office
- Financial Management
- Human Resources
- Information Technology
- Support Operations
- Advocate for Small Business Capital Formation
- Administrative Law Judges
- Inspector General
To facilitate operations throughout the United States, SEC also has offices in 11 other states: Atlanta, Boston, Chicago, Denver, Fort Worth, Los Angeles, Miami, New York, Philadelphia, Salt Lake, and San Francisco.
6. SEC Chairman and Perspective on Crypto
6.1. SEC Chairman Gary Gensler
Currently, Gary Gensler is the Chairman of the SEC. He has experience as a professor of economics at MIT and has extensive experience in finance and policy, including working at the International Trade Administration, the US Commodity Futures Trading Commission, and serving as a consultant to the US House of Representatives and Senate.
Each term of the SEC Chairman lasts for 5 years. Gensler has held this position since 2021 and his term will expire in 2026.
6.2. His perspective on Crypto
For him, the Crypto market is a dangerous and risky market. So far, he only recognizes Bitcoin as not a stock but a commodity, while all other cryptocurrencies are under his investigation.
He believes that Cryptocurrency market needs to comply with the decisions made and report to SEC all the activities of the company. For example, token issuance activities, ICO activities, SAFT sales, staking on exchanges,…
Until now, he has also directed several allegations:
- SEC accuses Ripple, FTT, and 9 other tokens on Coinbase of being stocks.
- SEC sues hacker who attacked Mango Market and claims MNGO is a stock.
- SEC sues Paxos for claiming BUSD is a stock.
Overall, the current SEC chairman has a negative view of cryptocurrencies, which has also faced considerable opposition from other SEC leaders. However, they have not been able to change much of the SEC’s stance, at least for the time being.
7. Closing thoughts
SEC has played an important role in protecting transparency and fairness in the stock market. With its diverse functions and responsibilities, SEC has helped increase market confidence and reduce risks for investors.
SEC has also achieved significant accomplishments in ensuring transparency and fairness in the securities market. However, SEC still faces many challenges and needs to continually improve its effectiveness to meet the needs of the securities market in the future.
What about your thoughts? If you want to know further about it, don’t hesitate to share it with us! 😀
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