Securities and Exchange Commission

• Author: Mary Lush, Val Hinton
• Pages: 658-659

Page 658

The U.S. Securities and Exchange Commission (SEC) is a regulatory agency responsible for administering U.S. securities laws. The purpose of these laws is to ensure fair markets and to provide accurate information to investors. The major securities laws were enacted in the 1930s after the 1929 stock market crash and the anemic performance of the market in the early 1930s.

The U.S. Congress passed the Securities Act of 1933 (sometimes referred to as the "truth in issuance act") to regulate the primary market—the market for new securities. The act's dual primary purposes related to the sale of securities required companies to submit independently verified financial information, a registration statement, and a prospectus to the Federal Trade Commission to ensure that investors receive credible financial information about companies being offered for public sale, as well as to prohibit fraud and misrepresentation in the sale of securities. Since May 6, 1996, individuals have been able to readily access these statements using the SEC's Electronic Data Gathering, Analysis, and Retrieval System and learn about companies to help them make informed investment decisions.

The Securities Exchange Act of 1934 provided more SEC control, giving it the power to regulate the stock exchanges and the trading practices of the secondary market (a market for currently traded shares). In 1935 the Public Utility Holding Company Act was enacted to regulate all interstate holding companies (a holding company controls other companies by owning their stock) in the utility business. Further, the Trust Indenture Act of 1939 was enacted to allow the SEC oversight in the issuance of bonds, notes, and debentures offered for public sale.

In 1940 Congress passed two laws covering the people working in the security business. The Investment Company Act of 1940 was developed to minimize conflicts of interest by regulating investment companies, including those involved with mutual funds. It focuses on disclosing investment company operations and structure, as well as fund information to the investing public. The Investment Advisers Act of 1940 established regulation of

Page 659

investment advisers and their activities. In 1974 the Employee Retirement Income Security Act gave the SEC jurisdiction over pension funds; and the Sarbanes-Oxley Act of 2002 mandated reforms relating to public accounting fraud and created oversight of the auditing profession...