The SEC is the starting point for understanding securities regulation because every other regulator in this unit operates under its authority or alongside it.
Creation and Mission
- The Securities and Exchange Commission (SEC) was created by the Securities Exchange Act of 1934 in response to the stock market crash of 1929 and the Great Depression
- It is a federal government agency, not a self-regulatory organization (SRO)
- The SEC's three-part mission:
- Protect investors
- Maintain fair, orderly, and efficient markets
- Facilitate capital formation
Memory Aid: SCAM (Securities Exchange Act of 1934)
The '34 Act protects investors from scams by establishing:
- S - SEC creation + Federal Reserve Board (FRB) margin authority + Reg T
- C - Credit regulation (margin rules)
- A - Antifraud (the antifraud rule prohibits deceit and manipulation in connection with securities transactions)
- M - Anti-Manipulation (wash trades, matched orders, painting the tape)
Distinct from the Securities Act of 1933, which governs only the one-time registration and prospectus for new securities offerings. Once a company is already public, ongoing periodic reporting (10-K, 10-Q, 8-K) falls under the 1934 Act, not the 1933 Act.
Structure
- The SEC is led by 5 commissioners appointed by the President and confirmed by the Senate
- Commissioners serve staggered 5-year terms (one term expires each year on June 5)
- No more than 3 commissioners may belong to the same political party, ensuring bipartisan governance
- The President designates one commissioner as Chairman, who is the agency's top executive
- A commissioner may continue serving up to 18 additional months past term expiration
Jurisdiction
The SEC has broad authority over:
- Securities exchanges (NYSE, Nasdaq, etc.)
- Broker-dealers and their registered representatives
- Investment advisers and mutual funds
- Public company disclosures and financial reporting
- Enforcement of federal securities laws
Exam Tip: Gotchas
The SEC does not regulate insurance products, bank deposits, or commodities futures. Insurance is regulated at the state level. Commodities fall under the Commodity Futures Trading Commission (CFTC).
EDGAR: Public Access to Filings
- EDGAR (Electronic Data Gathering, Analysis, and Retrieval) is the SEC's system for public company filings
- Registration statements and periodic reports (10-K, 10-Q, 8-K) are filed through EDGAR and available to the public for free
- EDGAR holds corporate and issuer filings only. It does not contain a broker's or adviser's registration or disciplinary history; that lookup is BrokerCheck, a separate FINRA tool
Exam Tip: Gotchas
EDGAR (issuer filings) and BrokerCheck (individual broker and firm background) are easy to swap. If the question asks about a company's 10-K or prospectus, the answer is EDGAR. If it asks about a representative's registration or disciplinary history, the answer is BrokerCheck.
Enforcement Powers
- The SEC can bring civil enforcement actions: lawsuits, injunctions, fines, and disgorgement of profits
- The SEC cannot impose criminal penalties. It refers criminal cases to the Department of Justice (DOJ)
- The SEC has ultimate oversight over all SROs. SROs must submit proposed rule changes to the SEC for approval
Exam Tip: Gotchas
The SEC brings civil actions only. Criminal referrals go to the DOJ. The SEC is a government agency, not an SRO. No more than 3 of 5 commissioners may be from the same party.