Every investor should know about the Securities and Exchange Commission (SEC) because they serve to protect, inform and regulate investment activity. The authority granted and put into practice by the SEC affects corporations, investors, markets and the economy. Without the SEC and the regulations it abides by, capital flows, securities exchange and financial lawfulness would be hampered and potentially harmful to both the aforementioned parties. The SEC participates in several important functions including 1) provision of investor information, 2) regulatory implementation and oversight, and 3) market monitoring.
SEC Investor Information
An important aspect of the SEC every investor should know about is they provide investment information to investors. This is especially true of public companies that trade on exchanges such as the NASDAQ, and NYSE. The information companies registered with the SEC give to the SEC includes a great deal of business activity that can be quite relevant to investment research. Below are a few of these things.
• 10-K Annual report(s)
• 10-Q Quarterly report(s)
• 8-K Officer employment activity
• S-8 and 11-K Employee securities benefits
• 424B Securities issuance and activity
• Form 4 Insider buying or selling
The reasons these reports are important is because they provide information that can or may affect the financial performance of a particular company. For example, new stock offerings, bankruptcy proceedings, mergers and acquisitions, executive officer activity etc. can all be found in SEC filings for companies registered with the SEC. Some private companies are not required to be registered with the SEC so finding information on these types of companies is harder even though all businesses are subject to applicable laws.
Regulatory implementation and oversight
Another reason the SEC is so important to investors is because it acts as a Government agent through its authority to interpret securities law and create rules by which exchanges and applicable businesses must abide. An example of this is the change to the uptick rule in broker and/or market maker short selling. These rules help ensure a consistent, less abused system of securities exchange that enhances both market and investor stability. Some of the SEC's rules set forth in Securities Exchange Act of 1934 include the following:
• Control of credit margin requirements
• Investigation and judicial proceedings
• Audit requirements for SEC registered companies
• Exchange transaction impartiality ex: NYSE
• Corporate reporting requirements
The SEC can also implement correctional action against corporations that do not follow specific rules. For example, if a company that is suspected of violating SEC rules is found guilty of such, the SEC can implement punitive action against that company. Such punitive action can 1) damage the reputation of a company, 2) make public wrongdoings by the company 3) limit the business activity of the company and 4) affect the companies equity value among other things. Thus, the SEC hold regulatory authority that can both affect the performance of U.S. securities markets and the businesses that operate within those markets.
Another reason the SEC is so important to investors is because it acts as a Government agent through its authority to interpret securities law and create rules by which exchanges and applicable businesses must abide. An example of this is the change to the uptick rule in broker and/or market maker short selling. These rules help ensure a consistent, less abused system of securities exchange that enhances both market and investor stability. Some of the SEC's rules set forth in Securities Exchange Act of 1934 include the following:
• Control of credit margin requirements
• Investigation and judicial proceedings
• Audit requirements for SEC registered companies
• Exchange transaction impartiality ex: NYSE
• Corporate reporting requirements
The SEC can also implement correctional action against corporations that do not follow specific rules. For example, if a company that is suspected of violating SEC rules is found guilty of such, the SEC can implement punitive action against that company. Such punitive action can 1) damage the reputation of a company, 2) make public wrongdoings by the company 3) limit the business activity of the company and 4) affect the companies equity value among other things. Thus, the SEC hold regulatory authority that can both affect the performance of U.S. securities markets and the businesses that operate within those markets.
Market monitoring:
The market monitoring functions of the SEC are also set out in the Securities Exchange Act of 1934. Moreover, the SEC was established in 1934 after the onset of the Great Depression under the Securities Exchange Act of 1934 to limit price manipulation with securities markets, and improve efficiency of those markets.(2) Without such regulation events similar to those leading up to the stock market crash of 1929 could recur relatively undetected by Government authorities. Thus the SEC was the enacted solution for regulation of the securities markets. A few of the market monitoring capacities of the SEC are listed below:
• Illegality of market manipulation
• Unlawfulness of insider trading
• Market information disclosure requirements
• Registration requirements for ratings agencies ex. Morningstar
• Proper registration of exchange listed/traded securities
Market monitoring provided by the SEC helps ensure standardization of corporate practices which help protect investors from financial misconduct. Suspected violations of SEC rules can be reported to the SEC and the SEC also provides information on investments firms that enter into agreements with investors. In a sense the SEC is a regulatory hub for the investors, government, exchanges and dealers. Thus hub both serves as a resource, reference and requirement for securities related actions and events in addition to being an investigatory organizations that can implement and enforce legislation set forth in both the Securities Act of 1933 and the Securities Exchange Act of 1934.
The SEC is an important institution for investors because it provides information to those investors, facilitates functional operation of securities markets and helps ensure the financial integrity and lawful practices of other market participants such as brokers, market makers, corporations and ratings agencies. As the securities markets evolve the SEC may face new market challenges, however the authorities and capacity granted to the organization allow it to develop alongside those market changes. Such being the case, investors should ideally know about and be aware of the Securities and Exchange Commission.
The market monitoring functions of the SEC are also set out in the Securities Exchange Act of 1934. Moreover, the SEC was established in 1934 after the onset of the Great Depression under the Securities Exchange Act of 1934 to limit price manipulation with securities markets, and improve efficiency of those markets.(2) Without such regulation events similar to those leading up to the stock market crash of 1929 could recur relatively undetected by Government authorities. Thus the SEC was the enacted solution for regulation of the securities markets. A few of the market monitoring capacities of the SEC are listed below:
• Illegality of market manipulation
• Unlawfulness of insider trading
• Market information disclosure requirements
• Registration requirements for ratings agencies ex. Morningstar
• Proper registration of exchange listed/traded securities
Market monitoring provided by the SEC helps ensure standardization of corporate practices which help protect investors from financial misconduct. Suspected violations of SEC rules can be reported to the SEC and the SEC also provides information on investments firms that enter into agreements with investors. In a sense the SEC is a regulatory hub for the investors, government, exchanges and dealers. Thus hub both serves as a resource, reference and requirement for securities related actions and events in addition to being an investigatory organizations that can implement and enforce legislation set forth in both the Securities Act of 1933 and the Securities Exchange Act of 1934.
The SEC is an important institution for investors because it provides information to those investors, facilitates functional operation of securities markets and helps ensure the financial integrity and lawful practices of other market participants such as brokers, market makers, corporations and ratings agencies. As the securities markets evolve the SEC may face new market challenges, however the authorities and capacity granted to the organization allow it to develop alongside those market changes. Such being the case, investors should ideally know about and be aware of the Securities and Exchange Commission.
Sources:
1. http://www.sec.gov/
2. http://www.law.uc.edu/CCL/34Act/index.html
3. http://www.seclaw.com/secrules.htm
4. http://www.law.uc.edu/CCL/33Act/index.html (SEC ACT 1933)
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