United States Securities and Exchange Commission

Overview

The SEC has a three-part mission: to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.

To achieve its mandate, the SEC enforces the statutory requirement that public companies and other regulated entities submit quarterly and annual reports, as well as other periodic disclosures. In addition to annual financial reports, company executives must provide a narrative account, called the "management discussion and analysis" (MD&A), that outlines the previous year of operations and explains how the company fared in that time period. MD&A usually addresses the upcoming year, outlining future goals and approaches to new projects.

Quarterly and semiannual reports from public companies are crucial for investors to make sound decisions when investing in capital markets. Unlike banking, investment in capital markets is not guaranteed by the federal government. The potential for large gains needs to be weighed against that of sizable losses. Mandatory disclosure of financial and other information about the issuer and the security itself gives private individuals as well as large institutions the same fundamental facts about the public companies they invest in, thereby increasing public scrutiny while reducing insider trading and fraud.

In an attempt to level the playing field for all investors, the SEC maintains an online database called EDGAR (the Electronic Data Gathering, Analysis, and Retrieval system) from which investors can access information filed with the agency, such as reports. The same online system also accepts tips and complaints from investors to help the SEC track down violators of the securities laws, as well as offering publications on investment-related topics for public education. The SEC maintains a strict policy of refraining from commenting on the existence or status of any ongoing investigation.

History

Background

Prior to the enactment of the federal securities laws and the creation of the SEC, securities trading was governed by so-called blue sky laws. These laws were enacted and enforced at the state level and regulated the offering and sale of securities to protect the public from fraud. Though the specific provisions of these laws varied among states, they all required the registration of all securities offerings and sales, as well as of every U.S. stockbroker and brokerage firm. However, blue sky laws were generally considered ineffective. For example, as early as 1915, the Investment Bankers Association told its members that they could circumvent blue sky laws by making securities offerings across state lines through the mail.

Founding

The SEC's authority was established by the Securities Act of 1933 and Securities Exchange Act of 1934; both laws are considered parts of Franklin D. Roosevelt's New Deal program.

After the Pecora Commission hearings on abuses and frauds in securities markets, Congress passed the Securities Act of 1933 (15 U.S.C. § 77a), which federally regulates original issues of securities across state lines, primarily by requiring that issuing companies register distributions prior to sale so that investors may access basic financial information and make informed decisions. For the first year of the law's enactment, the enforcement of the statute rested with the Federal Trade Commission.

The subsequent Securities Exchange Act of 1934 (15 U.S.C. § 78d) regulates secondary markets for securities. The 1934 Act regulates secondary trading between individuals and companies which are often unrelated to the original issuers of securities. Entities under the SEC's authority include securities exchanges with physical trading floors such as the New York Stock Exchange, self-regulatory organizations, the Municipal Securities Rulemaking Board, NASDAQ, alternative trading systems, and any other persons engaged in transactions for the accounts of others. Section 4 of the 1934 Act transferred the FTC's enforcement authority under the 1933 Act to the newly created Securities and Exchange Commission and tasked the new commission with enforcing both acts.

In 1934, Roosevelt named his friend Joseph P. Kennedy, a self-made multimillionaire, financier, and leader among the Irish-American community, as chairman of the SEC. Roosevelt chose Kennedy partly based on his experience on Wall Street. Two of the other five commissioners were James M. Landis and Ferdinand Pecora. Kennedy added a number of intelligent young lawyers to the SEC staff, including William O. Douglas and Abe Fortas, both of whom later became Supreme Court justices.

Another of Kennedy’s early appointees was David Saperstein, a former associate counsel to the Pecora Commission who helped draft the Securities Exchange Act of 1934. As the SEC’s first Director of the Division of Trading and Exchange, Saperstein oversaw the registration of brokers and dealers, the creation of the first federal rules for over-the-counter markets, and issued early policy interpretations—such as the 1937 "Saperstein Interpretation"—that shaped the Commission’s approach to market structure and conflicts of interest.

21st century

In 2019, the Securities and Exchange Commission Historical Society introduced an online gallery to illustrate changes in the US securities market structure since the 1930s. The online gallery features a narrative history supported by dozens of documents, papers, interviews, photos and videos.

Organizational structure

Commission members

The commission has five commissioners appointed by the president of the United States. No more than three commissioners may belong to the same political party. Their five-year terms are staggered so that one commissioner's term ends on June 5 each year. Service may continue for up to 18 additional months past term expiration.

The president also designates one commissioner as chairman, the SEC's top executive. However, the president does not possess the power to fire the appointed commissioners, a provision that was made to ensure the independence of the SEC. This issue arose during the 2008 financial crisis and the John McCain 2008 presidential campaign.

Current commissioners

The current board members as of May 24, 2026:

Divisions

Within the SEC, there are six divisions, which is headquartered in Washington, D.C.

The SEC's divisions are:

Corporation Finance

Trading and Markets

Investment Management

Enforcement

Economic and Risk Analysis

Examinations

Corporation Finance is the division that oversees the disclosure made by public companies, as well as the registration of transactions, such as mergers, made by companies. The division is also responsible for operating EDGAR.

The Trading and Markets division oversees self-regulatory organizations (SRO's) such as the Financial Industry Regulatory Authority (FINRA) and Municipal Securities Rulemaking Board (MSRB) and all broker-dealer firms and investment houses. This division also interprets proposed changes to regulations and monitors operations of the industry. In practice, the SEC delegates most of its enforcement and rulemaking authority to FINRA. In fact, all trading firms not regulated by other SROs must register as a member of FINRA. Individuals trading securities must pass exams administered by FINRA to become registered representatives.

The Investment Management Division oversees registered investment companies, which include mutual funds, as well as registered investment advisors. These entities are subject to extensive regulation under various federal securities laws. The Division of Investment Management administers various federal securities laws, in particular, the Investment Company Act of 1940 and Investment Advisers Act of 1940. This division's responsibilities include:

assisting the commission in interpreting laws and regulations for the public and SEC inspection and enforcement staff;

Regional offices

There are 11 regional offices throughout the US, which are listed below along with the name of the respective regional director.

Among the SEC's offices are:

The Office of General Counsel, which acts as the agency's "lawyer" before federal appellate courts and provides legal advice to the commission and other SEC divisions and offices;

The Office of the Chief Accountant, which establishes and enforces accounting and auditing policies set by the SEC. This office has played a role in such areas as working with the Financial Accounting Standards Board to develop Generally Accepted Accounting Principles, the Public Company Accounting Oversight Board in developing audit requirements, and the International Accounting Standards Board in advancing the development of International Financial Reporting Standards;

The Office of Compliance, Inspections and Examinations, which inspects broker-dealers, stock exchanges, credit rating agencies, registered investment companies, including both closed-end and open-end (mutual funds) investment companies, money funds. and Registered Investment Advisors;

The Office of International Affairs, which represents the SEC abroad and which negotiates international enforcement information-sharing agreements, develops the SEC's international regulatory policies in areas such as mutual recognition, and helps develop international regulatory standards through organizations such as the International Organization of Securities Commissions and the Financial Stability Forum; and

The Office of Information Technology, which supports the commission and staff in information technology, including application development, infrastructure operations. and engineering, user support, IT program management, capital planning, security, and enterprise architecture.

The Inspector General. The SEC announced in January 2013 that it had named Carl Hoecker the new inspector general. He has a staff of 22.

Communications

Comment letters

Comment letters are issued by the SEC's Division of Corporation Finance in response to a company's public filing. This letter, initially private, contains an itemized list of requests from the SEC. Each comment in the letter asks the filer to provide additional information, modify their submitted filing, or change the way they disclose in future filings. The filer must reply to each item in the comment letter. The SEC may then reply back with follow-up comments. This correspondence is later made public.

In October 2001 the SEC wrote to CA, Inc., covering 15 items, mostly about CA's accounting, including 5 about revenue recognition. The chief executive officer of CA, to whom the letter was addressed, pleaded guilty to fraud at CA in 2004.

In June 2004, the SEC announced that it would publicly post all comment letters, to give investors access to the information in them. An analysis of regulatory filings in May 2006 over the prior 12 months indicated, that the SEC had not accomplished what it said it would do. The analysis found 212 companies that had reported receiving comment letters from the SEC, but only 21 letters for these companies were posted on the SEC's website. John W. White, the head of the Division of Corporation Finance, told the New York Times in 2006: "We have now resolved the hurdles of posting the information... We expect a significant number of new postings in the coming months."

No-action letters

No-action letters are letters by the SEC staff indicating that the staff will not recommend to the commission that the SEC undertake enforcement action against a person or company if that entity engages in a particular action. These letters are sent in response to requests made when the legal status of an activity is not clear. These letters are publicly released and increase the body of knowledge on what exactly is and is not allowed. They represent the staff's interpretations of the securities laws and, while persuasive, are not binding on the courts.

One such use, from 1975 to 2007, was with the nationally recognized statistical rating organization (NRSRO), a credit rating agency that issues credit ratings that the SEC permits other financial firms to use for certain regulatory purposes.

Freedom of Information Act processing performance

In the latest Center for Effective Government analysis of 15 federal agencies which receive the most Freedom of Information Act (FOIA) requests published in 2015 (using 2012 and 2013 data, the most recent years available), the SEC was among the 5 lowest performers, earned a D− by scoring 61 out of a possible 100 points, i.e. did not earn a satisfactory overall grade. It had deteriorated from a D− in 2013.

Operations

List of major SEC enforcement actions (2009–12)

The SEC's Enforcement Division took a number of major actions in 2009–12.

Regulatory action in the credit crunch

The SEC announced on September 17, 2008, strict new rules to prohibit all forms of "naked short selling" as a measure to reduce volatility in turbulent markets.

The SEC investigated cases involving individuals attempting to manipulate the market by passing false rumors about certain financial institutions. The commission has also investigated trading irregularities and abusive short-selling practices. Hedge fund managers, broker-dealers, and institutional investors were also asked to disclose under oath certain information pertaining to their positions in credit default swaps. The commission also negotiated the largest settlements in the history of the SEC (approximately $51 billion in all) on behalf of investors who purchased auction rate securities from six different financial institutions.

Regulatory failures

The SEC has been criticized "for being too 'tentative and fearful' in confronting wrongdoing on Wall Street", and for doing "an especially poor job of holding executives accountable".

Christopher Cox, the former SEC chairman, has recognized the organization's multiple failures in relation to the Bernard Madoff fraud. Starting with an investigation in 1992 into a Madoff feeder fund that only invested with Madoff, and which, according to the SEC, promised "curiously steady" returns, the SEC did not investigate indications that something was amiss in Madoff's investment firm. The SEC has been accused of missing numerous red flags and ignoring tips on Madoff's alleged fraud.

As a result, Cox said that an investigation would ensue into "all staff contact and relationships with the Madoff family and firm, and their impact, if any, on decisions by staff regarding the firm". SEC assistant director of the Office of Compliance Investigations Eric Swanson had met Madoff's niece, Shana Madoff, when Swanson was conducting an SEC examination of whether Bernard Madoff was running a Ponzi scheme because she was the firm's compliance attorney. The investigation was closed, and Swanson subsequently left the SEC, and married Shana Madoff.

Approximately 45 percent of institutional investors thought that better oversight by the SEC could have prevented the Madoff fraud. Harry Markopolos complained to the SEC's Boston office in 2000, telling the SEC staff they should investigate Madoff because it was impossible to legally make the profits Madoff claimed using the investment strategies that he said he used.

In June 2010, the SEC settled a wrongful termination lawsuit with former SEC enforcement lawyer Gary J. Aguirre, who was terminated in September 2005 following his attempt to subpoena Wall Street figure John J. Mack in an insider trading case involving hedge fund Pequot Capital Management; Mary Jo White, who later served as chair of the

SEC, was at the time representing Morgan Stanley and was involved in this case. While the insider case was dropped at the time, a month prior to the SEC's settlement with Aguirre the SEC filed charges against Pequot. The Senate released a report in August 2007 detailing the issue and calling for reform of the SEC.

Whistleblower program

The SEC runs a whistleblower rewards program, which rewards individuals who report violations of securities laws to the SEC. The program began in 2011 with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act and allows whistleblowers to be given 10–30% of the penalties collected by the SEC and other agencies as a result of the whistleblower's information. As of 2021, the SEC had recovered $4.8 billion in monetary remedies as a result of information obtained through the whistleblower program and had paid out over $1 billion to whistleblowers. As part of the program, the SEC issues a report to Congress each year and the 2021 report is available online.

Relationship to other agencies

In addition to working with various self-regulatory organizations such as the Financial Industry Regulatory Authority (FINRA), the Securities Investor Protection Corporation (SIPC), and Municipal Securities Rulemaking Board (MSRB), the SEC also works with federal agencies, state securities regulators, international securities agencies and law enforcement agencies. The SEC is statutorily required by the Securities Act of 1933 to meet with state securities regulators annually in what has become known as the "Section 19(d) conference" referencing the portion of the law the calls for it. The meeting is jointly organized by the SEC and the North American Securities Administrators Association (NASAA), a membership organization made up of the state securities regulators.

In 1988, Executive Order 12631 established the president's Working Group on Financial Markets. The Working Group is chaired by the secretary of the treasury and includes the chairman of the SEC, the chairman of the Federal Reserve and the chairman of the Commodity Futures Trading Commission. The goal of the Working Group is to enhance the integrity, efficiency, orderliness, and competitiveness of the financial markets while maintaining investor confidence.

The Securities Act of 1933 was originally administered by the Federal Trade Commission. The Securities Exchange Act of 1934 transferred this responsibility from the FTC to the SEC. The Securities Exchange Act of 1934 also gave the SEC the power to regulate the solicitation of proxies, though some of the rules the SEC has since proposed (like the universal proxy) have been controversial. The main mission of the FTC is to promote consumer protection and to eradicate anti-competitive business practices. The FTC regulates general business practices, while the SEC focuses on the securities markets.

The Temporary National Economic Committee was established by joint resolution of Congress 52 Stat. 705 on June 16, 1938. It was in charge of reporting to Congress on abuses of monopoly power. The committee was defunded in 1941, but its records are still under seal by order of the SEC.

The Municipal Securities Rulemaking Board (MSRB) was established in 1975 by Congress to develop rules for companies involved in underwriting and trading municipal securities. The MSRB is monitored by the SEC, but the MSRB does not have the authority to enforce its rules.

Related legislation

1933: Securities Act of 1933

1934: Securities Exchange Act of 1934

1938: Temporary National Economic Committee (establishment)

1939: Trust Indenture Act of 1939

1940: Investment Advisers Act of 1940

1940: Investment Company Act of 1940

1968: Williams Act (Securities Disclosure Act)

1982: Garn–St. Germain Depository Institutions Act

1999: Gramm–Leach–Bliley Act

2000: Commodity Futures Modernization Act of 2000

2002: Sarbanes–Oxley Act

2003: Fair and Accurate Credit Transactions Act of 2003

2006: Credit Rating Agency Reform Act of 2006

2010: Dodd–Frank Wall Street Reform and Consumer Protection Act

2012: Volcker Rule (a specific section of the Dodd–Frank Act)

2020: Holding Foreign Companies Accountable Act

Title 17 of the Code of Federal Regulations

2023: SEC Cybersecurity Rules: Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure by Public Companies