Securities and Exchange Commission is a government commission established in 1934 through the Security Exchange Act by the Congress after the Great Depression of 1929 to protect investors by regulating or overseeing the securities markets (Amadeo, 2010). SEC is also mandated to monitor the corporate takeovers in the United States. It is made up of five commissioners who are appointed by the United States president and Senate which approves them. The five commissioners are assisted by 3,100 employees who are located in eighteen offices across the nation (Amadeo, 2010). SEC is composed of four divisions, namely division of corporate finance, division of marketing regulation, division of investment management, and division of enforcement (Amadeo, 2010). The key mission of SEC is to protect investors by maintaining an orderly, fair, and efficient markets as well as facilitating capital information (Amadeo, 2010).
All the main participants of the world securities are overseen by SEC including mutual funds, investment advisors, security brokers and dealers, and securities exchanges. The primary reason for overseeing the main participants is to promote the disclosure of crucial market related information, protect against fraud, and to maintain fair deals (Amadeo, 2010). Trust and transparency has been increased by SEC in the United States stock market making it the most popular and sophisticated stock exchange globally. This popularity has attracted much business to the United States financial institutions such as legal firms, banks, and investment banks. The confidence maintained by SEC in the United States stock market is very critical to the strong functioning of the economy. Transparency in the U.S. stock exchange ensures that investors can access accurate information concerning the profitability of the companies they may be interested to invest. Through this, investors are in a position to determine a good price for the company’s stock. Lack of transparency in the stock market would result in the sudden shifts of the market as companies expose hidden information.
SEC ascertains the investor’s confidence in the stock market by preventing insider trading, preventing the sales of bonds and stocks without proper registration, prosecuting offenders, and preventing deliberate manipulation of the markets. Therefore, it makes it safer for investors to buy bonds, stocks and mutual funds. It has contributed positively to the United States economy as well as contributing to high standards of living that many individuals are enjoying today, and it is not likely that U.S. will again experience a great depression.
SEC also plays a major role in the development of growing companies by making it easier for them to sell stock in a secure market. Since SEC has developed the U.S. stock market a lot, it is normally easier for U.S. companies to grow faster and larger by selling their stocks to finance their development phases. Although there are costs incurred in complying with SEC, cost of issuing stock would be much higher without it (Amadeo, 2010). Due to its regulations, potential investors have access to a lot of information. Furthermore, companies are encouraged not to misrepresent their financial documents. This makes the investment in stock markets safer for each person, and helps investors to trade at higher prices with less prejudice.
Recent SEC rules are favorable to the small companies because they permit public trading of direct public offerings issued by these companies. This means that small companies can make applications that will assist them to trade their shares over-the-counter bulletin board exchanges (Amadeo, 2010). This will give added liquidity to their public offerings. Through this, SEC has encouraged small businesses and innovation through democratizing availability of capital.
In conclusion, SEC requirements are very vital in the stock market since they protect investors by maintaining an orderly, fair, and efficient markets as well as facilitating capital information. Without SEC regulations investors may lose their hard earned money to frauds.