How Does The SEC Protect Your Investments?

For the past seven years, Kat has been helping people make the best financial decisions for their unique situations, whether they're looking for the right insurance policies or trying to pay down debt. Kat has expertise in insurance and student loans.

For the past seven years, Kat has been helping people make the best financial decisions for their unique situations, whether they're looking for the right insurance policies or trying to pay down debt. Kat has expertise in insurance and student loans.

For the past seven years, Kat has been helping people make the best financial decisions for their unique situations, whether they're looking for the right insurance policies or trying to pay down debt. Kat has expertise in insurance and student loans.

For the past seven years, Kat has been helping people make the best financial decisions for their unique situations, whether they're looking for the right insurance policies or trying to pay down debt. Kat has expertise in insurance and student loans.

Michael Adams is an investing editor. He's researched, written about and practiced investing for nearly two decades. As a writer, Michael has covered everything from stocks to cryptocurrency and ETFs for many of the world's major financial publicatio.

Michael Adams is an investing editor. He's researched, written about and practiced investing for nearly two decades. As a writer, Michael has covered everything from stocks to cryptocurrency and ETFs for many of the world's major financial publicatio.

Michael Adams is an investing editor. He's researched, written about and practiced investing for nearly two decades. As a writer, Michael has covered everything from stocks to cryptocurrency and ETFs for many of the world's major financial publicatio.

Michael Adams is an investing editor. He's researched, written about and practiced investing for nearly two decades. As a writer, Michael has covered everything from stocks to cryptocurrency and ETFs for many of the world's major financial publicatio.

Updated: Jul 13, 2023, 9:49am

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If you watch the news at all, you might hear stories about the U.S. Securities and Exchange Commission (SEC) taking action against this company or that individual. Although this may sound impressive or maybe even scary, many investors and Americans don’t know precisely what the SEC is and why its actions are important.

The answer, however, is simple. The SEC is a federal administrative agency that was established to monitor markets, enforce laws regarding securities and investments and develop new regulations as markets change.

Even though the SEC may seem abstract or disconnected from your everyday life, it plays a vital role in protecting your investments.

What Is the SEC?

The stock market crash of 1929 was devastating for millions of people, and many lost confidence in the strength and reliability of the U.S. market. As a result, Congress held hearings to identify the root causes of the problems and to decide on a path forward.

This led to Congress passing the Securities Exchange Act of 1934. Under that act, the SEC was formed. The main purpose behind the Securities Exchange Act was to ensure two main points:

• Companies offering the public shares of securities for sale must be truthful about their business practices, the securities they sell and any risks that investing in those securities may bring.
• Individuals and companies that buy and sell securities—such as brokers, advisors and exchanges—must treat investors with honesty and fairness.

The Role of the SEC

The SEC has a three-part mission:

• Protect investors. The SEC protects investors by requiring companies, fund and asset managers and investment professionals to disclose financial details on a regular basis in a standardized format so investors can have the information they need to make investment decisions. The SEC also enforces federal securities laws to hold companies and individuals accountable and to prevent future misconduct.
• Maintain fair and efficient markets. U.S. markets are complex, so the SEC is focused on adapting to market innovation and trends. As investments and technologies change, the SEC adjusts to modernize its rules and regulations.
• Assist in the formation of capital. The SEC is also focused on capital formation, particularly for small businesses so they can grow and expand. It provides companies and entrepreneurs with resources to raise capital from investors.

The Structure of the SEC

The SEC has five commissioners. These commissioners are appointed by the President of the United States with the advice and consent of the Senate. The President also chooses one commissioner to act as SEC chair, the top executive of the agency.

Currently, the SEC chair is Gary Gensler. He was nominated by President Joe Biden and was confirmed by the Senate in 2021, and his term is expected to end in 2026.

The commissioners’ terms last for five years, and the terms are staggered so that one commissioner’s term ends on June 5 every year. However, the SEC chair and commissioners can continue to serve for up to 18 months after their terms expire if they are not replaced.

The SEC is a non-partisan agency. To maintain a non-partisan balance, no more than three commissioners can be from the same political party.

The SEC has a broad range of responsibilities, and it operates six divisions:

1. Corporation finance. The Division of Corporation Finance works to ensure that investors have the materials they need to make informed decisions. It oversees companies’ financial and regulatory filings and sets financial reporting standards.
2. Economic and risk analysis. The Division of Economic and Risk Analysis uses detailed analysis and data analytics to provide expertise to the SEC and other divisions, identify market trends and issues and detect market risk.
3. Enforcement. Previously, enforcement actions were handled by the various operating divisions of the SEC. The Division of Enforcement was created in 1972 to consolidate enforcement efforts. This division conducts investigations and prosecutes violations of federal securities laws.
4. Examinations. The Division of Examinations protects investors by improving compliance, preventing fraud, monitoring risk and informing policies. Its efforts are used by the SEC to improve industry practices and to identify misconduct.
5. Investment management. The Division of Investment Management has a significant impact on retail investors’ lives. It develops regulatory policies for investment companies, including mutual funds and exchange-traded funds (ETFs), and for investment advisers.
6. Trading and markets. The Division of Trading and Markets sets fair trading practices and regulates market participants.

According to the SEC Agency Financial Report for the 2022 fiscal year, the SEC oversees the following:

• Over 29,000 registered entities.
• More than 3,500 broker-dealers.
• 24 national securities exchanges.
• 102 alternative trading systems.
• 10 credit rating agencies.
• Seven active registered clearing agencies.
• 33 self-regulatory organizations.
• Other external entities.

According to the SEC, it oversees approximately $115 trillion in securities traded on U.S. equity markets annually. It operates 11 regional offices and has over 4,500 employees.

How the SEC Affects Individual Investors

Although the SEC may seem like a distant, complicated organization with lots of red tape, the SEC plays an important role in protecting your money. For example, you may get help from the SEC in the following ways:

• Educational tools. The SEC has created a wide range of educational tools for investors. These materials include calculators to estimate how your money can grow over time, detailed guides on choosing an investment adviser, information on available investment products and breakdowns of typical investment fees. Whether you’re a brand new investor or have been investing for years, these materials can help you better understand the market and make sound investment decisions.
• Verify investment advisor or brokerage. Investing is a highly regulated industry. Before hiring an investment professional, it’s important to find out if they are registered with the SEC or a state securities regulator. This is a crucial step, especially as more people on social media and other platforms claim to be investment professionals but lack the necessary credentials. You can use the SEC’s investment advisor public disclosure database to find an individual or company’s credentials, education and any disciplinary events.
• Regulatory news. If you follow the SEC’s news page, you can get the latest updates about new regulations for financial products or actions taken against companies or individuals. For example:
  • Binance. In 2023, the SEC announced charges against Binance Holdings, which operated the largest cryptocurrency trading platform in the world. The SEC alleged that the company violated several securities laws, including the operation of unregistered national securities exchanges, the unregistered offer and sale of Binance’s own cryptocurrency assets and exercising control over customer assets.
  • FTX. Also in 2023, the SEC charged Samuel Bankman-Fried, the CEO and co-founder of FTX Trading Ltd, with defrauding investors through the cryptocurrency platform.

  The SEC plays an essential role in ensuring fair and efficient markets and protecting investors. Through the six divisions of the SEC, the SEC regulates the investing industry and enforces securities laws.