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- The SEC is a government agency that protects investors and ensures fair and efficient capital markets.
- The SEC ensures investment advisors, stock exchanges, and other market participants comply with U.S. securities laws.
- It also regulates the disclosures of publicly held companies to help investors make informed decisions.
From investigating financial crimes to setting public company reporting requirements to educating investors, the Securities and Exchange Commission (SEC) covers a lot of ground in trying to make U.S. capital markets and the broader economy fair and transparent while operating smoothly.
Even if you’re not getting into the weeds of securities laws, the SEC has an impact on most investors behind the scenes. Here’s what you need to know about this important agency.
Overview of the SEC
The SEC is a federal agency that has five commissioners, including a chairperson, nominated by the President and confirmed by the Senate. It’s not quite as independent as the Federal Reserve, as much of its rulemaking depends on laws passed by Congress. Still, the SEC has a lot of leeway to interpret and enforce rules for the protection of capital markets (i.e., investable markets like the stock market). So in that sense, the SEC is similar to other federal agencies like the Department of the Treasury, but the SEC focuses on investments while the Treasury focuses on areas like the banking system.
“The Securities and Exchange Commission is the primary U.S. securities market regulator,” says Robert R. Johnson, chartered financial analyst and professor of finance at Creighton University and author of various investing books, including Investment Banking for Dummies. “The mission of the SEC is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”
The agency also investigates and prosecutes fraud, insider trading, and other securities-related crimes. Some high-profile cases include prosecuting Enron executives for fraudulent reporting as a public company, as well as charging Martha Stewart for insider trading.
Quick tip: The SEC offers resources for beginning investors through Investor.gov, where consumers can research investment advisors, learn about various investing strategies, and leverage a number of financial calculators and tools.
History and establishment of the SEC
Here’s a quick look at how the SEC got started — and how its duties have evolved over the years:
- 1934: Franklin D. Roosevelt passed the Securities Exchange Act, which created the SEC as a government agency. It also transferred the FTC’s power of enforcement to the agency, allowing it to investigate and prosecute violators of national securities laws.
- 1939-1940: Several additional securities laws were passed, which fell under the SEC’s purview. These include the Trust Indenture Act (which regulates debt securities), the Investment Company Act (which regulates investment companies like mutual funds), and the Investment Advisers Act (which regulates certain financial advisors).
- 1994: The SEC created EDGAR, a system that allows consumers to view registration materials and other documentation from publicly held companies.
- 2002: The Sarbanes-Oxley Act was passed, which aimed to improve financial disclosures and discourage corporate fraud, such as to avoid what happened with Enron. It also created the Public Company Accounting Oversight Board to oversee auditors.
- 2010: Following the Great Recession, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which sought to strengthen protections for consumers, as well as better regulate trading, credit ratings, and more. Dodd-Frank empowered the SEC to adopt a wide range of new rules, such as to increase public company disclosure and better regulate private investment funds.
Quick tip: If you think you’ve been the victim of a securities crime, contact your regional SEC office or report the suspected wrongdoing on the SEC’s site.
Mission and objectives of the SEC
The SEC’s mission, since its inception during the Great Depression, has been “protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation,” according to the agency.
To accomplish its mission, the SEC has several key objectives, such as interpreting and enforcing securities laws, facilitating capital formation by overseeing securities offerings like IPOs, and investigating fraud in capital markets.
Key responsibilities of the SEC
To help capital markets run well while also being fair to investors (rather than tilting the scales too far in favor of companies or certain investors that might have informational advantages), the SEC has several key responsibilities, such as:
Regulating securities markets
The SEC regulates stock exchanges and securities market participants such as mutual funds, ETFs, and investment advisors (though there are varying degrees to how much regulation certain types of funds and advisors face) to help ensure markets run smoothly and justly.
For example, the SEC has rules around public company disclosures so that investors can make well-informed investment decisions, which can help encourage more participation in the stock market.
According to John Carney, partner at law firm BakerHostetler and former senior counsel for the SEC, this is one of the most important SEC duties.
“They oversee how public companies report their earnings and how they make their disclosures because that’s what makes stocks go up and down,” Carney says. “They make sure companies tell the truth about what’s how they’re doing, how much money they’ve made, and all their operations.”
Protecting investors
Regulating securities markets goes hand in hand with one of the SEC’s main goals of protecting investors by maintaining a fair market. In addition to requiring disclosure, the SEC protects investors by enforcing securities laws and investigating misconduct, such as fraudulent financial reporting.
“The SEC is there to instill confidence,” says Vincent Lupo, managing director of US Tiger Securities, an investment brokerage based in New York. “Whether you’re saving for retirement or trying to attain new financial goals, the SEC is there to enforce the rules and make sure you’re protected. They require public companies and other market participants to disclose financial and other important information so that investors have the complete information to make informed investment decisions — which is especially important in today’s marketplace.”
The SEC is also there should you need guidance or fall victim to a dishonest broker or investment advisor. As Carney puts it, “People should know that they can call the SEC. The SEC is there to protect them. If you believe an asset manager or a broker stole from you, the SEC can run an investigation, go after them, bring charges, and try to get your money back.”
Enabling capital raising
For the economy to function well, it’s important for companies to be able to raise capital (i.e., money) from investors, such as through selling debt securities like bonds or selling equity stakes in their companies (i.e., stocks). So, while the SEC enforces laws and protects investors from misconduct, it’s not just there to police bad behavior. There’s also a role of the SEC in financial markets in terms of encouraging access to capital markets and supporting a healthy economy, such as by overseeing the IPO process and providing educational resources to small businesses about capital formation.
Structure of the SEC
As a federal agency, the SEC’s structure is defined by federal law. Some of the key components include the following:
Leadership and organizational structure
The SEC is led by a chairperson and four commissioners, all of whom are appointed by the U.S. president and confirmed by the Senate. No more than three commissioners can be from the same political party to help maintain some balance.
Each commissioner or chair serves a term of five years, and these are staggered so only one person’s term ends each year. They can also be reappointed after their term ends, and they can serve around 18 months after their term expires if no replacement has been made.
In addition to these leaders, the SEC has a vast network of around 5,000 employees, spread across six divisions and 25 offices. The six divisions include:
- Corporation finance: This department holds companies to disclosure and reporting laws — both when they go public and on a regular basis. This helps investors make more informed and successful decisions.
- Examinations: The examinations division works to analyze existing processes and regulations that affect U.S. securities. Its “exams” are used to improve and inform future policy and enforcement practices.
- Economic and risk analysis: This department handles the SEC’s analytics and data efforts, which inform actions across the agency.
- Investment management: This division regulates investment companies, including mutual funds, money market funds, and ETFs. As the agency itself explains, “The work of the Division of Investment Management touches the lives of Main Street investors. We oversee mutual funds and other investment products and services that investors may use to help them buy a home, send kids to college, or prepare for retirement.”
- Enforcement: The enforcement division investigates securities violations and prosecutes misconduct through civil penalties and the U.S. court system.
- Trading and markets: The division of trading and markets regulates securities professionals, stock exchanges, and other market participants. It also establishes and maintains market standards to ensure a fair playing ground for all investors.
The 26 offices refer to different operational functions, ranging from accounting, to credit ratings, to minority and women inclusion.
Regional offices and their functions
The SEC’s main headquarters are located in Washington, DC, but it has regional offices in 10 other locations across the U.S., such as in New York, Chicago, and Los Angeles. Previously, there were 11 offices, but the Salt Lake City office closed in 2024.
These regional offices help the SEC manage its responsibilities, such as enforcing securities laws regarding local investment advisors and companies engaged in capital markets activity.
Current challenges and criticisms facing the SEC
The SEC tries to stay informed about changing market conditions, investor needs, etc., but like any government agency, it has its challenges and critics.
Impact of technology on regulation
One challenge facing the SEC is that technology can affect its regulatory capabilities and prompt the need for newly implemented securities laws.
For example, cybersecurity poses significant risks to public companies and market participants, such as stock exchanges. So, the SEC has to evaluate how to enforce regulations, such as potentially charging companies that fail to adequately disclose cybersecurity issues to investors. The agency also has a role in establishing rules for stock exchanges regarding cyber risk management.
Advancing technologies, such as algorithmic trading and the establishment of digital finance tools like cryptocurrencies, can also affect the SEC’s ability to protect investors and ensure healthy capital markets. Ultimately, as technology changes, the SEC needs to evaluate how those changes affect its oversight and potentially make changes of its own or suggest that Congress make appropriate regulatory changes.
Criticisms of the SEC’s effectiveness
Not everyone agrees with the SEC’s actions. For one, the agency can be politicized. Even with a limit of three commissioners (including the chair) per political party, that still tends to create a 3:2 split among Republicans and Democrats, depending on who’s in power when terms expire. So, some of the SEC’s interpretations of laws are open to criticism from political opponents, similar to how the Supreme Court arguably makes politicized interpretations of laws.
Politics aside, some market participants might also disagree with the SEC’s approach, such as in choosing which fraud cases to pursue. For example, despite warnings, the SEC did not catch on to Bernie Madoff’s Ponzi scheme.
FAQs about the SEC
The main purpose of the SEC is to ensure that securities markets operate fairly, transparently, and efficiently while facilitating capital formation so that business and the overall economy can grow.
The SEC tries to protect investors by enforcing securities laws, promoting financial disclosures, and providing educational resources to investors.
The SEC regulates a wide range of securities, such as publicly traded stocks, investment funds (particularly ones for sale to the general public, like mutual funds), and a wide range of bonds.
You can file a complaint with the SEC online, by phone, email, fax, or mail, such as if you think you’ve been the victim of a securities crime. You can find the SEC’s Investor Complaint Form online and then print it out if you prefer. You can also contact your regional SEC office for more help.
The SEC enforces key regulations such as the Investment Advisors Act which regulates many financial advisors, such as by requiring them to register with the agency and uphold the fiduciary standard when working with customers (though not all advisors fall under this regulation). Another key regulation is the Investment Company Act, which the SEC enforces such as by requiring mutual funds to disclose their holdings, fees, and other key information to investors.