Security and Exchange Commission
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| Security and Exchange Commission | |
|---|---|
| Agency name | Security and Exchange Commission |
| Formed | 1934 |
| Jurisdiction | United States |
| Headquarters | Washington, D.C. |
Security and Exchange Commission is a United States federal agency created to regulate securities markets and protect investors. It was established in the aftermath of the Wall Street Crash of 1929 and the Great Depression to restore public confidence in financial markets. The agency supervises securities exchanges, broker-dealers, investment advisers, and public companies to promote fair, orderly, and efficient markets.
History
The creation of the agency followed a sequence of events and reforms including the stock market collapse associated with the Wall Street Crash of 1929, the policy responses of the Hoover administration and the New Deal, and legislative action by the 73rd United States Congress. The agency's statutory foundation is rooted in the Securities Exchange Act of 1934, which supplemented the earlier Securities Act of 1933. Early leadership dealt with crises tied to figures and institutions such as Charles E. Mitchell and J.P. Morgan & Co.; later historical episodes involved oversight disputes during the administrations of Franklin D. Roosevelt and Dwight D. Eisenhower. Major amendments and programmatic changes occurred after events including the Panic of 1987 and the corporate scandals involving Enron, WorldCom, and Arthur Andersen, which prompted the Sarbanes–Oxley Act of 2002. Subsequent reforms responded to the Financial crisis of 2007–2008 and legislative responses like the Dodd–Frank Wall Street Reform and Consumer Protection Act.
Legal Authority and Structure
The agency's authority is principally derived from statutes enacted by the United States Congress, notably the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, and the Trust Indenture Act of 1939. It operates within the federal administrative law framework shaped by the Administrative Procedure Act and judicial precedents such as decisions from the United States Supreme Court and the United States Court of Appeals for the District of Columbia Circuit. The agency interacts with other federal entities including the Department of Justice, the Federal Reserve System, the Commodity Futures Trading Commission, and the Public Company Accounting Oversight Board—each connection influencing enforcement jurisdiction, rulemaking coordination, and oversight of cross-market activities.
Functions and Responsibilities
Primary responsibilities include registration and disclosure by issuers under the Securities Act of 1933 and the Securities Exchange Act of 1934, oversight of national securities exchanges such as New York Stock Exchange and NASDAQ, and regulation of broker-dealers and investment advisers registered under the Investment Advisers Act of 1940. The agency administers reporting obligations of public companies that file periodic reports involving filings like Form 10-K and Form 10-Q, interacts with accounting standards set by the Financial Accounting Standards Board, and reviews proxy materials in contested corporate events involving parties such as activist investors and corporations like Xerox or Citigroup. It also maintains disclosure regimes for municipal securities in coordination with state entities such as the Municipal Securities Rulemaking Board.
Enforcement and Litigation
Enforcement powers include civil injunctive actions, administrative proceedings, and referrals for criminal prosecution to the Department of Justice. High-profile enforcement actions have targeted entities and individuals including Martha Stewart, Raj Rajaratnam, Bernard Madoff, and firms such as Goldman Sachs and Lehman Brothers. The agency has pursued insider trading, accounting fraud, market manipulation, and disclosure violations with litigation that often reaches the United States Court of Appeals and the United States Supreme Court, shaping doctrines like the standards for scienter, fraud-on-the-market, and extraterritorial reach, as seen in cases influenced by defendants connected to markets in London and Tokyo.
Regulation and Rulemaking
Rulemaking occurs through notice-and-comment proceedings under the Administrative Procedure Act and internal divisions that issue rules on matters such as market structure, electronic trading, and disclosure modernization. Notable rule initiatives have involved Regulation NMS affecting electronic communication networks, the adoption of Regulation Best Interest pertaining to broker conduct, and reforms to proxy plumbing that affect corporations like ExxonMobil and Apple Inc.. The agency consults with self-regulatory organizations such as the Financial Industry Regulatory Authority and international bodies like the International Organization of Securities Commissions when harmonizing cross-border standards.
Organizational Structure and Leadership
The agency is organized into divisions and offices including the Division of Corporation Finance, the Division of Enforcement, the Division of Trading and Markets, and the Office of the Chief Accountant. Leadership comprises commissioners appointed by the President of the United States with advice and consent of the United States Senate, and chairs who have included officials connected to administrations from Harry S. Truman to contemporary presidencies. The agency's regional and headquarters operations engage with market centers in New York City, Chicago, and San Francisco.
Criticisms and Controversies
Critiques have focused on regulatory capture concerns linked to the revolving door between the agency and firms such as Morgan Stanley and J.P. Morgan Chase, enforcement resource allocation in the wake of scandals like Enron and Bernard Madoff, and debates over the adequacy of oversight during the Financial crisis of 2007–2008. Legal controversies include challenges to rulemaking authority in cases involving the Dodd–Frank provisions and disputes over accounting oversight involving Ernst & Young and PricewaterhouseCoopers. Academic and policy critics from institutions such as Harvard University and Yale University have called for reforms addressing market structure, investor protection, and technological change brought by firms like Coinbase and developments such as cryptocurrency trading platforms.