U.S. Securities and Exchange Commission facts for kids

Quick facts for kids
U.S. Securities and Exchange Commission

Seal of the U.S. Securities and Exchange Commission
U.S. Securities and Exchange Commission headquarters in Washington, D.C.
Agency overview
Formed	June 6, 1934; 91 years ago (1934-06-06)
Jurisdiction	United States federal government
Headquarters	Washington, D.C., U.S.
Employees	4,807 (2022)
Agency executive	Gary Gensler, Chairman

The U.S. Securities and Exchange Commission (SEC) is an important agency of the United States federal government. It was created after the Wall Street Crash of 1929, a time when the stock market faced big problems. The main job of the SEC is to make sure that financial markets are fair and honest. They work to stop people from cheating or tricking others when buying and selling stocks and other investments.

The SEC helps to enforce several laws. These include the Securities Exchange Act of 1934, which created the SEC, and the Securities Act of 1933. Other laws they enforce are about investment companies and advisors.

What the SEC Does

The SEC has three main goals:

• To protect people who invest their money.
• To keep financial markets fair, organized, and working well.
• To help companies raise money to grow.

To do this, the SEC makes sure that public companies share information regularly. These companies must send in quarterly and annual reports. These reports include their financial information. They also include a story from the company's leaders. This story explains how the company did last year. It also shares their plans for the future.

The SEC has a special online database called EDGAR. This system lets everyone, including regular people, see the information companies share. This helps everyone have the same basic facts. It also helps reduce insider trading, which is when people use secret information to make unfair profits. It also helps prevent fraud, which is when people lie or cheat for money.

Investing in the stock market is different from putting money in a bank. Money in a bank is often guaranteed by the government. But money you invest in stocks is not guaranteed. You could make a lot of money, but you could also lose some. The SEC's rules help you make smart choices. They make sure you have the facts about the companies you invest in.

The SEC also offers educational materials about investing. They also take tips and complaints from investors. This helps them find people who break the rules. The SEC keeps investigations secret until they are finished.

How the SEC Started

Early Days

Before the SEC, states had their own laws about selling investments. These were called "blue sky laws." They were supposed to protect people from fraud. But these laws were not always effective. It was easy for people to get around them. For example, they could sell investments across state lines by mail.

Creating the SEC

The SEC was created by new laws after the Wall Street Crash of 1929. These laws were part of President Franklin D. Roosevelt's New Deal program.

The Securities Act of 1933 was the first law. It made sure that new investments sold across state lines were registered. This meant companies had to share financial information. This helped investors make informed decisions. At first, another agency called the Federal Trade Commission enforced this law.

Then came the Securities Exchange Act of 1934. This law created the SEC. It also gave the SEC the power to regulate how existing investments are traded. This includes places like the New York Stock Exchange. It also includes other groups that set rules for trading. The 1934 Act gave the SEC the job of enforcing both the 1933 and 1934 laws.

Joseph P. Kennedy Sr., the first chairman of the SEC

In 1934, President Roosevelt chose Joseph P. Kennedy to be the first chairman of the SEC. Kennedy was a very successful businessman. He knew a lot about Wall Street. He brought in smart young lawyers to help him.

Kennedy's team had four main goals for the SEC:

• To make investors trust the stock market again.
• To stop cheating and bad practices that hurt investors.
• To end unfair insider trading by top company officials.
• To create a clear system for registering investments sold in America.

The SEC succeeded in these goals. Kennedy helped reassure businesses and ordinary investors. He encouraged them to return to the market. This helped the economy grow again.

Since 1994, most company documents filed with the SEC are available online. You can find them through the SEC's EDGAR system.

How the SEC is Organized

Commission Members

The SEC is led by five commissioners. The President of the United States chooses them. No more than three commissioners can be from the same political party. Their terms last five years. Their terms are set up so that one term ends each year. This helps keep the SEC independent. The president also picks one commissioner to be the chairman. The chairman is the top leader of the SEC.

The president cannot fire the appointed commissioners. This rule helps the SEC stay independent. It means they can make decisions without political pressure.

Divisions

U.S. Securities and Exchange Commission headquarters in Washington, D.C., near Union Station

The SEC has six main divisions. They are all based in Washington, D.C..

The SEC's divisions are:

• Corporation Finance
• Trading and Markets
• Investment Management
• Enforcement
• Economic and Risk Analysis
• Examinations

Corporation Finance checks the information that public companies share. They also handle the registration of big company deals, like mergers. This division also runs the EDGAR system.

The Trading and Markets division watches over groups that set rules for trading. These include organizations like FINRA. They also oversee all firms that buy and sell investments for others. This division also checks new rules and monitors how the industry works.

The Investment Management division oversees companies that manage investments. This includes mutual funds and investment advisors. They make sure these groups follow the rules. They also help the SEC enforce laws about investments.

The Enforcement division investigates when people break securities laws. They take legal action against those who are accused. This is the largest division at the SEC. They can file lawsuits in court. They can also hold special hearings. The SEC cannot bring criminal charges. But they can send cases to other government lawyers who can.

The Economic and Risk Analysis division (DERA) uses economics and data to help the SEC. They help with making policies and rules. They also help with investigations and examinations. DERA helps the SEC understand complex financial issues. They also help find and respond to new risks in the market.

The Division of Examinations checks if companies are following the rules. Their goal is to protect investors and keep markets fair. They also help prevent fraud. The results of their checks help the SEC make new rules. They also help find risks and improve how the industry works.

Regional Offices

The SEC has 11 offices across the United States. These offices help the SEC work closer to people in different parts of the country.

Some other important offices at the SEC are:

• The Office of General Counsel: These are the SEC's lawyers. They give legal advice to the Commission. They also represent the SEC in court.
• The Office of the Chief Accountant: This office sets and enforces rules for accounting and auditing. They work with other groups to create these rules.
• The Office of Compliance, Inspections and Examinations: This office inspects financial firms. This includes broker-dealers and stock exchanges. They check if these firms are following the rules.
• The Office of International Affairs: This office works with other countries. They share information to help stop financial crimes across borders. They also help create international rules for financial markets.
• The Office of Information Technology: This office handles all the technology for the SEC. They develop software and manage computer systems.
• The Inspector General: This office checks the SEC itself. They make sure the SEC is working correctly and honestly.
• The SEC Office of the Whistleblower: This office helps people who report violations of securities laws. These people are called whistleblowers. They can get a reward if their information leads to a successful case.

How the SEC Communicates

Comment Letters

The SEC's Corporation Finance division sends out "comment letters." They send these letters when a company files public documents. These letters ask the company for more information. They might ask the company to change their filing. Or they might ask them to change how they share information in the future. The company must reply to each item in the letter. This back-and-forth communication is later made public. This helps investors see what questions the SEC has asked.

No-Action Letters

"No-action letters" are letters from the SEC staff. They say that the SEC staff will not recommend taking action against a company. This happens if the company does a certain action. These letters are sent when it's not clear if an activity is legal. These letters are made public. They help everyone understand what is and isn't allowed. These letters are the staff's opinion. They are not legally binding on courts.

SEC Operations

Stopping Bad Practices

The SEC has taken action to stop bad practices in the markets. For example, in 2008, they made new rules. These rules stopped certain types of "naked short selling." This helped reduce big ups and downs in the market.

The SEC also investigates people who spread false rumors. These rumors are meant to trick others and manipulate the market. They also look into unusual trading. The SEC has also helped get large amounts of money back for investors who were harmed.

Challenges and Improvements

The SEC has faced criticism for not always catching wrongdoing quickly enough. For example, there were problems with the Bernard Madoff fraud. Madoff ran a huge Ponzi scheme. The SEC was criticized for missing clues about his fraud.

After this, the SEC looked into its own actions. They wanted to see if staff relationships affected decisions. They also worked to improve their processes.

The SEC has a whistleblower program. This program encourages people to report violations. Whistleblowers can receive a reward. This program has helped the SEC recover billions of dollars. It has also led to payments to whistleblowers.

Working with Other Agencies

The SEC works with many other groups. These include self-regulatory organizations like FINRA. They also work with other government agencies. They work with state regulators and international groups. They also work with law enforcement.

The President's Working Group on Financial Markets includes the SEC chairman. This group works to keep financial markets strong and fair.

The SEC also works with the Federal Trade Commission (FTC). The FTC focuses on consumer protection and fair business practices. The SEC focuses on the securities markets.

The Municipal Securities Rulemaking Board (MSRB) creates rules for municipal bonds. The SEC monitors the MSRB.

The SEC is also a member of the International Organization of Securities Commissions (IOSCO). This group helps deal with financial misconduct that crosses borders.

Important Laws Related to the SEC

• 1933: Securities Act of 1933
• 1934: Securities Exchange Act of 1934
• 1939: Trust Indenture Act of 1939
• 1940: Investment Advisers Act of 1940
• 1940: Investment Company Act of 1940
• 2002: Sarbanes–Oxley Act
• 2010: Dodd–Frank Wall Street Reform and Consumer Protection Act

Images for kids

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  U.S. Securities and Exchange Commission headquarters in Washington, D.C.

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  Seal of the U.S. Securities and Exchange Commission

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  Joseph P. Kennedy Sr., the inaugural chairman of the SEC

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  U.S. Securities and Exchange Commission headquarters in Washington, D.C., near Union Station

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  Joseph P. Kennedy Sr.

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  James M. Landis

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  William O. Douglas

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  Jerome Frank

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  Edward C. Eicher

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  Ganson Purcell

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  Hamer Budge

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  William J. Casey

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  Mary Schapiro

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  Arthur Levitt

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  William H. Donaldson

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  Christopher Cox

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  Elisse B. Walter

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  Mary Jo White

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  Michael Piwowar

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  Jay Clayton (attorney)

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  Elad Roisman

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  Allison Lee

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  Gary Gensler

See also

In Spanish: Comisión de Bolsa y Valores para niños

• Financial regulation
• United States securities regulation

Forms

• SEC filing
  • Form 4
  • Form 8-K
  • Form 10-K
  • Form 10-Q
  • Form S-1