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Everything You Need To Know About The Functioning And Jurisdiction Of The SEC

by Altaf Shaikh
Everything You Need To Know About The Functioning And Jurisdiction Of The SEC

SEC or the Securities and Exchange Commission is a large independent agency of the United States Federal government responsible for keeping a regulation on the securities market and even protecting the investors who may or may not use Quant trading.

Since its inception 85 years ago, this organization has lived up to its expectations of maintaining fair, orderly, and efficient markets in the worst economic situations. SEC was created in the year 1934 to restore the confidence of the investors in the market. It was important to do so in the wake of the stock market crash in the year 1929. 

A team of unique, tireless, and dedicated professionals protect and secure the financial futures of investors. The SEC has been assigned the right to take civil actions against lawbreakers and can also work on criminal cases with the Justice Department. It is also responsible for approving registration statements for book-runners among underwriting firms.

Functioning of SEC

Functioning of SEC

The prime mission of this agency is :

  • to protect investors against fraudulent and manipulative market practices
  • to facilitate capital formation
  • to maintain fair, orderly, and efficient markets 

The functioning of SEC depends majorly and entirely to safeguard and maintain the above mission intact. 

The primary functions of the Securities and Exchange Commission (SEC) are to:

  • Oversee individuals and organizations in the securities market, stock market api, including dealers, brokerage firms, securities exchanges, investment funds, and investment advisors.
  • To establish rules and regulations for promoting, sharing, and disclosure of market-related information, and to ensure fair dealings and protection against fraudulent dealings for investors.
  • To provide access to investors to registration statements, financial reports, and other forms of securities. 

Hence, the SEC was created, keeping in mind, two primary notions, which are:

  1. Companies selling stocks to the public should reveal the truth about their business to the public, along with the risk involved in investing therein.
  2. Brokers, dealers, and exchanges, selling and trading in securities should be fair and honest in their dealings with their investors or clients.

Jurisdiction Of The SEC

Coming to the jurisdiction of the SEC, the president of the United States is responsible for appointing the five commissioners who head the SEC team. One out of these is appointed as the Chairman. The tenure for each of these commissioners is five years, but this can be extended by 18 months until a replacement is found.

To further maintain the integrity of the body and to promote nonpartisanship, the law makes it mandatory that a maximum of three members can belong to the same political party. There are five divisions and 24 offices that come under the jurisdiction of SEC. Their goals include interpretation and enforcement of action on securities laws, issuance of new regulations, providing oversight of securities institutions, and ensure coordination and regulation amongst the various levels of government.

The five divisions, and their respective roles, can be listed under the following heads.

Division of Trading & Markets – Responsible for maintaining and establishing standards for fair, orderly, and efficient market operations.

Division of Economic & Risk Analysis – Looks after the integration of economics and data analytics into the core mission of SEC.

Division of Investment Management – Maintains regulation of investment companies, variable insurance products, and investment advisors that have been federally registered.

Division of Enforcement – Responsible for the enforcement of the rules and regulations of SEC by investigating cases and prosecuting civil suits and administrative proceedings.

Division of Corporate Finance – Ensures that companies provide a clear picture of their proceedings, financial prospects, and stock price to investors so that the latter can make informed investment decisions.

The US government permits only civil actions to be brought by the SEC to either the federal court or before an administrative judge. Law enforcement agencies falling within the department of Justice are responsible for handling any criminal cases therein. However, the SEC works in close proximity with such agencies to provide evidence and help through the court proceedings.

When handling civil cases, the SEC is responsible for seeking two main functions:

  • To sanction injunctions that prohibit future violations. Any person or company that does not follow the proceedings and ignores injunction is subject to fines or imprisonment for contempt of the same.
  • To sanction civil money penalties or for disgorging illegal profits. It may even bring about administrative proceedings to be heard by internal officers and the commission. Some of its common proceedings may also include suspending the registration of individuals or companies, ceasing orders, imposing bars, or suspensions of employment.

The securities industry’s self-regulatory organizations such as INFRA,  or the New York Stock Exchange seek help from the SEC for the first level of their appeal for actions. However, the most potent means of securities law enforcement is the Office of the Whistleblower, among all SEC offices. Under SEC’s whistleblower reward program, individuals can receive 10 to 30 percent of the total proceeds of the sanction.

Final Take

By far, every year, various civil enforcement actions are taken by SEC against companies and individuals responsible for violating securities laws. Cases dealing in financial misconduct are dealt with by the SEC either directly or in conjugation with the Justice Department. SEC has prosecuted various cases involving accounting fraud and dissemination of false or misguiding information and so on.

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