Securities and Exchange Commission

Securities and Exchange Commission

Formation of the Securities and Exchange Commission

In response to the devastating stock market crash of 1929, Congress passed several major pieces of legislation designed to regulate and protect the capital markets and investors. The SEC was created by Congress through the Securities Exchange Act of 1934 to oversee and administer the newly created federal securities laws. These laws include the Securities Act of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Advisers Act of 1940, and the Investment Company Act of 1940 (Securities and Exchange Commission, 1978)..

These acts were created and passed by Congress, and they remain the primary source of federal securities law, but one of the most important functions of the SEC is to promulgate new rules and regulations that interpret, clarify, and implement those broadly written acts. Because the SEC is an independent agency, it is able to respond to changing circumstances in the market and the industry much more quickly and effectively than Congress. Despite the age of the various securities laws, they remain dynamic and effective because of the SEC's ability to create new rules for changing situations. Many of the materials issued by the SEC have the force of law (especially the "rules"), and some have nearly the force of law, while certain publications contain only policies or interpretations of the SEC. Even the material that does not have the force of law is respected by the courts and the securities industry and plays an important role in federal securities regulation.

Securities and Exchange Commission Act 1934

Federal legislation enacted on June 6, 1934, that established the Securities and Exchange Commission (SEC) to regulate American stock exchanges and to enforce the U.S. Securities Act of 1933. The SEC, consisting of five members appointed by the president and approved by the Senate, was authorized to license stock exchanges and regulate securities trading. To prevent unfair and deceptive practices, the act required that current information about corporations whose securities were traded be made available to investors and required that each security traded must be registered with the SEC. The Federal Reserve Board was authorized to regulate margin requirements in securities trading so as to reduce speculation. Despite the disastrous stock market crash of 1929, Wall Street traders and investment bankers continued to claim that the American securities industry operated well. In fact, it had a number of legal and functional problems. Chief among these was that much trading was done in ignorance. Many companies issued no financial reports or published ones with information that was misleading or unaudited. Certain investment banks and firms held a near monopoly on reliable information concerning securities and the companies issuing them. This ignorance made individual investors and securities firms vulnerable to abuses such as misrepresentation, insider trading, and uncontrolled speculation. In 1933, the Senate's Banking and Currency Committee, under the leadership of its chief counsel, Ferdinand Pecora, held hearings revealing criminal fraud ...