SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission (SEC) is an independent, non-partisan regulatory agency. Created by Congress in 1934 under the Securities Exchange Act, the agency is tasked with regulating the United States investment industry. It ensures that U.S. securities markets operate fairly and honestly and can enforce punishments when violations are made.

SEC regulations are designed to hold publicly held entities, broker-dealers in securities, investment companies, and other securities market participants accountable to federal law. There are six main laws the SEC oversees: 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 Company Act of 1940, and the Investment Advisers Act of 1940.

The Securities Act of 1933, known also as the "truth in securities law," requires investors be provided with information concerning securities offered for public sale. This information often comes in the form of a "prospectus," a brochure detailing the security's history and performance. The act also set regulations to prevent fraud in securities sales.

The information disclosure statements established in the 1933 Securities Act were extended the next year under the Securities Exchange Act. This act extended the disclosure of information to all securities listed and registered for public trading on U.S. securities exchanges, such as the New York Stock Exchange. Disclosure law was further extended in 1964 with the Securities Act Amendments, which made similar provisions for equity securities in the over-the-counter market (securities markets where previously issued securities are re-traded).

The Public Utility Holding Company Act of 1935 regulates interstate holding companies involved in the electric utility industry or the retail distribution of natural or manufactured gas. These businesses are required to file detailed information concerning their operations and holdings.

Regarding bonds and other debt securities, the SEC has the power to regulate under the Trust Indenture Act of 1939. Debt securities offered for public sale and issued under trust agreements must adhere to guideline concerning trustees and capital, including high standards of conduct and responsibility on the part of the trustee.

In addition, the SEC monitors the principles set forth in the Investment Company Act of 1940, regulating the activity of companies engaged primarily in the securities industry—investing, trading in securities, and offering their own securities for public sale.

While the SEC oversees the application of all these laws and guidelines, it is a regulatory agency only and does not supervise any individual company's investment activities. It does have more supervision regarding investment advisers. The Investment Advisers Act of 1940 established a system requiring all persons or organizations who advise about securities investments (and receive compensation for this advisement) be registered with the SEC and conform to their established procedures of investor protection.

Because of SEC oversight, investors in U.S. securities markets are better protected from fraud, whether it be by investment advisers or companies engaged in criminal securities schemes.