What Does the SEC Regulate?

The United States Securities and Exchange Commission is to take care of investors and to keep the stock market in order. There are a number of laws that fall under their jurisdiction, including the following acts.

Securities Act of 1933. This act was the first to actually attempt to regulate the stock market’s exchange of securities. It requires groups that put securities on the stock market to register with the SEC. These companies immediately gain more clout and credibility when they are registered with the commission. There are exemptions (which is where pink sheets and penny stocks come from), but overall, most companies have to be registered properly.

Securities Exchange Act of 1934. This act is also meant for regulation, but it was created to regulate the brokers and dealers that sell the stocks, rather than the companies that are offering the stocks. This act basically regulates the middle man so that they can’t and don’t cheat the investors.

Trust Indenture Act of 1939. This is a supplement to the 1933 act, where trustees are to be hired by companies offering the securities. These trustees work for the benefit of the shareholders.

Investment Company Act of 1940. This act is to protect investors from what are called “conflicts of interest” in the stock market. It requires all companies that offer securities and mutual funds to publicly disclose information about their company. This is meant to benefit both the company and the investors.

Investment Advisors Act of 1940. This act is meant to protect investors from financial advisors. These advisors are different than the brokers and such, because usually they are hired or sought by the investor in order to figure out the best way to invest their finances. These advisors are to be regulated and everything done by and through them are to be documented appropriately.

Sarbanes-Oxley Act of 2002. Remember Enron? They sold stocks even though their company was going way under, and fast. This act requires companies to be honest and public about their internal workings (similar to the Investment Company Act), but it also requires these companies to do internal audits on occasion. This was created to try and help restore confidence in the American stock market.

Credit Rating Agency Reform Act of 2006. This was created with the intention of encouraging competition in the credit rating market, which then increases accuracy and consistency of scoring. The credit report agencies cannot classify themselves as government agencies, and must register and be regulated by the SEC.