What are Securities and How the SEC Protects Investors

The Securities and Exchange Commission (, also known as the SEC), has been in existence since 1934 as a federal institution created to hold the integrity of the American markets. Its creation represented an important milestone in the protection of the stock, bond, and other financial markets.

The Central Mission: Transparency and Protection

The core of the SEC's work revolves around a simple principle: all investors should have equal access to the same information before making financial decisions. To this end, the agency requires publicly traded companies to disclose relevant financial data to the public, ensuring that there is no unfair advantage for anyone. This means that brokers, brokerages, and operators must act with loyalty and honesty in their relationship with their clients.

The SEC works to achieve three main objectives:

• Protect those who invest in the markets
• Ensure that markets operate fairly, orderly, and efficiently
• Facilitate that companies can raise funds legitimately

EDGAR and Access to Information

One of the SEC's greatest assets is EDGAR (Electronic Data Gathering, Analysis, and Retrieval), a free online database where you can find quarterly and annual reports of all regulated public companies. This system democratizes access to information and allows investors, analysts, and researchers to independently consult financial data.

The Frauds that the SEC Fights

The most common violations found by the SEC include:

• Insider trading ( insider trading )
• Deliberate misinformation and accounting frauds
• Pyramid and Ponzi schemes ( in cooperation with the CFTC)

The CFTC (Commodity Futures Trading Commission) works alongside the SEC, but its jurisdiction covers derivative markets, such as options and futures contracts. Both agencies gained much more power following the passage of the Dodd-Frank Act, which occurred shortly after the 2008 Financial Crisis.

SEC Operational Structure in 2024

Currently, the SEC operates through six main divisions:

• Corporate Finance Division - oversees company disclosures
• Trading and Markets Division - monitors operations and market behavior
• Investment Management Division - regulates funds and investment advisors
• Execution Division - investigates violations and implements punitive measures
• Economic Analysis and Risk Division - analyzes data and market trends
• Inspection Division - conducts preventive audits in financial institutions

In summary, the securities (stocks, bonds, and derivatives) exist in an ecosystem regulated by the SEC to ensure that the system is fair for all. Mandatory transparency and constant oversight make the SEC the guardian of the American markets, protecting investors and maintaining confidence in the securities markets.