Course 103:
The SEC and Regulation of the Stock Market
In this course
1 Introduction
2 The Division of Corporate Finance
3 The Division of Market Regulation
4 The Division of Investment Management
5 The Division of Enforcement

The Roaring Twenties were a time of exuberance in America, and one of the most famous signs of this exuberance was the roaring stock market. But underneath all the giddiness was a dark undercurrent of questionable practices that ultimately worsened the effects of the stock market crash of 1929. Publicly traded companies were not required to report their financial results to the public, there was no prohibition against insider trading and other forms of market manipulation, and there was no central body to enforce the laws which did exist. Because of this lack of regulation, the extent of the crash and the subsequent depression took many people by surprise.

As a result, a series of laws was created in the 1930s to clean up the securities business. The Securities Act of 1933 required public companies to report financial and other significant information to investors on a regular basis. In addition, the act prohibited fraud in the sale of securities. The Securities and Exchange Act of 1934 strengthened and extended these regulations, most notably with the formation of the Securities and Exchange Commission (SEC). The SEC became the central body to make and enforce the rules for securities markets, a role it still has today. Other laws passed during the 1930s and early 1940s continue to regulate public utilities, bonds, mutual funds, and investment advisors; the SEC enforces all these regulations.

The SEC has five commissioners, appointed by the president for five-year terms, one of which expires each year. No more than three of the commissioners can be members of the same political party. For a good overview of what exactly the SEC does, we can look at its four main divisions: the Division of Corporate Finance, the Division of Market Regulation, the Division of Investment Management, and the Division of Enforcement.

Next: The Division of Corporate Finance >>


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