Congress’ federal securities laws passed ninety years ago have provided markets with vital protections, from disclosure rules and enforcement tools to trust-building measures that have kept bad actors away.
A recent jury verdict in the SEC’s first shadow trading case has highlighted compliance departments as an increasing area of concern. This decision highlights the necessity of including climate disclosure requirements into corporate disclosure practices.
Regulation of the Stock Market
The stock market is where people trade stocks. To ensure fair practices and protect investors, the Securities and Exchange Commission acts as the governing authority, while also working to promote confidence in the economy.
Congress established the SEC to increase transparency in the financial industry after 1929’s crash caused many investors to lose their investments. Companies must submit financial reports directly with this agency in order to provide public access to such information.
The SEC faces serious threats from its rapid rate of rulemaking, which threatens its ability to discharge this responsibility in an effective manner. Rushing to propose and finalize multiple rules simultaneously limits their staff’s ability to consider indirect costs, cumulative effects, cross-market implications and unintended consequences, increasing risk. SEC rules often have multiple overlapping compliance timeframes making it hard for market participants to build new systems which comply with all these obligations at the same time, creating unnecessary burden at a time when economic stability remains tenuous.
Regulation of the Exchanges
The SEC oversees America’s stock markets. Its mandate includes protecting investors while maintaining market efficiency; encouraging capital formation; and overseeing capital formation activities. Their authority is determined by market developments, legislation and Supreme Court decisions; enforcement tools include civil penalties, disgorgement orders and injunctions.
The agency regulates exchanges, brokers and dealers, securities clearing agencies, transfer agents and transfer agent registration requirements ensure these market participants provide investors with all of the required disclosures required under federal securities law.
The SEC employs a process that includes public consultation before adopting new rules, taking into account their potential effects on investors and market participants before issuing proposed regulations for review and comment. New regulations begin with concept release followed by publication for public review and comments before being convened by commission for review by public members as well as industry representatives before voting to approve or deny adoption of proposed rule(s). Its regulatory agenda has become particularly crucial given global economic challenges.
The Control of the Brokers
The Securities and Exchange Commission (SEC) is an independent, federal agency that sits on a bipartisan board. It regulates broker-dealers, IPOs, markets in securities, and cooperates with SROs to enforce rules. It also conducts investigation against insider trading, market abuse prevention, investigations against related crimes, and control of insider trading including insider trading. Administrative proceedings also deploy both civil and administrative law standards; federal judges who decide civil cases could award injunctions against criminal acts, fines, or even restitution for illegal profits.
A new Securities and Exchange Commission rule may force brokers to settle trades more rapidly. Under this new mandate, transactions that do not involve special purpose accounts must be settled within one business day, rather than two. Furthermore, SEC rules could impact how brokerage firms pay customers and manage risk; additionally they regulate registered exchanges as well as overseers such as FINRA that oversee broker-dealers.
Regulation of the Investment Advisors
The Securities and Exchange Act gives the SEC broad regulatory powers over the securities industry. Led by five commissioners appointed by the president for five-year terms, one of whom serves as chair. Their goal is to protect investors, ensure fair, orderly and efficient markets and stimulate capital formation while upholding securities law violations by civil enforcement actions against any violators.
SEC regulations mandate that investment advisors register with them unless exempt by state or federal laws. To do this, investment advisors must file Form ADV Part 1, via IARD system and make it publically available.
Investment advisors must abide by a fiduciary standard, which mandates they put the interests of their clients first at all times and in every circumstance. Furthermore, they must disclose material information to investors about the company and its financial prospects as well as comply with recordkeeping and reporting requirements.
