Introduction to Financial Services: The Securities and Exchange Commission (SEC)

Introduction to Financial Services: The Securities and Exchange Commission (SEC)

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Updated August 8, 2023
Introduction to Financial Services: The Securities and Exchange
Commission (SEC)
Congress passed the Securities Exchange Act of 1934 (P.L.
clearing agencies, and self-regulatory organizations
73-291) to create the Securities and Exchange Commission
(SROs).
(SEC) in the wake of the stock market crash in 1929 to help
restore confidence in capital markets. The SEC is an
• The Investment Management Division regulates
independent federal regulatory agency responsible for
investment management companies and advisers
administering federal securities laws. It has broad
pursuant to the Investment Company Act of 1940 and
regulatory authority over significant parts of the securities
Investment Advisers Act of 1940 (P.L. 76-768).
industry, including securities offering and trading, asset
management, and investment advisory.
• The Trading and Markets Division oversees capital
market infrastructure and its participants to help
The SEC oversees federal securities laws broadly aimed at
maintain fair, orderly, and efficient markets.
a three-part mission: (1) capital formation; (2) investor
protection; and (3) maintaining fair, orderly, and efficient
• The Economic and Risk Analysis Division provides
markets. These laws provide rules for honest dealing among
cross-divisional support for the agency on research,
securities market participants, including antifraud and
economic analysis, and data analytics.
antimanipulation provisions and information disclosure
deemed necessary for informed investor decisionmaking.
Figure 1. SEC Divisions
Budget
The SEC’s budget is set through the congressional
appropriations process. Sale fees on stock and other
securities transactions that the SEC collects from securities
exchanges offset the appropriations. Annual collections,
which historically exceeded the SEC’s annual
appropriations, go directly to the U.S. Treasury’s General
Fund. The SEC’s enacted annual budget for FY2023 was
approximately $2.2 billion.
Organizational Structure
The SEC is led by five presidentially appointed
commissioners, including a chair, subject to Senate
confirmation. Commissioners have staggered five-year
terms, and no more than three commissioners may belong
to the same political party. The SEC has more than 5,300
positions and approximately 4,600 full-time equivalent

employees across six divisions, one independent office, 11
Source: SEC.
regional field offices, and other program offices (such as
Notes: See the complete SEC organizational chart at
the Advocate for Small Business Capital Formation and the
https://www.sec.gov/about/secorg.pdf.
Strategic Hub for Innovation and Financial Technology).
Figure 1 illustrates the SEC’s main divisions.
Securities Laws and Regulation
The SEC oversees an array of securities laws, several of
• The Corporation Finance Division is responsible for
which have been amended over time. Major securities laws
the review of securities issuer filings and disclosure.
include those described below.
• The Enforcement Division takes actions to deter
Securities Act of 1933 (P.L. 73-22). This act sought to
misconduct and punish securities law violations.
ensure that investors are given salient information on
securities offered for public sale and to ban deceit,
• The Examinations Division conducts the SEC’s
misrepresentations, and other kinds of fraud in the sale of
National Exam Program that involves onsite
securities. The act requires issuing companies to disclose
examinations of market participants such as investment
information deemed material to investors as part of the
management companies and advisers, broker-dealers,
mandatory SEC registration of the securities that those
companies offer for sale to the public. Certain offerings are
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Introduction to Financial Services: The Securities and Exchange Commission (SEC)
exempt from full registration requirements, such as private
provide securities to retail investors through regulatory
securities offerings to financial institutions or to
exemptions under the Securities Act of 1933.
sophisticated institutions.
Policy Debate: SEC Rulemaking Agenda
Securities Exchange Act of 1934 (P.L. 73-291). In
During SEC Chair Gary Gensler’s tenure, which started in
addition to creating the SEC, the act governs securities
2021, the SEC’s rulemaking agenda has generated policy
transactions on the secondary market and gives the agency
debate. The SEC’s Spring 2023 agency rule list consists of
regulatory oversight over SROs, including stock exchanges
55 items. Relative to other recent SEC chairs during the
such as NASDAQ, that have quasi-governmental authority
Trump and the Obama Administrations, Gensler’s pace of
to police their members and attendant securities markets.
rulemaking appears quicker. Critics of recent rulemaking
The Financial Industry Regulatory Authority, the principal
question (1) whether the recent pace of rulemaking allowed
regulator of broker-dealers, is also an SRO.
enough time for participants to consider and comment on
new rules and (2) whether some of the SEC’s proposed
Investment Company Act of 1940 (P.L. 76-768). This act
rules exceed the agency’s legal authority. Meanwhile,
regulates the organization of investment companies, such as
advocates for certain policies assert that important issues
mutual funds. Investment companies are primarily engaged
that warrant new rulemaking have not been addressed. The
in the investment of assets from other institutional or retail
critics argue that the SEC’s relatively short comment period
investors. In an attempt to minimize the potential conflicts
may not leave sufficient time for industry stakeholders to
of interest that may arise due to the operational complexity
research, analyze, and provide quality comments on
of investment companies, the act generally requires
substantive changes and that the short and overlapping
investment companies to register with the SEC and publicly
comment periods may place cumulative challenges on the
disclose key information on their investment objectives,
industry’s capacity to respond. The discussions gained
structure, operations, and financial status.
momentum in April 2022, when a group of 47 bipartisan
House Members and 25 industry groups sent letters to the
Investment Advisers Act of 1940 (P.L. 76-768).
SEC to express concern over the length of certain comment
Investment advisers are firms or sole practitioners that are
periods that “may hamper the ability for the public to
compensated for advising others about securities
provide effective and meaningful input.” Some observers
investments, including advisers to mutual funds and hedge
also question the SEC’s authority for certain rulemakings.
funds. In general, under the act, advisers managing a certain
For example, attorneys general from 24 states sent a letter
amount of assets must register with the SEC and conform to
to the SEC regarding “the major questions doctrine,” in
the act’s regulations aimed at protecting investors.
which the attorneys general claim that, in some cases, the
agency “must point to clear congressional authorization for
Sarbanes-Oxley Act of 2002 (P.L. 107-204). Passed in the
the power it claims.” Finally, certain policy advocates note
aftermath of accounting scandals at firms such as Enron and
the absence of certain important topics from the rulemaking
Worldcom during 2001 and 2002, Sarbanes-Oxley sought
agenda. For example, an SEC commissioner argues that
to improve the reliability of financial reporting and the
digital asset regulatory guidance is a large and complex
quality of corporate audits at public companies. Among
area that is absent from the agenda.
other things, it created the Public Company Accounting
Oversight Board to oversee the quality of corporate
The SEC’s Office of Inspector General stated in October
accountants and auditors and shifted responsibility for the
2022 that “some believed that the more aggressive
external corporate auditor from corporate management to
agenda—particularly as it relates to high-profile rules that
independent audit committees.
significantly impact external stakeholders—potentially (1)
limits the time available for staff research and analysis, and
Dodd-Frank Wall Street Reform and Consumer
(2) increases litigation risk.”
Protection Act (P.L. 111-203). Enacted in the wake of the
2007-2009 financial crisis, the 2010 Dodd-Frank Act
Gensler has stated that by updating its rules, the SEC will
mandated sweeping financial regulatory changes, many of
modernize them for changing market environments and
which affected the SEC. The act required the SEC to adopt
potentially create more market efficiency. Gensler further
rules to help ensure that those who securitize certain debt
argues that it is important to “move to the next steps in the
retain a significant interest in assets that they transfer;
rulemaking process to determine whether the SEC should
reformed the regulation of credit rating agencies; required
re-propose, modify, or adopt the proposed rules based upon
hedge fund advisers to register with the SEC; and created
the feedback.” On another occasion, Gensler responded to
an interagency financial risk monitoring panel, the
concerns regarding agency rulemaking processes, citing the
Financial Stability Oversight Council, with the SEC chair
number of rules finalized during multiple former SEC
as a member.
chairs’ full tenures, believing his pace of rulemaking is
“right in the zone.”
Jumpstart Our Businesses Startup Act (P.L. 112-106).
This 2012 act was broadly aimed at stimulating capital
See CRS In Focus IF11062, Introduction to Financial
formation for companies, particularly newer and smaller
Services: Capital Markets for additional background.
firms. It also eases regulatory requirements for certain
initial public offerings through the creation of a new entity
Eva Su, Specialist in Financial Economics
called an emerging growth company and through
Regulation Crowdfunding, which permits companies to
IF11714
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Introduction to Financial Services: The Securities and Exchange Commission (SEC)

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