THE REGULATORY AGENCIES

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Chapter 6 — THE REGULATORY AGENCIES
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THE REGULATORY AGENCIES

THE REGULATORY AGENCIES

The Regulatory Agencies

U.S. SECURITIES AND EXCHANGE COMMISSION (SEC)

The SEC is an agency of the federal government that charged with enforcing federal securities laws and regulating the financial industry, which includes the nation’s stock and options exchanges. It was created in 1934 by the Securities Exchange Act during the Great Depression. Its mission is three-fold:

  • To protect investors

  • Maintain fair, orderly and efficient markets

  • Facilitate capital formation

It is the SEC that enforces the legal requirement that public companies file quarterly and annual reports which give comprehensive information on that company’s activities throughout the preceding quarter or year. This provides information to investors that are very valuable, but we will go over that a bit later.

Additionally, the SEC has been given the authority by Congress to bring civil enforcement actions against individuals or companies who may have committed accounting fraud, provided false information or engaged in insider trading. The latter occurs when an individual who has access to private information (e.g. a new product launch), and then either trades or entices someone else to trade that company’s stock before that information is available to the general public. The rules behind insider trading are very complex and generally serve to protect average investors and shareholders from being unfairly disadvantaged by “insiders” that can impact the stock price through their decision-making.

FINANCIAL INDUSTRY REGULATORY AUTHORITY (FINRA)

FINRA is a regulatory body that was formed after the merger of the National Association of Securities Dealers (NASD) and the New York Stock Exchange’s regulation committee. It governs business between brokers, dealers and the investing public. it is a self-regulatory organization which performs financial regulation of member brokerage firms and exchange markets. The ultimate regulator, however, is the SEC.

COMMODITY FUTURES TRADING COMMISSION (CFTC)

The CFTC is an independent agency of the federal government that regulates the futures and options markets. It replaced the U.S Department of Agriculture’s Commodity Exchange Authority. Essentially, the CFTC’s job is to protect market users and the public from fraud, manipulation, and abusive practices in the sale of commodity and financial futures and options.

Quiz

What does the SEC do?

Correct
Incorrect
0/76 (0%) Correct
  • 1
    Requires company to file annual and quarterly reports
  • 2
    Brings civil lawsuits to people caught in violation of its rules
  • 3
    Protects investors
  • 4
    All of the above
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