Securities and Exchange Commission (SEC)
There are several different authorities that regulate the stock markets in the US, and the top regulatory agency is Securities and Exchange Commission (SEC). The U.S. Securities and Exchange Commission is a government agency that is funded and created by Congress but works independently and deals with laws that govern how investors and businesses can trade stocks, bonds, options, futures, and other securities. The SEC has a three-part mission, including:
- Protect investors
- Maintain fair, orderly, and efficient markets
- Facilitate capital formation
The SEC is quite a large organization, and it has more than 4,000 employees working for the agency, spreading across six divisions and 26 offices. The six divisions include:
- Corporate finance: Ensures that important information is disclosed to investors to make educated investment decisions.
- Enforcement: Investigates cases and prosecutes civil litigation and administrative processes to enforce SEC regulations.
- Examinations: Analyzes existing processes and regulations that affect US securities.
- Economic and risk analysis: Handles the SEC's analytics and data efforts, which informs actions across the rest of the agency.
- Investment management: Regulates investment firms, variable insurance products, and federally licensed investment counselors.
- Trading and markets: Regulates securities professionals, stock exchanges, and other market participants. It also establishes and maintains market standards to ensure a fair playing ground for all investors.
In general, The SEC's main goal is to protect US investors by maintaining a fair market. But it doesn't work directly with investors. Instead, it performs its duty by regulating stock exchanges, as well as those who sell and trade securities, including brokers, investment advisors, and asset managers. It also regulates investment companies, such as mutual funds and ETFs, and ensures that companies follow public disclosure and reporting laws.
Financial Industry Regulatory Authority (FINRA)
The Financial Industry Regulatory Authority (FINRA) is an independent regulator that writes and enforces the rules governing registered brokers, and broker-dealer firms in the United States. Empowered by the Securities and Exchange Commission (SEC), FINRA evaluates firms' compliance with those rules, and disciplines brokers that fail to adhere to them.
In reality, FINRA also monitors daily market functions, handles customer complaints and maintains a library of educational materials for investors. Additionally, FINRA sets standards for stockbrokers and other industry professionals and licenses them after comprehensive examinations.
Investors can use the regulatory agencies' tools and published knowledge to inform themselves and keep their capital safe and working for them. When choosing brokers or dealers, investors need to do a background check to see if the brokerage is a member of FINRA. It might be a bit challenging to identify a securities professional or a brokerage who is violating the law, but investors can look up brokerages on FINRA's BrokerCheck website, and it may reduce the chances of being used by one to further their agenda.
Summary:
- The SEC is a government agency that ensures investment brokers, stock exchanges, and other market participants comply with US securities laws. It also regulates the disclosures of publicly held companies to help investors make informed decisions.
- FINRA is an independent regulator that writes and enforces the rules governing registered brokers, and broker-dealer firms in the United States.
- FINRA sets standards for stockbrokers and other industry professionals and licenses them after comprehensive examinations.
- When choosing brokers or dealers, investors need to do a background check and due diligence research, such as seeing if the brokerage is a member of FINRA and going on FINRA's BrokerCheck website to check if the broker firm is violating the law.
