The year 1934 marked a turning point in the financial history of the United States.
Following the devastation of the Great Depression, the government sought ways to restore confidence in financial markets. The creation of the Securities and Exchange Commission (SEC) was presented as a forceful response to the market volatility and excesses that preceded the crash of 1929.
This agency would become a cornerstone in the regulation of the United States securities markets.
The Chaos Before the SEC: The Wild Age of Wall Street
During the 1920s, stock markets in the United States experienced an unprecedented boom. However, the lack of clear and effective regulation allowed dishonest practices to flourish.
Values were artificially inflated, fraud was rampant, and many investors lacked adequate information to make informed financial decisions. This situation contributed to the market collapse in October 1929, an event that triggered the Great Depression.
In the face of this collapse, millions of people lost their savings, and confidence in the financial system plummeted. It was evident that something had to change.
The Roosevelt Administration: A Regulatory Rescue Plan
In response to the financial chaos, President Franklin D. Roosevelt pushed through a series of reforms through his “New Deal” program. These measures not only sought to stabilize the economy, but also to prevent a repetition of the excesses that led to the collapse. As part of these reforms, Congress approved in 1933 the Securities Actwhich required companies to disclose accurate financial information before issuing shares.
However, one task remained: ensuring that securities markets functioned fairly and efficiently over the long term. Thus was born the idea of creating an organization that would supervise and regulate the securities markets, protecting both investors and legitimate companies. This task fell to the SEC, which was created under the Securities Exchange Act of 1934.
Seal of the Securities and Exchange Commission, SEC. Source: Wikipedia.
What is the SEC? An entity to put order
The Securities and Exchange Commission (SEC) is an independent federal agency, charged with regulating the securities markets, protecting investors, and promoting transparency in financial transactions. Since its creation, it has played a crucial role in monitoring public companies and combating financial fraud.
The SEC’s mandate covers several key areas, including the regulation of stock exchanges, oversight of publicly traded companies, and review of initial public offerings (IPOs). Additionally, it has the authority to impose sanctions and take legal action against those entities that violate securities laws.
The structure of the SEC is designed to avoid concentration of power. It is led by five commissioners, who are appointed by the president of the United States and confirmed by the Senate. To ensure political balance, no more than three commissioners can belong to the same party. These commissioners serve for a period of five years, with one of them serving as president.
This collegiate system ensures impartial and balanced decision-making, allowing the SEC to act as an impartial arbiter in the financial markets.
One law to rule them all: Securities Exchange Act of 1934
The Securities Exchange Act of 1934, which led to the creation of the SEC, marked a before and after in financial regulation in the United States. This law introduced the obligation to submit regular and detailed financial reports, required the disclosure of crucial information to investors, and prohibited fraudulent practices in the purchase and sale of securities.
One of the fundamental principles of this law is that securities markets must be transparent and accessible. Before its enactment, many companies manipulated information, misleading investors. Under the 1934 law, the SEC has the power to investigate and sanction companies that conceal or falsify financial information.
Throughout its history, the SEC has intervened in numerous cases of financial fraud, from Ponzi schemes to market manipulation. The agency has earned a reputation as a guardian of market integrity and an advocate for investor rights.
For example, the SEC was key in dismantling schemes such as Bernie Madoff’s, one of the largest financial frauds in history. The SEC’s ability to investigate and prosecute those responsible for fraud has been crucial to restoring confidence in the markets after major financial scandals.
The legacy of 1934: an SEC adapted to the 21st century
Since its creation, the SEC has had to adapt to a constantly evolving financial environment. While in 1934 regulation focused primarily on traditional securities markets, today the SEC also faces challenges related to cryptocurrencies, artificial intelligence, and market globalization.
Technology has changed the way markets operate, but the SEC’s mandate remains the same: ensure transparency, protect investors, and maintain the integrity of the financial system.
Today, the SEC remains one of the most important and respected regulatory bodies in the world, setting the course for financial markets to function fairly and efficiently.
Gary Gensler, current chairman of the SEC.
Conclusion: 90 years later, the SEC is still relevant
The creation of the SEC in 1934 represented a bold and necessary response to the financial crisis that shook the United States in the 1930s.
With almost 90 years of history, the SEC has proven to be a fundamental institution in guaranteeing stability and fairness in financial markets. Its ability to adapt to changes and new challenges keeps it relevant in an increasingly complex financial world. Through its oversight and regulation, the SEC continues to protect investors and ensure that markets operate transparently and fairly.
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