Before the 1930s, the U.S. stock market was a bit like the Wild West. Companies could issue stocks and bonds with very little information given to the public. Misleading information was common, and many investors lost their life savings. This all came to a head with the stock market crash of 1929, a key event that helped trigger the Great Depression.

In response, the U.S. Congress passed two landmark pieces of legislation. The Securities Act of 1933, often called the "truth in securities" law, required that investors receive financial and other significant information concerning securities being offered for public sale. The following year, Congress passed the Securities Exchange Act of 1934, which created the U.S. Securities and Exchange Commission (SEC). This new agency was given the power to register, regulate, and oversee brokerage firms, transfer agents, and clearing agencies as well as the nation's securities self-regulatory organizations, like the New York Stock Exchange.

The SEC operates with a clear, three-part mission that guides all its actions. This mission is the foundation for the complex web of rules and regulations it enforces.

Let's break that down.

Protect Investors: This is the SEC's top priority. The agency works to ensure that the securities markets are not rigged and that investors have access to basic facts about any investment. When people have confidence in the market, they are more willing to invest, which helps the economy grow.

Maintain Fair Markets: The SEC strives to create a level playing field for all participants. This means combating fraud, manipulation, and other abusive practices. By promoting transparency and fairness, the SEC helps ensure that stock prices are based on the actual performance and prospects of companies, not on rumors or illegal activity.

Facilitate Capital Formation: Businesses need access to money, or capital, to grow, innovate, and create jobs. The SEC helps make this process efficient. By ensuring that markets are fair and transparent, the SEC gives companies a reliable way to raise money from the public while giving investors the confidence they need to provide that capital.

The SEC is an independent agency of the U.S. federal government. It is headed by a five-member commission. Each commissioner is appointed by the President and confirmed by the Senate, and they serve staggered five-year terms. To ensure the commission remains non-partisan, no more than three commissioners can belong to the same political party.

The day-to-day work of the SEC is carried out by its staff, which is organized into several divisions and offices. Each has a specific area of responsibility.

These divisions work together to enforce securities laws and protect the investing public. The structure allows the agency to focus its expertise on different areas of the vast financial markets.

Now that you have a foundational understanding of the SEC, let's test your knowledge.

Understanding the SEC's history, mission, and structure is the first step in navigating the world of securities regulation.