The Securities and Exchange Commission (SEC) is the primary securities regulator in the financial markets. It operates as an independent agency of the US Government. The SEC was created by the Securities Exchange Act of 1934, and it also enforces rules and regulations under the Securities Act of 1933 and other federal securities laws.
The SEC has three primary goals:
Protecting investors means reducing fraud and unethical behavior in the securities markets. In practice, the SEC’s investor-protection efforts often focus on smaller, retail investors. Large institutions typically have substantial legal and financial resources, which can make them less vulnerable to certain types of misconduct.
Maintaining fair, orderly, and efficient markets is about supporting confidence in the financial markets. This goal applies mainly to the secondary market and is closely tied to the Securities Exchange Act of 1934.
Facilitating capital formation means maintaining and regulating a system that allows issuers to raise capital (money) by selling securities. Even though many rules make the process of registering securities difficult and costly, the SEC aims to balance necessary regulation with the ability of issuers to raise funds efficiently. Non-exempt issuers selling significant amounts of securities to the public often must complete the formal registration process, but many exemptions exist for smaller offerings and securities sold to private audiences.
The entity responsible for interpreting and enforcing the rules and regulations in the Uniform Securities Act (USA) is the state administrator. You can think of the state administrator as each US state’s counterpart to the SEC.
As discussed earlier in this unit, the state administrator is an office dedicated to protecting investors and supporting the integrity of the securities system within that state. For example, The Department of Financial Protection and Innovation is California’s state administrator. If you want to find the administrator in your state, search: “State securities administrator of [state]”.
The Series 65 exam covers many rules and regulations specific to the USA, and the state administrator enforces them. These regulations include:
Let’s break down each of these a bit further:
Registration & regulation of persons
The state administrator focuses on four main categories of persons (often described as the “players in the game”):
The legal definitions matter because registration requirements depend on them. If a business or natural person (human being) meets one of these definitions, they’re legally required to register with the state administrator. Registration places them under a form of government supervision, since the administrator is part of each state’s government. The registration process and its requirements are covered later in this material.
Registration & regulation of securities
Registration and regulation can apply to securities as well as to persons. In particular, issuers are often subject to rules enforced by the state administrator. In many cases, issuers must publicly disclose significant information about the securities they’re offering. The goal is a transparent environment where investors have the information needed to make informed investment decisions.
Enforcement of general securities laws
The USA is broad legislation that covers many aspects of the securities markets and their participants. Because there’s a lot to interpret and apply, each state relies on the state administrator to enforce the rules and regulations that apply in that jurisdiction.
Enforcement of anti-fraud provisions
Preventing fraud is central to nearly every part of the USA, but it’s important enough to call out separately. A core responsibility of the state administrator is enforcing the USA’s anti-fraud provisions. Without effective anti-fraud enforcement, confidence in the securities markets could decline, which could reduce investment in businesses (and even governments) and contribute to broader economic harm.
As you work through the rest of this material, remember that the rules, regulations, and laws discussed are generally enforced by the state administrator, although the administrator’s level of involvement depends on the situation.
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