Thesis on "U.S. Securities and Exchange Commission"

Thesis 5 pages (1607 words) Sources: 4 Style: APA

[EXCERPT] . . . .

U.S. Securities and Exchange Commission

What is the U.S. Securities and Exchange Commission (SEC) and what they do?

Securities and Exchange Commission -- SEC was formed by the Congress way back in 1934 as an autonomous government body charged with supervising the U.S. securities market, implementing laws relating to securities and monitoring exchanges for stock, options, as also other securities. SEC also supervises the modalities of corporate takeovers. One of the vital responsibilities charged with the Commission is bringing about transparency in the securities markets and thereby safeguarding the investors from scams or corporate swindles through filing of quarterly and annual financial reports. The SEC is obliged with providing direction to the corporations as regards contemporary U.S. accounting rules, and the Congress mandates the Commission to bring charges against companies of civil nature who have allegedly swindled or involved in other accounting doctoring. (Teslik, 2008)

There are subdivisions within the SEC which looks after the regulatory aspects in areas of trading and markets, corporate finance, investment management and enforcement. The body is headed by a Chairman who is assisted by five Commissioners. The present Chairman, Christopher Cox supports market deregulation. During the later part of September 2008, Cox took steps to close down the Consolidated Supervised Entities program, a voluntary program in general that was supervising functioning of banks such as Bear Stearns and the scam tainted Lehman Brothers declaring that it was defective from the very beginning and the recent financial mayhem of 2008 rendered it amply obvious that voluntary work is not effective. (Teslik, 2008)

Regulatory Functions: SEC manages the organization of financial laws set up through seven important acts controlling the financial industry, inclusive of the Sarbanes-Oxley Act as also the Credit Rating Agency Reform Act of 2006. Through regulating market behavior, the SEC maintains vigil and grants licenses to stock exchanges and is also charged for amending credit rating agencies. This has drawn widespread flak in the wake of the present turmoil. The SEC is vested with enforcement powers through which it can charge individuals or corporate bodies believed to have infringed on securities law in areas like insider trading, suppressing or falsifying information. In criminal cases, SEC makes recommendations to the Justice Department regarding taking of legal action. (Teslik, 2008)

How Government regulates the Securities and Exchange Commission (SEC):

The precedence of both the Congress and the Administration, as articulated by means of regulation, hearings and budgets has remarkable influence on the SEC. Some of the most important actions and regulation by the Government impacting the body are as follows:

(i) the Sarbanes-Oxley Act: The widespread occurrence of accounting scandals involving some of the bigwigs of the corporate world suggested to several people that the U.S. system of corporate governance as also financial reporting required cleansing. In some of the instances, the system of investigations within the financial reporting system like management, auditors, audit committees, rating agencies, analysts, underwriters, regulators as also the regulators themselves were unable to reveal or stop frauds of mammoth nature carried out over a long period of time. Whereas the U.S. financial reporting system remains basically good, and by far of the extremely high quality, these failures were needed for action. The Congress reacted to the enactment of the Sarbanes-Oxley Act of 2002 considered as the most important act in the sphere of security legislation. Major part of the Act may be considered as a legislative endeavor to align the incentive of management, auditors and other professionals with those of the investors in a better manner. Specifically, the Act mandated the SEC to control the ethical values of the professionals in the securities marketplace and need more far-reaching corporate disclosures. This Act also made the Public Company Accounting Oversight Board -- PCAOB to look after the ethics, autonomy, quality control and other features of the audit work and lend it power to enforce those standards. ("United States Securities and Exchange Commission Strategic Plan 2004-09: Government Actions," n. d.)

Some of the major changes being implemented according to the Act include (i) giving power to the audit committees to sanction the services extended by independent auditors, greater standards in auditor independence. (ii) the U.S. Patriot Act of 2001: This Act is the most important regulatory arsenal in the combat against money laundering and terrorism financing. The Act has major effect on the market intermediaries as also participants. The SEC in concert with other federal regulators and the self-regulatory organizations is working to complete execution of the Act. A lot of important projects in the area of making of rules are going on and regulators as well as financial institution are engaged to conform to the broad range of rules adopted since the last two years. (iii) the Energy Policy Act -- PUHCA and the Public Utility Holding Company Act of 1935: This Act continues to create interest due to the failing of Enron the overall restructuring of the Energy industry as also the Energy Policy Act legislation which is at present lying with the Congress. ("United States Securities and Exchange Commission Strategic Plan 2004-09: Government Actions," n. d.)

(iv) Acts related to staffing: Vital changes in the legislative front assisted the Commission to attend the major challenges in inducting and preventing attrition of staff. During 2001, Congress and the President consented to the 'Investor and Capital Markets Fee Relief Act' that permitted Securities and Exchange Commission to compensate its employee at levels which is comparable to other federal financial regulators. The SEC has applied this pay parity authority to formulate a novel 'Pay-for-Performance" system which gives rewards to its personnel whose performance are above par with merit-based salary hikes and also to increase the overall health of employees. During July 2003, with the passing of the 'Accountant, Compliance and Enforcement Staffing Act of 2003' Securities and Exchange Commission's effort has been restructured to engage economists, examiners and accountants through allowing the agency to recruit personnel of these positions under excepted service authority instead of by federal competitive service procedures. This change permits the agency to finish the recruitment formalities in a few weeks than what is needed under the competitive service. Due to these actions, the agency has reduced its turnover rate by almost 50% and has taken steps to recruit new employees. ("United States Securities and Exchange Commission Strategic Plan 2004-09: Government Actions," n. d.)

(v) Budget Acts: Both the Congress as well as the President have considerable impact on the potential of SEC to comply with its mission through the annual budget processes. Since the bygone several years, the SEC has been receiving considerable hikes, rising from $514 million during the fiscal year of 2002 to $811.5 million during the fiscal year of 2004. These investments have let the agency to recruit more personnel, make investments which are urgently needed in information systems, start a novel effort to look for the agency's activities towards the most important threats to investors, and take some other initiatives to enhance functional efficiency. ("United States Securities and Exchange Commission Strategic Plan 2004-09: Government Actions," n. d.)

How they affect the public and the economy and what devastating effects they may cause or have caused

The Securities and Exchange Commission -- SEC can increase firm-specific disclosures which account the manner in which a particular firm's securities vary from the overall securities market. Sec 13(a) of the Securities Exchange Act provided the SEC with authority to require companies registered under the Securities Exchange Act to file such information and documents as its feels to be in the overall interest of the public. Such additional firm-specific disclosures could be provided in the shape of "public reports explicitly dealing with the relationship between their earnings, dividends and the present stock prices and maybe containing management commentary on the wisdom of this relationship and the timeframe it might… READ MORE

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