Regulation

Unlike the Forex market, there is a great amount of regulation that goes into Stock Exchanges.  The U.S. Securities and Exchange Commission (SEC) is the main governing body of the U.S. stock markets.  Created in 1934 by Franklin D. Roosevelt, the SEC was a response to the 1929 stock market crash and the Great Depression that followed.  Besides enforcing various laws governing market activity, the SEC requires that each publicly traded company submit a financial report each quarter.  A fiscal year-end report is also mandatory.  Besides the statistics of each posted quarter, a written report must be submitted summing up the company executives’ stances.  It is common practice, although not required, to outline future expectations.  The SEC requires that all of this information be accessible to the public and kept on a database known as the Electronic Data Gathering, Analysis, and Retrieval system (EDGAR).  In addition to regulating ongoing businesses, new companies, before they are approved to be publicly traded, must file a request through the SEC.  It isn’t until the SEC allows this request to become effective that a business can begin selling stock. 

In addition to overseeing the various companies and exchanges involved in the market, the SEC also has some regulation over individual stockbrokers.  The National Association of Securities Dealers (NASD) is the self-regulatory organization that administers exams to those wishing to become brokers.  One cannot directly participate in the market unless they have proven their knowledge of how the market works by passing these exams. 

The SEC is not the only regulatory body presiding over the stock market.  The individual stock exchanges each act as self-regulatory organizations within their respective jurisdiction.  In addition to enforcing federal laws and statutes, they are subject to the laws of the states in which they preside.  These state laws are known as “Blue Sky” laws.  Blue Sky laws predate the SEC, but were found to be ineffective as market regulators since trades often cross state lines, allowing for a bypassing of state law.

New laws are passed and adopted by the SEC on an irregular basis.  In 2000, the Regulation Fair Disclosure was ratified by the SEC mandating that all investors be given company information at the same time.  This was intended to reduce the risk of insider trading.  Another recent law is the Sarbanes-Oxley Act of 2002 which was passed in response to the uprising of company fraud cases such as WorldCom and Enron.  The main point of this law was to toughen up accounting regulations by imposing harsher penalties on those who commit fraud. 

Banking - Business Finances - Economics - Insurance - Investing
Major Purchases - Personal Finances - Stock Market - Taxes