Shortly after the stock market crash of 1929, a regulatory body called the Securities & Exchange Commission (SEC) was born. Its goal was to restore investor confidence and faith in a financial sector that was notorious for fraudulent activities, easy credit and hazardous investments. Two significant proposals by the U.S. Congress, the Securities Act of 1933 and the Securities Exchange Act of 1934, led the way to the formation of the SEC and, ultimately, a structured financial industry under government supervision. The aim of both of these acts was to protect investors from any indiscretions that could arise from: 

• Fraudulent and questionable public companies.
• Dishonest and unscrupulous individuals dealing in the securities markets.

The SEC is divided into four main divisions. They work together, but have specific areas in which they mandate and ensure compliance. These departments are Corporate Finance, Market Regulation, Investment Management and Enforcement.

Division of Corporate Finance
This division is responsible for overseeing the disclosure documents that are required to be filed with the SEC by U.S. public companies. Meant to increase transparency so that investors are able to make informed decisions, the filings require companies to provide prudent and truthful disclosure of financial and material information. According to the SEC, the definition of material information is any information pertaining to a particular business that might be relevant to an investor's decision to buy, sell or hold the security.

The documents that companies are required to file include the registration statements for public offerings, quarterly and annual filings (Forms 10-Q and 10-K), annual reports to shareholders, documents detailing mergers and acquisitions and proxy/voting materials sent out to shareholders before annual meetings. The SEC mandates that all public companies file these documents in a timely fashion unless the company is foreign or has less than $10 million in assets and fewer than 500 shareholders. All material information, whether positive or negative, must be available first to the SEC, which, in turn, provides it to investors electronically through its electronic data gathering and retrieval (EDGAR) database. (For more on corporate disclosure, read Show And Tell: The Importance Of Transparency.)

Division of Market Regulation
This division establishes and maintains fair, orderly and efficient markets by regulating the participants in the securities industry. These participants range from the largest clearing corporations and exchanges, which are also known as self-regulatory organizations (SROs), to the various broker-dealer firms and investment houses. In short, the Division of Market Regulation establishes the rules of the investment industry.