Budgeting and Finance Uncovered and Applied

Securities and Exchange Commission (SEC) are one of the most well-known entities that regulate markets, protect investors and facilitate the capital market structure. The SEC was founded in 1934 in the wake of the Great Depression -- The SEC was created by section 4 of the Securities Exchange Act of 1934. The SEC was established by the United States Congress as an independent, quasi-judicial regulatory agency during the Great Depression that followed the Crash of 1929.

Now, more than ever, first time investors turn to the market to protect their future income, send their children to college, pay for homes. The primary duty of the SEC is to promote sound market regulation, sustain economic growth and encourage capital formation. The Capital Market strategy is one of many used by this entity. It is a market for securities (debt or equity), where business enterprises and governments can raise their long-term funds.

It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets, such as money markets. The capital market includes the stock market and the bond market (SEC 1982). Capital markets may be classified as primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors via a mechanism known asunderwriting.

In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere (Shane, 1970). A market in which individuals and institutions trade financial securities. Organizations and institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds. Thus, this type of market is composed of both the primary and secondary markets. Both the stock and bond markets are parts of the capital markets.

For example, when a company conducts an IPO, it is tapping the investing public for capital and is therefore using the capital markets. This is also true when a country's government issues Treasury bonds in the bond market to fund its spending initiatives (Sanusi,1984). The laws that govern the securities industry in America stem from a simple concept: all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it, and so long as they hold it.

To achieve this, the SEC requires public companies to disclose meaningful financial and other information to the public. This provides a common pool of knowledge for all investors to use to judge for themselves whether to buy, sell, or hold a particular security. Only through the steady flow of timely, comprehensive, and accurate information can people make sound investment decisions. The SEC oversees the key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisors, and mutual funds.

Here the SEC is concerned primarily with promoting the disclosure.