What is the US Securities and Exchange Commission (SEC)?

The Securities and Exchange Commission is a regulatory agency in the U.S. tasked with protecting investors, maintaining fair and efficient markets and facilitating capital formation. 

The SEC was established in 1934 during the Great Depression and following Congress' passage of the Securities Act of 1933, which is the first federal law that regulated the issuance of securities. The agency was created to regulate and enforce that legislation. 

The SEC oversees broker-dealers, investment companies, investment advisers, clearing agencies, transfer agents, credit rating agencies and securities exchanges. The agency also oversees organizations such as the Financial Industry Regulatory Authority, the Municipal Securities Rulemaking Board and the Public Company Accounting Oversight Board. 

The agency's jurisdiction was further expanded in 2010 following the passage of the Dodd-Frank Act to include municipal advisors among others. 

Within the SEC

The agency's leadership is made up of up to five commissioners appointed by the President based on advice and consent from the Senate. There can not be more than three commissioners in the same political party. 

There are also multiple divisions within the agency including ones focused on enforcement, corporation finance, economic and risk analysis, examinations, trading and markets and investment management. 

All play unique roles in bolstering the agency. For example, the Division of Corporation Finance makes sure investors are provided with material information to then make informed investment decisions while the Division of Enforcement investigates possible violations of the federal securities laws. 

The SEC's three objectives

The agency is tasked with protecting investors and aims to ensure that investors have access to accurate and relevant information about securities being offered for public sale and that they are protected from fraudulent or manipulative practices.

The SEC also works to maintain fair, orderly, and efficient markets by regulating exchanges, securities brokers, dealers, and other market participants.

Lastly, the SEC plays a role in facilitating the capital-raising process for companies by overseeing the issuance of new securities and ensuring compliance with regulations.

The SEC's role in crypto 

Past and current SEC chairs have said many cryptocurrencies could be defined as securities, according to news reports. Former SEC Chair Jay Clayton cracked down on initial coin offerings in 2017 and raised concerns that they could be offering much less investor protection than in more traditional markets which could lead to more fraud and manipulation. 

The current chair, Gary Gensler, has warned that crypto exchanges need to register with the agency. Over the past year, the SEC has cracked down on firms, including Coinbase and Kraken for allegedly operating as an unregistered exchange, broker, dealer and clearinghouse. The SEC also sued Binance in 2023 for similar charges along with alleging that the exchange lied to customers and misdirecting capital to separate investment funds owned by its former CEO Changpeng Zhao. 

Nonfungible tokens, or NFTs, have also come under the SEC's scrutiny recently. The agency brought charges against a Los Angeles-based podcasting studio Impact Theory for allegedly conducting an unregistered offering of NFTs. A month later the agency charged NFT project Stoner Cats 2 LLC with allegedly conducting an unregistered offering of NFTs. 

Lawmakers are working on legislation to bring clarity to how cryptocurrencies should be regulated, but none have been signed into law yet.

Spot bitcoin ETF greenlight

In a significant move for the crypto industry, the SEC approved spot bitcoin exchange-traded funds in early 2024, years after Cameron and Tyler Winklevoss first filed a spot bitcoin ETF application with the agency back in 2013. 

A turning point for the SEC's eventual approval was a pivotal ruling during the summer of 2023 when a panel of judges mandated the SEC to re-evaluate Grayscale Investments' proposal for a spot bitcoin ETF.

The court specifically addressed the SEC's treatment of spot bitcoin ETFs and bitcoin futures ETFs in their opinion. Prior to its approval, Grayscale showed in its proposed bitcoin ETF that it was similar to already approved bitcoin futures ETFs in both the underlying assets and in surveillance sharing agreements. It should have "the same likelihood of detecting fraudulent or manipulative conduct in the market for bitcoin and bitcoin futures," the court said at the time.

The SEC approved 11 spot bitcoin ETFs from companies including BlackRock and Fidelity, though the agency's Chair Gensler noted that it did not mean the agency was endorsing bitcoin. That approval provided institutional and retail investors with a way to get exposure to bitcoin through more traditional investment channels. Since then, spot bitcoin ETFs have seen billions of dollars of inflows.

The SEC has not yet approved any spot Ethereum ETFs.