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US Securities and Exchange Commission (SEC) Brokers 2024

Written By

Tobias Robinson

Written By

Tobias Robinson

Tobias is a partner at DayTrading.com, director of a UK limited company and active trader. He has over 25 years of experience in the financial industry and contributed via CySec to the regulatory response to digital options and CFD trading in Europe. Toby’s expertise and dedication to financial education make him a trusted voice in the industry, including a BBC investigation into digital options.

» Tobias Robinson Profile Page

Fact Checked By

William Berg

Fact Checked By

William Berg

William contributes to several investment websites, leveraging his experience as a consultant for IPOs in the Nordic market and background providing localization for forex trading software. William has worked as a writer and fact-checker for a long row of financial publications.

» William Berg Profile Page

Updated

Jun 24, 2024

This guide ranks the top brokers regulated by the US Securities and Exchange Commission (SEC), a federal government agency responsible for protecting investors within the securities markets. We investigate the agency’s powers and regulations, track record and how brokers are supervised. Our team also explain how to carry out a company search and a regulations check.

What is the SEC?

The independent federal government agency aims to protect investors while ensuring the functionality of securities markets. The SEC also helps achieve transparency in the markets while preventing frauds, scams and malpractice.

To do the above, the regulatory body utilises a range of reporting and enforcement techniques. In addition, prospective members, such as forex brokers, must complete registration for a SEC licence before they can conduct business.

Purpose

The SEC’s mission is split up into three distinct parts:

1. Protect investors
2. Facilitate capital formation
3. Maintain and encourage market functionality

It’s worth noting the primary purpose is to supervise both organisations and individuals in the markets. Specifically, this means the agency turns its attention to brokers, exchanges, dealers, and registered investment advisors. Their scope extends from insider trading investigations to forex day trading rules and regulations.

Fortunately, you don’t need to wait for the news to find out about new regulations and filings. This is because the SEC facilitates investor access to registration statements, financial reports and other documentation via its EDGAR database.

The regulatory agency receives its mandate from several pieces of legislation:

• 1933 – Securities Act
• 1934 – Securities Exchange Act
• 1939 – Trust Indenture Act
• 1940 – Investment Company Act
• 1940 – Investment Advisers Act
• 2002 – Sarbanes-Oxley Act
• 2010 – Dodd-Frank Wall Street Reform and Consumer Protection Act
• 2012 – Jumpstart Our Business Startups (JOBS) Act

The SEC is financed by the taxpayer, as well as through registration and nominal fees. The SEC charges a tiny transaction fee on the value of all equities sold. This cost is separate to any broker commissions. These fees are given to the US Treasury, who then pay for the SEC’s regulation of brokers and markets.

History

In 1929 the US stock market crashed. As a result of false or misleading information, securities from a number of companies ended up worthless. Unsurprisingly, public confidence in the markets plummeted.

To repair the damage, following conferences and debate, Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934. Section 4 of the latter gave life to the SEC. The initial schedule directed them to ensure companies made truthful statements and that institutions, such as brokers, acted fairly and honestly.

Following expansion over the years, the meaning and purpose of the SEC have also extended to giving lending guidance and maintaining institution standings.

Structure

Divisions

The SEC headquarters can be found in Washington DC. The structure is relatively straightforward. The body has five divisions:

1. Enforcement – The enforcement department works alongside the other divisions. They conduct investigations into securities violations and regulations. They have a range of powers, which will be broken down further below.
2. Trading and Markets – This division manages self-regulatory bodies, including the FINRA and MSRB. It also includes broker-dealers and investment houses. The department plays a key role in amending regulations and monitoring industry operations. Note the SEC outsources the majority of enforcement to the FINRA. As such, all trading companies without regulatory oversight from other SROs must hold a licence with FINRA. Finally, individual traders must pass FINRA exams in order to be a registered representative.
3. Corporation Finance – This department supervises disclosures made by public companies. It is also concerned with the registration of transactions and mergers.
4. Investment Management – As the name suggests, this department manages registered investment companies, including investment advisors. Duties include responding to no-action letters and interpreting legislation and regulations.
5. Economic and Risk Analysis – This division offers insight and analysis to aide SEC regulations and policy development. This includes potential risks and data analytics.

Offices

The SEC also has 11 regional offices. Some of the most relevant include the offices of:

• The General Counsel – This office is effectively the agency’s lawyer. It offers legal advice to the commissioner and other offices.
• Compliance, Inspections and Examinations – This office monitors and conducts investigations into brokers, exchanges, credit rating agencies, and investment companies.
• The Chief Accountant – This body plays a key role in enforcing accounting and auditing regulations.
• The Whistleblower – This office has proven particularly effective over the years. It came to life in the wake of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. It offers a financial reward for information that leads to enforcement actions and sanctions in excess $1 million. Individuals can receive anywhere from 10% to 30% of the final sanctions.

Powers & Regulations

There are a number of actions the SEC takes to ensure compliance with regulations. One of the standard actions requires regulated companies to submit quarterly and annual financial reports. Company executives may also have to offer a narrative account, known as management discussion and analysis (MD&A). As mentioned above, consumers can head to the online EDGAR database to view important information.

Access to the above information is perhaps more important now than ever before. This is because you may get access to cryptocurrency and blockchain data to help you make informed investment decisions.

In the case of civil suits, the SEC primarily uses two sanctions:

1. Injunctions – These aim to prevent future violations. The consequences of ignoring injunctions can range from fines to prison time. Before an injunction is given out, the body can demand documentation and testimony from suspects and witnesses.
2. Penalties and disgorgements – The body can also take action that sees culprits pay hefty fines or give up profits. In addition, the commission may prevent individuals from acting as company directors.

Regulatory action can also include suspending registration, as well as cease and desist orders.

Note the regulatory agency does not have criminal authority. Instead, it can refer issues to the necessary prosecutors. Alternatively, it can seek civil action in a US District Court or an independent administrative proceeding.

It’s also worth bearing in minds the words used in liquidity rules and financial reporting manuals, for example, are often difficult to misinterpret. As a result, the regulatory agency is often successful when it comes to pursuing enforcement actions.

Track Record

The SEC has brought a number of enforcement actions against regulated and approved brokers. In fact, the regulatory body plays a significant role in almost every large case of financial malpractice.

Often, offences include fraud, misleading or false information and insider trading. In particular, the SEC was integral in bringing to justice a number of institutions in the wake of the 2008 financial crisis. The agency helped return billions of dollars to investors.

In fact, by the end, 204 bodies and individuals were charged and $4 billion in penalties were given out. Goldman Sachs faced the largest Wall Street penalty for monetary relief, coming in at a staggering $550 million.

The SEC has also come down on brokers over the years. More recently, however, it has ICOs in the crosshairs. In particular, enforcement action has been taken over marketing practices. For example, in 2017, the SEC brought an abrupt halt to the Munchee ICO.

Criticisms of the SEC

The majority of SEC criticism in recent years has been in regard to:

• Failing to require companies to publicly admit guilt
• Settling with large banks and institutions, instead of pursuing a trial
• Not using press releases to name and shame those in enforcement actions
• Handing out relatively minor sanctions, despite significant regulatory powers
• Imprisoning just one Wall Street executive for crimes related to the 2008 crisis
• Handing out waivers enabling protection from the collateral consequences of enforcement actions

Final Thoughts

There is no doubt SEC regulations play a key role in protecting consumers from fraudulent and misleading day trading brokers, among other financial institutions. Their enforcement activity is aggressive, despite some criticism. Public perception of the SEC is improving and they remain reputable in comparison to other bodies elsewhere in the world.

So before you pursue registration with a brokerage, check on the official SEC website that they are licensed on a regulated brokers list.