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Financial Markets and the SEC - Case Study Example

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This paper "Financial Markets and the SEC" sheds some light on the regulation and control of financial institutes which is extremely important for us as Americans if we wish to avoid the Black Mondays and stock market crashes which have happened in the past…
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Financial Markets and the SEC
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Download file to see previous pages The regulation of the American financial markets is the responsibility of the government. Since the governmental system in America is democratic, it can be said that the finance market laws represent the wishes of the people in a very significant way. Previous governments have recognized the need to establish independent bodies for monitoring, evaluation and regulatory purposes for a variety of industries. The Federal Communications Commission (FCC) regulates the telecom industry; the Environmental Protection Agency checks the controls on pollution and so on (Wikipedia, 2006).

Historically, the financial markets in America were first brought into defined regulatory control with the passing of the Federal Trade Commission Act in 1914. The principle behind these laws was to create an air of healthy competition between businesses and to protect the rights of the consumers. Before the passing of this act, trusts could be established as groups of businesses working together for their own purposes and operating in unison to gain unfair advantages. However, FTC did not regulate financial markets to the extent which later regulatory bodies would (Risk Glossary, 2006).

This is because the markets themselves were afraid of government legislation interfering with their operations. The NYSE created its own requirements for companies to be listed which included a certain level of capital and other conditions which the companies of the time had to meet. However, after the crash of 1929, where thousands of banks and other financial institutions crashed, it was realized that government regulation must be kept in place to ensure the stability of the financial markets (SEC, 2006).

It was four years before the government was able to pick up the pieces and understand what had happened. It was clear that the situation must never be repeated and a flurry of legislation took place to create safeguards and rules for the financial sector. In 1933, the government created the Banking Act which separated banks into being either commercially based or investment-based.  ...Download file to see next pagesRead More
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