The Securities and Exchange Commission and Commodity Futures Trading Commission are essential terms to understand and remember when you are interested in investing in stocks in general.
What is the SEC?
The Securities and Exchange Commission (SEC) has the job of protecting investors in the US by the US government, making sure that everything is fair and the process of investing is easy and simple to use. Most security issues, no matter in what form they are presented have to be registered with the SEC.
The President of the United States is the chairman of the SEC and in order to be elected as such, they have to be selected among five other commissioners. However, if a replacement is not found within that time frame, the commissioners may continue to serve for an additional 18 months.
How Does The SEC Work?
The SEC’s responsibility is to make sure that rules are added and updated whenever needed to make security stronger. This includes giving out information about the market, protection against fraud, and so on.
Its main responsibility however oversees organizations and individuals operating in the security markets. This includes security exchanges, brokerage firms, dealers, and other similar businesses and individuals.
The Securities and Exchange Commission has a total of 23 offices and five divisions. The five divisions and the roles that they play are as follows:
- Division of Corporate Finance – Ensures that investors are provided with material information, which is defined as information that is relevant to the financial prospects of a company or the price of its stock so that investors can make educated decisions on their investments.
- Division of Investment Management – Investment firms, variable insurance products, and federally licensed investment advisors are all subject to the agency’s regulatory oversight.
- Division of Trading and Markets lays out and upholds norms to ensure that markets are competitive, well-ordered, and effective.
- Division of Economic and Risk Analysis holds on the fields of economics and data analytics as the main components of the SEC’s mission.
- Division of Enforcement is tasked with the responsibility of ensuring compliance with SEC regulations through the conduct of case investigations as well as the prosecution of civil lawsuits and administrative actions.
What is CFTC?
The CFTC (Commodity Future Trading Commission) is responsible for the regulation of the derivatives markets in the United States. These markets include futures contracts, options, and swaps.
The CFTC comprises five commissioners, each of whom has been appointed by the president. The terms of office for commissioners are staggered and last for five years.
It is up to the president to choose which of these commissioners will serve as the chair, and at any given moment, there cannot be more than three commissioners associated with the same political party.
It seeks to safeguard investors against fraudulent investments, exploitative business practices, and manipulation of the market to achieve its aim of fostering efficient and competitive markets.
The CFTC Divisions
The Commodity Futures Trading Commission (CFTC) is an institution that comprises the offices of the Chairman and Commissioners in addition to the agency’s 13 operating divisions and offices.
- Division Of Clearing Risk – The purpose of this CFTC division is to enable the CFTC to meet its legislated responsibility of ensuring the financial stability of all transactions that are subject to the CEA and the avoidance of systemic risk in the derivatives markets. In other words, the DCR’s role is to make it possible for the CFTC to fulfill its statutory responsibility.
- Market Participants Division – The primary functions of the Markets and Participant Division (MPD) are to educate the American public about the derivative markets that are regulated by the Commodity Futures Trading Commission (CFTC) and to supervise the registrants of the CFTC who engage in dealing, trading, investment, and advisory businesses in the derivative markets.
- Division Of Market Oversight – The Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (DMO) is in charge of monitoring the exchanges and facilities on which derivatives trade, as well as the stability and market structure of the derivatives markets that are regulated by the CFTC.
- Division of Data – Along with the Markets and Practices Division (MPD), the Division of Data (DOD) was established as part of a reorganization of the CFTC. The DOD is now responsible for additional analytics duties in addition to the responsibilities that were formerly handled by the Department of Market Oversight (DMO).
- Division of Enforcement – The DOE conducts investigations into a variety of suspected offenses, including but not limited to fraud, false statements to the Commission, disruptive trading tactics, misappropriation, and the use of a manipulative or deceptive technology.
(The CFTC Organization – cftc.gov)
SEC and CFTC FAQs
How Does the SEC Make New Rules?
A new rule from the SEC begins with the release of an idea, which is followed by a proposal. The public is allowed to evaluate and comment on both the first released concept and the subsequent proposal, which the SEC takes into consideration before voting on it.
After then, a meeting of the SEC will be called to discuss the comments received from the general public, as well as any industry representatives or other subject-matter experts. They will next vote on whether or not to implement the rule.
How is the CFTC Funded?
The federal government supports the Commodity Futures Trading Commission. In comparison to other regulatory bodies, many people believe the Commodity Futures Trading Commission (CFTC) does not receive proper financing. For instance, the CFTC submitted a proposal to Congress for $394 million in the year 2022.
Is SEC the same as FINRA?
To answer your question directly, the answer is no. The Securities and Exchange Commission (SEC) is a government agency that is responsible for establishing rules and guidelines surrounding the marketing and trading of securities.
On the other hand, the Financial Industry Regulatory Authority (FINRA), which was formerly known as the National Association of Securities Dealers, is a non-profit industry body that regulates broker-dealers and gives licenses to securities professionals.
Do I Have to Register With The CFTC?
You are required to register with the CFTC if you are an intermediary, which is defined as a person or corporation that acts as an agent for other individuals when dealing with futures, swaps, and options.
Commodity pool operators and consultants, futures commission merchants, introducing brokers, and swap dealers are examples of these types of professionals.
Takeaways
- The United States Securities and Exchange Commission (SEC) is an independent agency of the federal government.
- The President of the United States, who is the chairman of the Securities and Exchange Commission (SEC) is selected from among the five commissioners.
- The Commodity Futures Trading Commission (CFTC) is an independent federal body that is responsible for the regulation of the derivatives markets in the United States.
- Its principal responsibility is to oversee organizations and individuals operating in the securities markets.
- You are required to register with the CFTC if you are an intermediary.
