History

Prior to the enactment of the federal securities laws and the creation of the SEC, there existed so-called blue sky laws. They were enacted and enforced at the state level and regulated the offering and sale of securities to protect the public from fraud. Though the specific provisions of these laws varied among states, they all required the registration of all securities offerings and sales, as well as of every U.S. stockbroker and brokerage firm.

However, these blue sky laws were generally found to be ineffective. For example, the Investment Bankers Association told its members as early as 1915 that they could "ignore" blue sky laws by making securities offerings across state lines through the mail. After holding hearings on abuses on interstate frauds (commonly known as the Pecora Commission), Congress passed the Securities Act of 1933 (15 U.S.C. § 77a), which regulates interstate sales of securities (original issues) at the federal level. The subsequent Securities Exchange Act of 1934 (15 U.S.C. § 78d) regulates sales of securities in the secondary market. Section 4 of the 1934 act created the U.S. Securities and Exchange Commission to enforce the federal securities laws; both laws are considered parts of Franklin D. Roosevelt's New Deal raft of legislation.

The Securities Act of 1933 is also known as the "Truth in Securities Act" and the "Federal Securities Act", or just the "1933 Act". Its goal was to increase public trust in the capital markets by requiring uniform disclosure of information about public securities offerings. The primary drafters of 1933 Act were Huston Thompson, a former Federal Trade Commission (FTC) chairman, and Walter Miller and Ollie Butler, two attorneys in the Commerce Department's Foreign Service Division, with input from Supreme Court Justice Louis Brandeis. For the first year of the law's enactment, the enforcement of the statute rested with the Federal Trade Commission, but this power was transferred to the SEC following its creation in 1934.

In 1934, Roosevelt named his friend Joseph P. Kennedy, a self-made multimillionaire financier and a leader among the Irish-American community, as the insider-as-chairman who knew Wall Street well enough to clean it up. Two of the other five commissioners were James M. Landis (one of the architects of the 1934 Act and other New Deal legislation) and Ferdinand Pecora (Chief Counsel to the Senate Committee on Banking and Currency during its investigation of Wall Street banking and stock brokerage practices). Kennedy added a number of intelligent young lawyers, including William O. Douglas and Abe Fortas, both of whom later became Supreme Court justices. Kennedy's team defined the mission and operating mode for the SEC, making full use of its wide range of legal powers. The SEC had four missions. First and most important was to restore investor confidence in the securities market, which had practically collapsed because of doubts about its internal integrity, and fears of the external threats supposedly posed by anti-business elements in the Roosevelt administration. Second, in terms of integrity, the SEC had to get rid of the penny-ante swindles based on fake information, fraudulent devices, and unsound get-rich-quick schemes. That unsavory element had to be prosecuted and shut down. Thirdly, and much more important than the outright frauds, the SEC had to end the million-dollar insider maneuvers by top officials of major corporations, whereby insiders with access to much better information about the condition of the company knew when to buy or sell their own securities. A crackdown on insider trading was given high priority. Finally, the SEC had to set up a complex system of registration for all securities sold in America, with a clear-cut set of deadlines, rules and guidelines that everyone had to follow. Drafting precise rules was the main challenge faced by the bright young lawyers. The SEC succeeded in its four missions, as Kennedy reassured the American business community that they would no longer be deceived and tricked and taken advantage of by Wall Street. He became a cheerleader for ordinary investors to return to the market and enable the economy to grow again.

The law requires that issuing companies register distributions of securities with the SEC prior to interstate sales of these securities, so that investors may have access to basic financial information about issuing companies and risks involved in investing in the securities in question. Since 1994, most registration statements (and associated materials) filed with the SEC can be accessed via the SEC's online system, EDGAR.

The Securities Exchange Act of 1934 is also known as "the Exchange Act" or "the 1934 Act". This act regulates secondary trading between individuals and companies which are often unrelated to the original issuers of securities. Entities under the SEC's authority include securities exchanges with physical trading floors such as the New York Stock Exchange (NYSE), self-regulatory organizations (SROs) such as the National Association of Securities Dealers (NASD), the Municipal Securities Rulemaking Board (MSRB), online trading platforms such as the NASDAQ Stock Market (NASDAQ) and alternative trading systems (ATSs), and any other persons (e.g., securities brokers) engaged in transactions for the accounts of others.

Later SEC commissioners and chairmen include William O. Douglas, Jerome Frank (one of the leaders of the legal realism movement), and William J. Casey (who later headed the Central Intelligence Agency under President Ronald Reagan).

In 2019, the Securities and Exchange Commission Historical Society introduced an online gallery to illustrate changes in the US securities market structure since the1930s. The online gallery features a narrative history supported by dozens of documents, papers, interviews, photos and videos.