The Securities and Exchange Commission started on June 6, 1934, the day President Franklin D. Roosevelt signed the Securities Exchange Act into law. The first five commissioners were appointed less than a month later, on July 2, 1934, and the agency has operated continuously ever since as the primary federal regulator of the securities industry.1Library of Congress. Signing of the Securities Exchange Act of 1934
Why Congress Created the SEC in 1934
The SEC came out of the worst financial collapse in American history. After the October 1929 stock market crash, industrial production in the United States fell by nearly 47 percent between 1929 and 1933, and unemployment climbed above 20 percent. Roughly one in five banks operating in 1930 had failed by 1933, leaving depositors unable to reach their savings.
Public trust in the markets collapsed alongside the economy as evidence emerged that banks and brokerage firms had engaged in widespread manipulation and self-dealing. In 1932, the U.S. Senate launched an investigation led by counsel Ferdinand Pecora into the practices of Wall Street banks and stock exchanges. The Pecora investigation uncovered hidden conflicts of interest, insider trading, and the sale of worthless securities to unsuspecting investors. Its findings generated enormous public support for federal regulation and directly prompted Congress to pass the landmark securities laws of 1933 and 1934.2U.S. Senate. Subcommittee on Senate Resolutions 84 and 234
The Securities Act of 1933 Came First
Before the SEC existed, Congress passed the Securities Act of 1933, the first major federal law regulating the sale of new securities.3Office of the Law Revision Counsel. 15 USC 77a – Short Title Before this law, companies could sell stocks and bonds to the public with little or no disclosure about their finances, operations, or risks. The 1933 Act made it illegal to offer or sell securities through interstate commerce unless a registration statement had been filed with the federal government.4Office of the Law Revision Counsel. 15 USC 77e – Prohibitions Relating to Interstate Commerce and the Mails
Registration statements required companies to provide certified balance sheets, profit and loss statements covering at least two prior years, and descriptions of the business’s general operations.5Office of the Law Revision Counsel. 15 USC 77aa – Schedule of Information Required in Registration Statement Companies that willfully filed false or misleading statements faced criminal penalties of up to $10,000 in fines, five years in prison, or both.6Office of the Law Revision Counsel. 15 USC 77x – Penalties
During the first year under the new law, the Federal Trade Commission handled the registration process and enforced compliance.7Federal Trade Commission. Oral Histories But the 1933 Act only covered the initial sale of new securities, not the ongoing trading of stocks and bonds. A dedicated agency was needed to regulate the broader markets.
The 1934 Act That Actually Created the Agency
Congress expanded federal oversight dramatically the following year with the Securities Exchange Act of 1934, signed by President Roosevelt on June 6, 1934. This legislation officially established the Securities and Exchange Commission as an independent federal agency and gave it authority over the secondary market, where investors buy and sell existing stocks and bonds.8Office of the Law Revision Counsel. 15 USC 78a – Short Title
The new agency took over enforcement of the 1933 Act from the Federal Trade Commission, centralizing securities regulation into a single body. The 1934 Act also required publicly traded companies to file periodic financial reports, gave the SEC power to register and supervise brokerage firms and stock exchanges, and prohibited manipulative trading practices such as wash sales and insider trading.
Five Commissioners, No Partisan Majority
The 1934 Act established the SEC with five commissioners appointed by the President and confirmed by the Senate. Each serves a five-year term. To prevent any single political party from controlling the agency, the law requires that no more than three commissioners belong to the same party.9Office of the Law Revision Counsel. 15 USC 78d – Securities and Exchange Commission The President designates one commissioner as chairman. That structure has remained essentially unchanged since 1934.
The First Commissioners and Joseph P. Kennedy
Roosevelt appointed the first five commissioners on July 2, 1934: Joseph P. Kennedy, George C. Mathews, James M. Landis, Robert E. Healy, and Ferdinand Pecora, whose Senate investigation had exposed the abuses that led to reform.10U.S. Securities and Exchange Commission. SEC Historical Summary of Chairmen and Commissioners Kennedy was chosen as the inaugural chairman, a decision that surprised many given his own history as a Wall Street speculator. Roosevelt’s reasoning was practical: Kennedy understood the tactics market manipulators used and could apply that knowledge to detect and stop fraud.
Kennedy served as chairman for just over a year, stepping down in September 1935. During that time, the initial commission built the agency’s administrative infrastructure from scratch, hired staff with financial and legal expertise, and established regional offices in major financial centers to enforce the new federal rules locally. James Landis succeeded Kennedy as the second chairman and continued the work of organizing the agency and rebuilding public confidence in the markets.
How the SEC’s Authority Grew After 1934
Within a few years of the SEC’s creation, Congress passed additional legislation that extended the agency’s reach well beyond stock trading.
The Public Utility Holding Company Act of 1935
The Public Utility Holding Company Act of 1935 gave the SEC authority over the complex corporate structures that controlled much of the nation’s electric and gas utilities.11Office of the Law Revision Counsel. 15 USC 79 to 79z-6 – Public Utility Holding Companies These holding companies had used layers of subsidiaries and complicated accounting to hide debt and inflate prices for consumers. The SEC received power to simplify these corporate webs and limit holding companies to a single, integrated utility system. Congress repealed the law in 2005, transferring oversight of utility holding companies to the Federal Energy Regulatory Commission.12Office of the Law Revision Counsel. Repeal of Public Utility Holding Company Act of 1935
The Investment Company Act and Investment Advisers Act of 1940
In 1940, Congress passed two more laws that expanded the SEC’s reach significantly. The Investment Company Act brought mutual funds, closed-end funds, and other pooled investment vehicles under SEC regulation, requiring these companies to register and disclose their financial condition and investment policies.13Office of the Law Revision Counsel. 15 USC 80a-3 – Definition of Investment Company
The Investment Advisers Act of 1940 created a registration system for individuals and firms that provide investment advice for compensation. Unless exempt, investment advisers must register with the SEC and disclose their business practices, financial condition, and any disciplinary history.14Office of the Law Revision Counsel. 15 USC 80b-3 – Registration of Investment Advisers Together, the 1933 Act, the 1934 Act, and the two 1940 Acts form the core statutory framework that still governs the SEC’s work.
The SEC Today
The agency that Kennedy’s first commission built from scratch now operates through six primary divisions (Corporation Finance, Enforcement, Trading and Markets, Investment Management, Economic and Risk Analysis, and Examinations) and maintains ten regional offices around the country, a direct descendant of the regional presence the first commissioners established in 1934.15U.S. Securities and Exchange Commission. Regional Offices The founding principle has held steady across ninety years: investors deserve honest, complete information before putting their money at risk, and someone with federal authority needs to enforce that promise.