Are Financial Regulators the Protectors of Investors?

The job of financial regulators is to encourage the health and stability of markets by making sure companies are being transparent with investors and playing by the market rules.

Informed Decision Making

• The purpose of markets in free market economics is to direct capital and resources toward the industries and individuals who can use it most effectively. An effective company can take money and turn it into profit, so investors have an incentive to invest money in those companies so they can have a share of the profits. Market rules are designed so that publicly traded companies have transparent financial records; they can't misrepresent their performance to investors.

Inception of Regulation in the U.S.

• After the stock market crash of October 1929 and the Great Depression it caused, the public lost trust in the financial markets. The Securities and Exchange Commission (SEC) was created by legislation in 1934 to restore this confidence by overseeing the markets and making sure companies did not cheat or mislead investors.

Enforcement

• The SEC requires that any publicly traded company make its financial performance a matter of public record. They uphold rules and regulations by bringing civil enforcement actions against companies and individuals.