What is the Securities and Exchange Commission (SEC)?

The US Securities and Exchange Commission (SEC) is a federal agency that is the primary and largest regulator of the securities market in the US. The SEC was created in 1934 by the Security Exchange Act (following the 1929 Wall Street Crash). It is an integral part of the US financial system, facilitating the capital formation process and overseeing and regulating the securities markets in the US.

How the Securities and Exchange Commission (SEC) Works

The SEC is tasked with creating and interpreting securities laws and regulating disclosure for corporations and investment products. It also enforces rules and is responsible for protecting investors from wrongdoing or misleading behavior by market participants. The SEC strives to maintain orderly, fair, and efficient markets.

The SEC regulates almost everyone related to the securities industry in the US, including market participants, exchanges, broker dealers, self-regulatory organizations, clearing houses, credit agencies, most investment advisors, and others.

What are some examples of the SEC’s work?

US publicly traded firms are required to file financial statements with the SEC on a periodic basis. Similarly, providers of investment products such as mutual funds or ETFs must file information, including prospectuses, to the SEC on a periodic basis. The SEC works closely with many other institutions, including Congress and other federal departments, SROs (self-regulatory organizations), and exchanges, as well as state regulators.

Types of SEC Filings

The SEC requires domestic companies to submit annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K for a variety of specified events. They are also required to comply with a range of other disclosure requirements.

10-K

The 10-K is a comprehensive report filed annually by each publicly traded company regarding its financial performance. It contains much more detail than an annual report and includes information on the company’s history, organizational structure, financial statements, earnings per share, subsidiaries, executive compensation, and other relevant data.

The 10-K allows investors to stay on top of a company’s financial condition, recent performance, and strategic goals. This gives investors vital information to assist in decisions on buying or selling shares in the company or investing in corporate bonds.

10-Q

A 10-Q is another comprehensive report filed quarterly by a publicly traded company regarding its financial performance. It contains information on the company’s finances related to business operations. Companies must file 10-Qs for the first three quarters of every fiscal year.

10-K and 10-Q documents can be large and contain important information for company analytics. Familiarity with SEC filings and the ability to navigate the data efficiently is an invaluable skill for an analyst.

8-K

The SEC requires an 8-K is filed whenever a significant corporate event takes place that triggers a disclosure. Unlike a 10-Q or 10-K, these are not periodic, and companies should make 8-K disclosures within four business days of a triggering event. The trigger event could be an acquisitions, bankruptcy, or resignation of a director.

The Proxy Statement

The Proxy Statement must be sent or made available to shareholders of securities listed prior to Annual General Meetings (AGMs) or Special General Meetings.  It must be filed with the SEC before any shareholder votes on directorships or a corporate action takes place. The Proxy Statement should contain all the information about issues that shareholders will be asked to vote upon and include details of management compensation.

Section 16 & Forms 3, 4 and 5

Section 16 is a subsection of the Securities and Exchanges Act and is a set of rules to ensure fair disclosure by officers, directors, major shareholders, and anyone else who might be deemed an insider.

Officers, directors, and those who hold more than 10% of any class of a company’s securities must report purchases, sales, and holdings of company securities by filing Forms 3, 4, and 5.

Form 3

This is the initial form that must be filed by insiders within 10 days of a qualifying transaction, for example an IPO (Initial Public Offering). The form is intended to disclose the holding of directors, officers, and beneficial owners and serves as a public record.

Form 4

When an insider executes a transaction in company stock, they must file this form. It is intended to make public insider transactions in company securities, including the number of shares purchased or sold and the price per share.

Form 5

This is an annual summary of Form 4. It also needs to be filed if any transactions have not been reported in a Form 4.

Schedule 13D

Any stakeholder with more than 5% ownership of voting shares is required to file this form to declare ownership. It must be done within 10 days of reaching the 5% threshold. This allows the financial markets access to information on shareholders who may be increasing their holding in a company, which may possibly be linked to corporate activity, or potentially impact the free float of the company.

Form 114

This is a notice of intention to sell or dispose of restricted stock by company insiders (such as directors or large shareholders) or affiliates. The sale must adhere to certain conditions to enable the restricted stock to become saleable and must also be underway within 90 days of filing. The SEC requires this form to be filed if the value of the stake is above $50,000 or 5,000 shares.

Foreign Investment Disclosures

This was added by the SEC in 2008 to ensure that foreign companies with securities listed in the US market complied with disclosure requirements. A foreign company must now submit its annual report within 4 months of year end.

How to Access SEC Filings

To look at filings in more detail, we can use Felix’s data features. Felix gives users quick access to the latest 8-K,10-K and 10-Q filings for over 4,000 US firms. Each company dashboard contains direct links to SEC filings, critical company fundamentals, WACC, trading comparables, and earnings.

After logging into Felix and typing the ticker or name of a listed company (such as Kellanova) into the Analyze section, select the ‘latest company filings’ tab for a closer look at the SEC regulatory requirements and disclosure.

Access 10-K and 10-Q Filings

Selecting ‘latest company filings’ allows us to see the most recent company 10-K and 10-Q filings and Felix will also highlight which are the most recent (as shown below in green). This guides users to the most current information available.

We can see in this image the most recent filings by Kellanova, and we can also open Press Releases linked to each filing as well as speed links to Filing Extracts such as the Income Statement, Balance Sheet and Cash Flow Statement. These can all be quickly copied into excel using the ‘Copy’ function in Felix.

If we click on a recent 10-Q on Felix, we can recognise the standardised layout of an SEC 10-Q filing.

By clicking on ‘Sections’ in the top left toolbar in Felix, we can quickly scroll through the document to find the relevant Financial Statements section. Analysts can also use this tab to see the Notes subheadings and swiftly access details such as the Reportable Segments to allow further analysis of performance.

Access 8-K Filings

8-Ks can also be accessed on Felix by using the same search function in Analyze.

Let’s look at another example, this time searching for Microsoft. If we search “Other Events” we can find an 8-K making a disclosure related to its acquisition of Activision Blizzard.

Once the 8-K is open, we can use the Felix tool, ‘My Annotations’ (on the top left of the Felix toolbar) to highlight specific datapoints and areas of interest, which can then be saved for later use.

Here is an example of using the Annotations tool to highlight information relating to the transaction – we have chosen to highlight the merger date as well as some information relating to options and stock-based awards.

This PDF can then be saved and stored in Felix (accessed via the Annotations Dashboard) for future reference.

Conclusion

The Securities and Exchange Commission (SEC) plays a pivotal role in maintaining the integrity of the U.S. financial markets. As the primary regulator for the securities market, the SEC ensures transparency, fairness, and efficiency in the marketplace.

It oversees a wide range of participants in the securities industry and enforces compliance with securities laws and regulations. The SEC’s work is evident in the mandatory filings it requires from publicly traded companies and investment products. These are all to help improve company disclosure and protect investors within the US securities market. Filings include the 10-K, 10-Q, and 8-K, which provide investors with crucial information about a company’s financial performance and significant corporate events.

With tools like Felix, accessing these filings has become easier than ever, offering investors quick access to the latest filings for over 4,000 U.S. firms. This not only empowers investors with information but also promotes transparency and fairness in the financial markets. Therefore, understanding the role and workings of the SEC is essential for anyone involved in the securities industry.