Rules for Public Stocks by SEC

by Walter Johnson ; Updated April 19, 2017

A corporation is defined as a business entity that diffuses ownership through stock. This means that investors buy the company's stock based on their evaluation of the firm's future. The fortunes of the company then control whether the stock value goes up or down. The Securities and Exchange Commission (SEC) is in charge of implementing rules governing the issuance and trading of stock by all publicly traded corporations as well as the brokers who trade these stocks for a living.


A company that wishes to “go public” must issue an initial public offering (IPO) of stock that serves to finance its growth. The SEC itself, in its 2011 report to the Treasury Department, holds that not only does the issuance of an IPO increase the growth of these firms, but that current regulations make issuing these more difficult. The SEC then lays out certain reforms that will make the rules governing “going public” much easier to follow. The SEC reports that compliance with these rules cost the average company about $2.5 million.

Trading Rules

For traders, a regular day trader must be capitalized at a minimum of $25,000. It must always be present and never can dip under that amount. All traders must have this on hand at all times. They may trade up to four times their equity amount at any time. Therefore, if the trader is capitalized at $25,000, he may trade up to $100,000 at any time. The SEC asks all investors to report brokers and other traders if they are not maintaining their minimal capitalization requirements or are leveraging too much stock.

SEC Regulations

A company that has issued stock must be in constant communication with the SEC as of the time of publication. This means there must be an entire reporting and compliance infrastructure for even small companies to maintain their public status. These regulations, which include regular audits of the company and inspections of assets and profit reports, can be excessive for small firms with smaller and less specialized accounting staffs.


The broader context for SEC rules on public stocks is to make these companies completely transparent to the public. That is, small companies must constantly keep and maintain public records about their activities and compliance with SEC audits. They recognize, however, that the present regulatory context of constant audits and little time to adjust for compliance can be counterproductive.


All traders dealing in "penny stocks," that is, stocks under $5 from small firms, must advise their clients of the risks involved in trading with these small firms. Brokers or traders must also show how much they are getting paid for trading these stocks, in order to avoid any corruption. It also should be made clear, according to SEC regulations, that these stocks cannot be accurately priced, are traded only infrequently, and carry a greater risk than all other stocks.

About the Author

Walter Johnson has more than 20 years experience as a professional writer. After serving in the United Stated Marine Corps for several years, he received his doctorate in history from the University of Nebraska. Focused on economic topics, Johnson reads Russian and has published in journals such as “The Salisbury Review,” "The Constantian" and “The Social Justice Review."