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Stock Market Regulatory Bodies

Stock Market Regulatory Bodies

There are many regulations and rules in the stock market that are intended to make the market accessible and fair for the “mom and pop” investors.  Without rules and guidelines, the public would lose all confidence in the market and lose out on investment opportunities.  In the U.S there are two main organizations that are responsible for regulating the stock market.  These organizations are the Securities and Exchange Commission (SEC) and The Financial Industry Regulatory Authority (FINRA)

The SEC was established in 1934 with the objective of promoting full public disclosure to protect the public against malpractice in the stock market.  By doing so the SEC maintains the integrity of the stock market.  The SEC has authority from the U.S Congress to bring civil enforcement actions against individuals and companies that are alleged to have committed accounting fraud, provided false information, or engaged in insider trading and many other violations.  The SEC has used this power many times against well known companies, CEOs, hedge funds, and even against the NYSE itself.  In September 2012 the SEC charged the NYSE with violating regulation that prohibits the practice of sending market data to proprietary customers before the general public.  The NYSE agreed to a $5 million penalty and undertakings to settle the SEC charges.

The Financial Industry Regulatory Authority (FINRA) is responsible for regulatory oversight of all securities firms that do business with the public.  FINRA is a private corporation and often mistaken for a government agency.  FINRA also oversees firms that offer professional training, testing, and licensing of registered persons, arbitration and mediation, market regulation by contract for the major exchanges.  FINRA oversees about 4,400 brokerage firms, about 162,930 branch offices and approximately 630,020 registered securities representatives.  FINRA’s most well known product is BrockerCheck, a free tool to help investors research the professional backgrounds of brokerage firms, individual brokers and financial advisors.

Without financial regulatory bodies there would be no confidence in the market, and the entire financial system would be full of corruption  and would not have any legitimacy.  Every country has their own regulatory system which is required to attract international investors with rules and regulations that promote fairness in local markets.


About the author: Jayson Derrick is the director of trading at PromptTrader, an international proprietary trading firm that deals  in US equities and options. 


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