A:

With all the financial organizations out there, knowing what they all do can be as complicated as knowing where to invest. The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) - formerly, the National Association of Securities Dealers (NASD) - are two of the most important regulatory bodies in the U.S. market, but have very different scopes and purposes.

The primary mission of the SEC is to protect investors and maintain the integrity of the securities markets (exchanges and over-the-counter markets). The SEC rose out of the ashes of the great stock market crash in October of 1929. After the crash and the ensuing depression, confidence in the markets fell to an all-time low. Congress held hearings to identify problems in the market and concluded that faith in the system needed to be restored. As such, the Securities Act of 1933 and the Securities Exchange Act of 1934 were passed. These acts were designed to restore investor confidence through two main principles:

  1. Companies offering securities to the public must be truthful about their businesses and the risks involved in investing.
  2. Companies that sell and trade securities (brokers, dealers and exchanges) must treat all investors fairly and honestly.

When these securities laws were passed, the SEC was established to enforce them. Their focus was, and remains, to promote stability in the markets and, most importantly, to protect investors.

FINRA is the largest self-regulatory organization (SRO) in the securities industry in the United States. An SRO is a membership-based organization that creates and enforces rules for members based on the federal securities laws. SROs, which are overseen by the SEC, are the front line in regulating broker-dealers.

To summarize, the SEC is responsible for ensuring fairness for the individual investor and Finra is responsible for overseeing virtually all U.S. stockbrokers and brokerage firms. In the grand scheme of things, FINRA is overseen by the SEC.

For further reading, see The Securities And Exchange Commission Defined.

RELATED FAQS

  1. What average annual growth rate is typical for the banking sector?

    Learn the typical average annual growth rate for the banking sector and why regulatory requirements have a profound effect ...
  2. What are some of the major regulatory agencies responsible for overseeing financial ...

    Discover the specific responsibilities of some of the major regulatory agencies that oversee financial institutions in the ...
  3. How does neoclassical economics relate to neoliberalism?

    Read about neoliberalism and neoclassical economics, two political and economic movements that argued for lower taxes, less ...
  4. What regulations exist to protect infant industries?

    Read about the history of infant industry protections in the United States, which are remnants of an old, protectionist trade ...
RELATED TERMS
  1. Fair Housing Act

    This law (Title VIII of the Civil Rights Act of 1968) forbids ...
  2. Structured Transaction

    A series of transactions that could have been treated as a single ...
  3. The New Deal

    A series of domestic programs designed to help the United States ...
  4. PCI Compliance

    Technical and operational standards that businesses are required ...
  5. Assigned Risk

    A risk that an insurance company is required to provide coverage ...
  6. Mandatory Binding Arbitration

    A contract provision that requires the parties to resolve contract ...

You May Also Like

Related Articles
  1. Investing

    Should Amtrak Be Privatized?

  2. Fundamental Analysis

    The Business Model Of Private Prisons

  3. Fundamental Analysis

    Is Baidu a Real Threat to Google?

  4. Economics

    The Economics Of Solar Power

  5. Trading Strategies

    Why There's No Such Thing As A Stock ...

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!