The National Association of Securities Dealers / NASD

The Maloney Act of 1938 was an amendment to the Securities Exchange Act of 1934 that allowed the creation of the NASD which now part of FINRA. The NASD became the self-regulatory organization for over the counter (OTC) market and its purpose was to regulate the broker dealers who conduct business in the OTC market. The NASD was organized into four major bylaws. They are:

  • The rules of fair practice
  • The uniform practice code
  • The code of procedure
  • The code of arbitration

The Rules of Fair Practice / Rules of Conduct

The rules of fair practice are designed to ensure just and equitable trade practices among members in their dealings with the public. In short, the rules of fair practice require members to deal fairly with the public. The rules of fair practice may also be called the conduct rules or the rules of conduct and govern among other things:

  • Commissions and markups
  • Communications with the public
  • Customer recommendations
  • Claims made by representatives

The Uniform Practice Code

The uniform practice code sets forth guidelines for how FINRA members transact business with other members. The uniform practice code sets standards of business practices among its members and regulates:

  • Settlement dates
  • Ex dividend dates
  • Rules of good delivery
  • Confirmations
  • Don’t know or DK procedures

The Code of Procedure

The code of procedure regulates how the FINRA investigates complaints and violations. The code of procedure regulates the discovery phase of alleged violations of rules of fair practice. The code of procedure is not concerned with money; it is only concerned with rule violations.

The Code of Arbitration

The code of arbitration provides a forum to resolve disputes. Arbitration provides a final and binding resolution to disputes involving a member and:

  • Another member
  • Registered agent
  • Bank
  • Customer

FINRA is divided into districts based on geography. Each district elects a committee to administer the association’s rules. The committee is comprised of up to twelve members who serve up to a three-year term. The committee appoints the Department of Enforcement to handle all trade practice complaints within the district and has the power to assess penalties against members who have violated one or more of the association’s rules. FINRA executive committee that consists of the Board of Governors oversees the national business of FINRA.

Series 99 Exam Test Questions



C. FINRA and Communications

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