Chapter 6: Conduct Rules - B. NASD and Codes

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.

C. FINRA and Communications
Related Articles
  1. Professionals

    CFP

    CFP Exam Guide
  2. Personal Finance

    Introduction To Financial Planning Organizations

    Organizations such as the FPA and NAPFA are striving to provide higher standards for the financial planning profession and greater protection for consumers through a combination of community ...
  3. Professionals

    Key Steps To Building A Great Financial Planning Practice

    Following the status quo will kill your financial practice. Find out the tips you need to follow to keep you a step or two ahead of the competition.
  4. Professionals

    A Day In The Life Of An Economist

    We've interviewed three economists with very different job descriptions to give you an idea of the many possibilities this career choice offers.
  5. Professionals

    The Best Training Programs For CFP Exams

    The competition to become a financial planner is hot, and growing hotter. Find out the best way to preparing to land the CFP designation.
  6. Professionals

    The Claritas Investment Certificate: A New Foundation-Level Program From The CFA Institute

    The Claritas Investment Certificate is likely to find growing acceptance as the new foundation-level education and ethics standard for the financial service sector internationally.
  7. Career Education & Resources

    The Top RIA Deals of 2015

    It was a big year for change within the RIA industry. Here are 2015's biggest mergers, acquisitions and buyouts.
  8. Retirement

    6 Robo-Advisors That Require Little to Start

    There are many well-regarded robo-advisor options that come with minimum investment amounts. Here are snapshots of a handful of them.
  9. Career Education & Resources

    Top Ways Advisors Can Get Fired from a Practice

    These are the most common reasons why advisors get fired.
  10. Your Practice

    How Advisors Can Appeal to Nontraditional Families

    So-called traditional families represent less than 20% of U.S. households today. Here's how advisors can adjust.
RELATED TERMS
  1. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  2. Series 6

    A securities license entitling the holder to register as a limited ...
  3. Open Architecture

    The option offered by an investment firm to let its clients invest ...
  4. Advanced Diploma In Insurance

    A qualification earned by insurance professionals and conferred ...
  5. Associate In Personal Insurance ...

    A designation earned by professionals looking for training in ...
  6. Fintech

    Fintech is a portmanteau of financial technology that describes ...
RELATED FAQS
  1. Are hedge funds regulated by FINRA?

    Alternative investment vehicles such as hedge funds offer investors a wider range of possibilities due to certain exceptions ... Read Full Answer >>
  2. Do financial advisors charge VATs?

    The Personal Finance Society (PFS) and with Her Majesty's Revenue and Customs (HMRC) have outlined when a value-added tax ... Read Full Answer >>
  3. How do financial advisors execute trades?

    Today, almost every investor invests through online brokerage accounts. Investors often believe that their trades are directly ... Read Full Answer >>
  4. How do financial advisors help you avoid escheatment?

    Financial advisors can help you avoid the escheatment of your financial assets by regularly reviewing all of your accounts, ... Read Full Answer >>
  5. Why do financial advisors dislike target-date funds?

    Financial advisors dislike target-date funds because these funds tend to charge high fees and have limited histories. It ... Read Full Answer >>
  6. How are variable annuities regulated?

    The sale of a variable annuity is regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory ... Read Full Answer >>
Hot Definitions
  1. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  2. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  3. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  4. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  5. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
Trading Center