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

Related Articles
  1. Financial Advisor

    Investigating The Securities Police

    Learn about the history of FINRA and how this organization protects investors.
  2. Financial Advisor

    What Advisors Need to Know About Rule 3210

    Here's what advisors and brokers need to know about FINRA Rule 3210.
  3. Financial Advisor

    How To Handle A Serious Dispute With Your Broker

    Find out what to do if you have a dispute with your broker.
  4. Financial Advisor

    On The Record: Communications With The Public

    NASD Rule 2211 can make or break your career as a registered principal.
  5. Small Business

    Code Climate: How it Works and Makes Money

    Learn more about Code Climate and its suite of static program analysis tools used by software developers to produce and maintain high-quality software code.
  6. Insights

    If You Win a Broker Arbitration, But Can't Collect

    Here's what to do next if your broker stiffs you when you win an arbitration.
  7. Financial Advisor

    When A Dispute With Your Broker Calls For Arbitration

    Do you have a claim you'd like to file? We'll take you through this process step by step.
  8. Financial Advisor

    Is Your Broker Ripping You Off?

    We show you how to resolve a problem without getting the lawyers involved.
  9. Taxes

    Making Sense Of The Tax Code

    If tax rules and regulations are Greek to you, read on to learn how to decipher them.
  10. Trading

    Get To Know These Crucial US Options Market Regulations

    How are options regulated in the U.S and which organizations are involved in options market regulations?
Frequently Asked Questions
  1. Is There a Difference Between the Equity Market and the Stock Market?

    Equities and stocks refer to the same thing.
  2. What Happens to a Company's Stock When it Goes Bankrupt?

    Shareholders may be entitled to a portion of the liquidated assets in the wake of a bankrutpcy, but the stock will be worthless.
  3. What are Advantages and Disadvantages of Preference Shares?

    Preference shares have advantages and disadvantages for both investors and issuing companies.
  4. When am I eligible to receive Social Security benefits?

    Understand when you are eligible to begin collecting Social Security retirement benefits and how retiring at different ages ...
Trading Center