The secondary market, most commonly referred to as the stock market, is largely built on self-regulating exchanges that also possess a degree of oversight from government agencies. For example, the New York Stock Exchange (NYSE) has its own rules and requirements for companies, traders and brokers. Trading activity is further regulated by agencies such as the U.S. Securities and Exchange Commission (SEC).

Outside of the U.S., secondary market regulation often includes issuer disclosure requirements, rules for corporate transparency and investment professional licensing. Domestically and internationally, private trading in the secondary market almost always includes self-regulation.

Defining the Secondary Market

A secondary market is defined as any space where private investors trade among each other. All secondary market securities have previously been issues by corporations in the primary market; the issuing company no longer plays a direct role in the transaction.

For example, suppose an investor purchases Apple stock listed on the NYSE. The seller of the stock is not Apple, but rather another investor who is looking to exit a position. Trades are made auction-style, where prices fluctuate dynamically in response to supply and demand between buyers and sellers.


Secondary markets are self-regulated to the extent allowed by the state. The U.S. was the first to allow for self-regulation with the Securities Exchange Act of 1934. Japan followed suit after WWII (under the control of American occupation forces) with the Securities and Exchange Law of 1948. The United Kingdom adopted similar policies in 1986 with the Financial Services Act.

Self-regulation typically takes place via securities exchanges that are themselves subject to government oversight. Exchanges have an incentive to regulate participants to attract investors; most investors feel more comfortable trading in a safe, transparent environment with licensed or certified professionals.

However, self-regulatory organizations such as the Financial Industry Regulatory Authority (FINRA) and the National Association of Securities Dealers (NASD) have been ruled to be only be exercising delegated government power. This blurs the line between market regulation and state regulation.

SEC and the Secondary Market

The most relevant national laws and regulations that apply to secondary markets stem from the Securities Act (1933), the Securities Exchange Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010).

The SEC is responsible for issuing interpretations of federal laws. Important interpretations include safe harbors from registration requirements in Rule 144, Regulation D and Rule 701. The SEC is also responsible for enforcement of federal laws against violators.

SEC regulators also work in tandem with the Securities Investor Protection Corporation (SIPC), which is a federally mandated independent organization. The SIPC was designed to protect investors from broker-dealer failure, much like the Federal Deposit Insurance Corporation (FDIC) protects depositors from commercial bank failure.

Ever since the financial crisis of 2008, many regulatory advocates have pushed for further SEC involvement in the over-the-counter market and the secondary market for mortgages.

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