LO 5.1.3: Discuss the purpose of FINRA and the registration process for this organization. Flashcards
Securities Industry Self-Regulation | What is self-regulation
- Enacting independently created rules covering internal and external activities.
- Internal: rules on membership requirements, settlements, listing requirements, and capital requirements of specialists.
- External: rules on appropriate behavior of members and their representatives.
FINRA
- Financial Industry Regulatory Authority (FINRA)
- Began operations in 2007
- With the approval of the SEC, FINRA combines regulatory functions of the NASD and the NYSE
- is a self-regulatory org established by the securities industry itself, not the government, but is under the purview of the government.
What is the purpose of FINRA
- Member regulation- licensing exams, CE reqs: firm element, regulatory element.
- Market regulation- NASDAQ, American Stock Exchange (ASE), International Stock Exchange (ISE), Chicago Commodities Exchange (CCE), OTC & Corporate bond markets (securities markets)
- Enforcement- firms, individuals.
What are the rules and regulations that FINRA develops called
FINRA Conduct Rules (185)
What does FINRA do
- Conducts regulatory reviews of members’ business activities, disciplines violators, and designs, operates, and regulates securities markets and services to benefit and protect the investor.
What do the important tasks of FINRA include
- Market regulation
- Member regulation
- Enforcement
- Dispute resolution
- Advertising regulation/investment companies
FINRA tasks with regard to Market regulation
- regulates, oversees, and monitors all trading on Nasdaq Stock Market, American Stock Exchange, Int’l Securities Exchange, Chicago Commodities, Exchange, OTC markets, and corporate bond markets.
- has regulatory programs and established specialized units focused on determining compliance with specific FINRA rules covering:
- insider trading,
- best execution of trades, and
- money laundering
- regulations and federal securities laws.
- conducts onsite inspections of the largest market-making and trading firms in the U.S. to assess compliance w/market-making and trading rules, regulations, and federal securities laws.
FINRA tasks with regard to Member regulation
- licensing exams for individual members
- periodic and cause-based examinations of member firms
- oversees the financial and operational responsibilities of member firms, such as
- margin issues,
- operations, and clearing.
- through its FINRA BrokerCheck, helps investors
- access members’ qualifications,
- employment, and
- disciplinary histories
- administers continuing education program containing two elements: regulatory and firm element.
- directs and administers preventive compliance initiatives.
FINRA tasks with regard to Member regulation | Regulatory element
(CE program containing 2 elements: 1/2) a regulatory element - registered individuals must pass FINRA administered exams covering both rules and regs and investment products.
FINRA tasks with regard to Member regulation | Firm element
(CE program containing 2 elements: 2/2) a firm element - requires B-Ds to establish a formal training program for employees, for employees to stay current on subjects related to their jobs and products they offer
FINRA tasks with regard to Enforcement
- has authority to discipline securities firms and individuals in the securities industry who violate
- its rules,
- federal securities laws,
- and rules enacted by the Municipal Securities Rulemaking Board.
- Disciplinary actions include:
- fines,
- suspensions, or
- expelling members from the industry.
FINRA tasks with regard to Dispute resolution
- FINRA operates the largest dispute resolution form in the world
- handles about 90% of the securities arbitrations and mediations in the U.S.
FINRA Dispute resolution | What is mediation
Mediation is an informal, voluntary, and nonbinding approach to dispute resolution in which the mediator tries to guide the parties to resolve the dispute rather than having the mediator impose their solution.
FINRA Dispute resolution | What is arbitration
- In arbitration, an impartial person or panel hears the issues as presented by both parties, studies the evidence, and then decides how the issues should be resolved.
- Arbitration is final and binding, subject to review by a court only on a very limited basis.
FINRA tasks regarding Advertising regulation/investment companies
- FINRA evaluates members’ advertising to ensure that they are fair, accurate, and not misleading.
- Includes advertisements for mutual funds and variable annuities in:
- newspapers,
- magazines,
- electronic media,
- and other sales literature such as direct marketing materials.
