Edited by Jerry Markham and Rigers Gjyshi
Chapter 12: An overview of compliance-related issues in broker-dealer regulation
Broker-dealers are an important part of the economy for, together with other financial intermediaries, they help channel the savings of millions of investors into businesses of the United States and, to some extent, of the rest of the world. They also help create and maintain markets for securities that enable investors to obtain liquidity for their investments. Broker-dealers are thus highly regulated because of their economic importance. In the United States, they are subject to a complex system of federal, state and industry-based regulation. As will be discussed further below, when a person or firm decides to go into business as a broker-dealer, it must register with the Securities and Exchange Commission (“SEC”), and it must become a member of the Financial Industry Regulatory Authority (“FINRA”), a self-regulatory organization (“SRO”) that is itself under the SEC's authority, and comply with the SEC’s and FINRA's detailed rules. In addition, if the broker-dealer intends to do business on one or more of the nation's stock exchanges (which also are SROs), it must become a member of them and comply with their rules. Finally, the broker-dealer must register with and be subject to the rules of the securities commissions of those states in which it intends to conduct its business. Broker-dealers engage in numerous securities activities, such as brokerage for individual and institutional customers, market making and other market support activities and acting as exchange specialists and clearing agents.
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