Take a Peek at Who's Watching Your Back

Physician's Money DigestJanuary31 2003
Volume 10
Issue 2

As you probably know by now,the Securities and ExchangeCommission (SEC) is the finance industry's primary regulator.But you may not be aware of the existenceof other regulating entities.Known as self-regulatory organizations(SROs), these are responsiblefor ensuring the orderly and efficientgovernance of the country's securitiesmarkets. Overseen by the SEC, theymonitor brokerage firms, brokerageemployees, and the security exchangeson an ongoing basis. Followingis a list of the more familiar SROstoday and their responsibilities:

•Municipal Securities Rulemaking Board (MSRB). This organizationregulates securities firms andbanks involved in the underwriting,trading, and selling of municipalsecurities. The board, which is comprisedof representatives from securitiesfirms, bank dealers, and membersof the public, develops industry rulesand standards for brokers, banks, andsecurities dealers who conduct municipalsecurities business.

While rules made by the MSRBpertaining to securities firms areenforced by the National Associationof Securities Dealers (NASD), therules for banks are enforced by theFederal Deposit Insurance Corporation(FDIC), the Federal ReserveBoard, and the Comptroller of theCurrency. In addition, the board doesnot have the authority to make rulesfor municipal issuers or investors.

•National Association of Securities Dealers (NASD). Createdto monitor and standardize the ethicsand practices involved in securitiestrading, the NASD regulates the activitiesof registered securities professionalsand securities firms, and alsomonitors all trading on the Nasdaqmarket and other selected markets.Because it must oversee the policiesand practices of member firms andpersonnel, the NASD inspects itsmember firms every 1 to 4 years to ensurethat their books are in order andthat they're dealing fairly with clients.

During an examination, theNASD reviews its members forcompliance with its own rules andregulations and the regulations ofother organizations, such as theMSRB. Also, the NASD ensures adherenceto antifraud provisions, advertisingrules, and the extension ofcredit to customers, as well as actingas a mediator in disputes betweenmember firms or between amember firm and its customers.

•New York Stock Exchange (NYSE). When people think of theNYSE, they usually envision frantictraders hustling about a paper-litteredfloor, buying and selling stocks.But many people don't realize thatthe NYSE also functions as an SRO,supervising the listing of securities,the transfer of seats, and the qualifications of specialists. The NYSEscrutinizes member firms annually toensure compliance with its rules andregulations, and also requires membercompanies to regularly file reportsthat include detailed financial andoperational information.

Joseph F. Lagowski is vice president,

investments, and a financial consultant with A.G.

Edwards in Hillsborough, NJ.

He welcomes questions or

comments at 800-288-0901 or

www.agedwards.com/fc/joseph.lagowski. This

article was provided by A.G. Edwards &

Sons, Inc, member SIPC.

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