Regulatory Bodies

Section 1.1: Regulatory Bodies and Market Structure Estimated study time: 50 minutes Content: The securities markets in the United States operate under a layered regulatory framework designed to protect investors, maintain fair markets, and ensure capital flows efficiently through the economy. Understanding who regulates what — and the limits of each body's authority — is a foundational requirement for anyone entering the securities industry. The Securities and Exchange Commission (SEC) sits at the top of the federal regulatory hierarchy. Created by the Securities Exchange Act of 1934 in the wake of the 1929 stock market crash, the SEC's mission is to protect investors, maintain fair and orderly markets, and facilitate capital formation. The SEC reviews registration statements (Form S-1 for IPOs), oversees broker-dealers, investment advisers, exchanges, and self-regulatory organizations (SROs). A critical exam point: SEC review of a registration statement does NOT mean the SEC has approved or recommended the investment. The SEC only verifies that required disclosures have been made — it does not judge the investment's merit. FINRA (Financial Industry Regulatory Authority) is the largest self-regulatory organization in the United States. It operates as a private non-profit under SEC oversight and regulates broker-dealers and their registered representatives. FINRA administers all qualification exams — including the SIE, Series 7, Series 63, and Series 66 — examines member firms (at least every four years), and enforces rules on sales practices, supervision, and customer protection. Critically, FINRA regulates broker-dealers only — it does NOT regulate investment advisers, who are instead regulated by the SEC or state securities regulators. The MSRB (Municipal Securities Rulemaking Board) is a self-regulatory organization that writes rules governing municipal securities dealers and municipal advisors. The MSRB…