FINRA or the Financial Industry Regulatory Authority, Inc. is a private company acting as an SRO or self-regulatory organization. It's the successor to the NASD or the National Association of Securities Dealers, Inc. Though often mistaken as a public or government agency, FINRA is not in any way associated to the U.S. government. It is a private company responsible for regulating the market under contract with trading markets and brokerage firms.
FINRA members are regulated through the enforcement and adoption of rules, regulations, and policies governing the business conducts and ethics of its members. It usually provides advice to the Securities and Exchange Commission. FINRA also facilitates the binding arbitration services wherein the investors are forced to accept and agree, rather that bringing their disputes and complaints against the stock brokers and Wall Street firms.
FINRA is focused on overseeing all the security firms that conduct business with the public, giving professional training, facilitating tests, and issuing license to registered individuals, arbitration and mediation. As well as the market regulation by agreement for the NASDAQ, New York Stock Exchange (NYSE), the International Securities Exchange, the American Stock Exchange, and other industry utilities, like the Trade Reporting Facilities, and other OTC operations.
FINRA was established by the consolidation of the NYSE Regulation, Inc., New York Stock Exchange, and the NASD. The consolidation and merger was approved by the Securities and Exchange Commission and took effect on the 26th of July, 2007.
NASD believes that the regulatory merger and consolidation will increase the effective, consistent, and efficient regulation of the securities firms, allow securities firms to save on costs, and strengthen the market integrity and investor protection.
NASD also stated that the additional benefits of FINRA are to combine technologies, make the regulatory system more efficient, and allow the organization of a single set of examiners and set of rules with corresponding areas of expertise within a single self-regulatory organization.
With all due respect to the merger, the consolidation of the regulatory functions is also an important step towards making the self-regulatory system not only more effective, but also more efficient in protecting the investors. FINRA and SEC will work closely with each other to get rid of unnecessary duplicative regulations, including the strengthening and consolidating of what have been two separate and different enforcement systems and member rulebooks.
*FINRA Regulation and Licensure Functions*
FINRA controls the trading in corporate bonds, equities, options, securities futures, with authority and control over the operation and activities of over 5,100 brokerage firms, 173,000 branch offices, and over 676,000 registered representatives of securities firms. All the firms that are not under the control of another SRO are required to be a member of FINRA.
FINRA issues licenses to individuals and admits, and registers firms to the financial industry. It writes rules to administer their behavior, analyzes them for compliance, and is governed by the Securities and Exchange Commission to oversee and discipline the registered member firms as well as their representatives that fail to adhere to the federal securities law and to the rules and regulations of NASD.
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