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Who Regulates US Stock Markets?

13 January 2022

Introduction

Every day, millions of individuals visit the stock exchange in hopes of making a fortune, and billions of dollars and stocks get exchanged as a consequence. Unlike other businesses such as banking and insurance, investments in the financial markets are not insured by the federal government.

The government strives to ensure that the system is as equitable as it is feasible, given the amount of money at risk, the number of participants engaged, and the lack of assurances to avoid investor losses. 

Let’s take a look at some of the regulatory agencies that oversee the stock market. 

Stock Market Regulation in the US

Several different authorities regulate the stock market. The primary regulator is the Securities and Exchange Commission. The stock exchanges are run by their organizations, The Securities and Exchange Commission is in charge of them (SEC). The Financial Industry Regulatory Authority (FINRA), earlier known as the National Association of Securities Dealers, is a trade association that represents securities dealers. It is in charge of overseeing stockbrokers and brokerage businesses (NASD). Brokers and brokerage businesses are regulated by it (NASD) 

The Federal Reserve Board

The Federal Reserve Board (FRB) is one of the most well-known regulatory agencies in the world. As a result, the “Fed” is either blamed for the economic downturn or praised for boosting the economy. It affects the flow of money, liquidity, capital, and general credit conditions. Its open market activities, which oversee the purchase and selling of US Treasury and federal agency assets, are its primary weapons for executing monetary policy. 

For example, purchases and sales can alter the number of reserves on hand or impact the federal funds rate at which depository institutions lend overnight balances to other depository institutions. The Banking Industry Oversight and Regulation Board are likewise in charge of supervising and regulating the banking industry.

Comptroller of the Currency’s Office 

The National Currency Act In 1863 created the Office of the Comptroller of the Currency (OCC), making it one of the oldest governmental institutions. Its primary goal is to safeguard the general health of the banking system by supervising, regulating, and issuing granting charters to banks based in the United States. Banks can compete and deliver efficient banking and financial services as a result of this oversight. 

Securities and Exchange Commission (SEC)

The Securities Exchange Act of 1934 established the Securities and Exchange Commission (SEC) as an independent federal body. The Securities and Exchange Commission (SEC) is one of the most extensive and powerful authorities, enforcing Securities legislation in the United States regulating the bulk of the securities sector. It regulates stock exchanges, options markets, and options exchanges in the United States and other electronic securities markets and businesses. It also oversees financial advisors who are not subject to government oversight.

Six divisions and 24 offices make up the SEC. Their objectives include:

  • Interpreting and enforcing securities laws.
  • Issuing new regulations.
  • Overseeing securities institutions.
  • Coordinating regulation across government levels.

The six divisions and their responsibilities are as follows: 

  • Corporate Finance Division: Ensures that important information is disclosed to investors to make educated investment decisions. 
  • Enforcement Division: Investigates cases and prosecutes civil litigation and administrative processes to enforce SEC regulations. 
  • Investment Management Division: This organization regulates investment firms, variable insurance products, and federally licensed investment counselors. 
  • Analysis of the Economy and Risk Division: Combines economics and data analytics with the core goal of the SEC. 
  • Trading and Markets Division: Establishes and upholds market norms that are fair, orderly, and efficient. 
  • Examinations Division: This organization is in charge of the Securities and Exchange Commission’s National Exam Program. 

FINRA  

Like the SEC, a different body called the Financial Industry Regulatory Authority (FINRA) works at the base level to monitor trade activity and discover unlawful trading trends. It has over 4,750 members and 634,000 workers registered to sell securities. 

FINRA is a private government-authorized not-for-profit company that regulates broker-dealers in the United States. It was founded in 2007. It also sets the bar for industry experts by conducting background checks and licensing tests, regulating trade, and ensuring that all securities rules are followed. Even though it is a private corporation, it has the authority to please people. 

Some primary objectives of FINRA are:

  • Ensuring that every investor receives adequate protection
  • Testing, qualifying, and certifying everyone selling a securities product
  • Ensuring that every advertisement about any securities product is not misleading but states the facts
  • Ensuring that an investor receives complete disclosure about the investment product before buying

To meet these objectives, FINRA performs the following functions:

  • Write and enforce rules to govern the activities of all registered broker-dealer firms and brokers in the US 
  • Ensure all registered firms and brokers comply with the rules 
  • Foster transparency in the capital markets 
  • Initiate investor education programs

Key Takeaways

  • All these government agencies are responsible for regulating and safeguarding people who work in the industries they supervise. 
  • Thus, even though their service areas often overlap, federal agencies usually take precedence over state agencies, even if their policies disagree.
  • However, this does not imply that state agencies have less authority, as their tasks and rules are extensive. 
  • Understanding the banking, securities, and insurance industries’ regulations may be complex. While most individuals will never interact with these agencies directly, they will impact their life at some point. 
  • The Federal Reserve, in particular, has substantial power over liquidity, interest rates, and credit markets.

FAQ

  •     Does the government regulate the stock market? 

Much of the stock market’s activity is regulated by the federal government to safeguard investors and promote a fair exchange of company ownership on free markets. 

  •     Who is in charge of the market’s rules? 

The government is frequently in charge of market regulation, which includes deciding who may enter the market and what rates they can charge. 

  •     Which stock market in the world is the most valuable? 

The New York Stock Exchange

  •     When should you sell your stocks? 

The 8 Week Hold Rule- If a stock can rise above 20% from a solid foundation swiftly, it may have what it takes to become a significant market winner. The 8-week hold rule might help you spot these stocks. Hold your stock for at least eight weeks if it has gained 20% in less than three weeks. 

  •     What factors influence the price of a stock? 

The stock market’s prices are determined by supply and demand. As a result, the stock market resembles other economical marketplaces. 

Disclaimer

The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
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