The Legacy of the National Association of Securities Dealers (NASD)
The National Association of Securities Dealers (NASD) was a pivotal self-regulatory organization within the securities industry. Before transitioning into what is now known as the Financial Industry Regulatory Authority (FINRA), the NASD was instrumental in overseeing the NASDAQ stock market and over-the-counter markets. it also administered critical exams for investment professionals, such as the Series 7 exam.
Key Highlights
- As a predecessor to FINRA, the NASD regulated the securities industry and was a primary overseer of the NASDAQ market.
- From 1939 to 2007, the NASD played a crucial role in stock trading management and regulation, laying the groundwork for modern securities oversight.
- The transformative merger in 2007 resulted in the formation of FINRA, integrating the NASD’s functions with those of the New York Stock Exchange’s regulatory arm.
NASD: Understanding Its Impact
Established in 1939 under the Maloney Act amendments to the Securities Exchange Act of 1934, the NASD left an indelible mark on the securities industry by founding NASDAQ in 1971. Operating under the supervision of the SEC, the NASD tirelessly managed and regulatted the NASDAQ’s operations and introduced a more structured regulatory environment for market activity from 1939 until its merger in 2007.
The 2007 Epoch
This was the landmark year when the NASD combined with the regulatory, enforcement, and arbitration components of the New York Stock Exchange, leading to the establishment of FINRA.
NASD vs. FINRA: An Evolution in Regulatory Oversight
FINRA operates as an independent regulatory authority, much like the NASD once did, overseeing market activities across the U.S. FINRA’s broad mandate covers overseeing brokerage firms, branch offices, and securities representatives while enforcing the rules and regulations sanctioned by the SEC.
FINRA also handles the licensing of securities representatives, incorporating requirements developed in conjunction with the SEC. Licenses such as Series 3, 6, and 7 attest to FINRA’s robust regulatory framework. Furthermore, FINRA provides ongoing educational seminars and ensures compliance among financial market entities.
As a central adjudicator of market disputes, FINRA manages the Central Registration Depository (CRD), which catalogues the securities activities of firms and individuals. FINRA also collaborates with the North American Securities Administrators Association (NASAA) in managing license requirements for Series 63, 65, and 66 licenses.
In Conclusion
The NASD’s transformation into FINRA marked a significant evolution in securities regulatory practices, ensuring stringent oversight and regulatory compliance within the financial markets. By establishing NASDAQ and introducing comprehensive regulatory procedures, the NASD built a robust framework that continues to safeguard and govern the securities industry today. The successor organization, FINRA, upholds this legacy by continuously enhancing regulatory standards and promoting market integrity.
Related Terms: FINRA, Securities Exchange Act of 1934, Maloney Act, New York Stock Exchange, SEC, NASDAQ
