Self-Regulation in Broker-Dealer Firms

Abstract

Abstract Broker-dealer firms in the U.S. securities industry-firms like Merrill Lynch, PaineWebber, Goldman Sachs, and Salomon Smith Barney-sell brokerge and investment banking services and trade for their own accounts. A three-tiered regulatory system governs the industry under federal securities laws. Basically, the U.S. Securities and Exchange Commission (SEC) oversees self-regulatory organizations (SROs) such as the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASD) but has the authority to control the SROs directly if required. The SROs oversee, and similarly can set rules for, the broker-dealers who are members of the SROs because they need access to the SROs’ markets. The SEC and the SROs rely heavily on the firms’ supervisory systems to prevent securities law violations on the grounds that the firms are in the best position to oversee their own operations. Firms may be fined, or worse, if their internal regulatory systems fail in some important way. This book examines how this regulatory system operates, the types of regulatory problems with which broker-dealer firms must deal, why some firms have more problems than others, and what the experience suggests about the conditions aiding and inhibiting effective self-regulation generally.