National Association of Securities Dealers

Definition

The National Association of Securities Dealers (NASD) was a self-regulatory organization in the United States responsible for overseeing the activities of brokerage firms and securities professionals. Established in 1939, it played a crucial role in maintaining fair trading practices and protecting investors by enforcing regulations, conducting audits, and providing educational resources. NASD eventually merged with the New York Stock Exchange (NYSE) to form the Financial Industry Regulatory Authority (FINRA), which continues to oversee the securities industry.

5 Must Know Facts For Your Next Test

1. NASD was originally founded to create a unified regulatory framework for the over-the-counter (OTC) market in the U.S.
2. One of NASD's significant contributions was developing the NASDAQ stock exchange, which revolutionized electronic trading.
3. The organization set rules and standards that member firms had to adhere to, ensuring transparency and fairness in securities transactions.
4. In addition to regulatory functions, NASD also provided educational resources and training programs for industry professionals.
5. The merger with NYSE in 2007 marked a significant shift in the regulatory landscape of the securities industry, leading to the formation of FINRA.

Review Questions

• How did the National Association of Securities Dealers contribute to the regulation of the securities industry before its merger with the NYSE?
  • The National Association of Securities Dealers played a pivotal role in regulating the over-the-counter market by establishing rules and standards for brokerage firms. It ensured fair trading practices and enhanced investor protection through audits and compliance checks. Additionally, NASD developed the NASDAQ stock exchange, which transformed electronic trading, making it more efficient and accessible for investors.
• Discuss the impact of NASD's educational initiatives on the professional development of securities professionals.
  • NASD's educational initiatives were critical in promoting best practices within the securities industry. By providing training programs and resources, NASD equipped brokers and investment professionals with essential knowledge regarding compliance, ethics, and market operations. This emphasis on education not only improved individual competence but also contributed to higher standards across the entire industry, ultimately benefiting investors.
• Evaluate the implications of merging NASD with NYSE to form FINRA on the regulatory framework of the U.S. securities industry.
  • The merger of NASD with NYSE to form FINRA had significant implications for regulatory oversight within the U.S. securities industry. It consolidated regulatory functions under one umbrella organization, improving efficiency and consistency in enforcement. This move allowed for better coordination between different market sectors, enhancing investor protection while streamlining compliance processes for broker-dealers. Furthermore, it signaled a shift towards a more unified regulatory approach that could adapt to evolving market conditions.

Related terms

Financial Industry Regulatory Authority (FINRA):

The organization that emerged from the merger of NASD and NYSE, responsible for regulating brokerage firms and exchange markets in the U.S.

Securities and Exchange Commission (SEC):

The federal agency tasked with enforcing federal securities laws and regulating the securities industry to protect investors.

Self-Regulatory Organization (SRO): An organization that has the power to create and enforce industry regulations for its members, often under the oversight of a governmental authority.