Transcript II. MARKET REGULATION

II. MARKET REGULATION
A. Government Regulation
1. Securities and Exchange Commission
(SEC) – oversees the national securities
industry, enforcing laws and regulations
2. State Regulators – state securities
agencies and attorneys general,
complement and expand federal regulation
3. Public Company Accounting Oversight
Board – created by the 2002 Sarbanes –
Oxley act to regulate corporate disclosure
B. The Role of the SEC
1. Four Divisions
a. Division of Corporate Finance – oversees
company filings
b. Division of Market Regulation – oversees
exchanges and broker dealers
c. Division of Investment Management –
regulates investment advisors and mutual
funds
d. Division of Enforcement – investigates
wrongdoing and recommends actions
B. The Role of the SEC
2. Two Types of Actions
a. Civil actions – lawsuits in Federal District Court
b. Administrative actions – penalties decided by an
administrative law judge – requires an administrative
hearing, not a full trial
3. SEC Rulemaking
a. Expands the language of laws to provide specific guidance
for legal requirements
b. Proposed rule – draft regulations presented to the SEC for
review, then public comment, then final review
c. Concept release – a description of ideas to address an
issue prior to formulating a proposed rule
B. The Role of the SEC
4. Required Disclosures – information that must be
provided to the SEC and made available to allow
complete evaluation for making investment
decisions
a. New securities must be registered with the SEC, and
initial investors must be supplied with a prospectus that
provides detailed information about the company and the
security
b. 10-k – A corporation’s annual report that must be filed
with the SEC, must be prepared by a qualified auditor
c. 10-q – An unaudited quarterly report, prepared by the
corporation, that must be filed with the SEC
C. Nationally Recognized Statistical
Rating Organizations (NRSROs)
1. NRSROs are entities recognized by the
SEC as competent to issue publicly
available credit ratings
2. A number of firms are recognized
NRSROs, including Moody's Investors
Service, Standard and Poor's (a division
of McGraw Hill Publishing), Fitch Inc.,
Dominion Bond Rating Service Limited
(DBRS), and A.M. Best Company Inc.
(See)
D. Self Regulators and Self Regulation
1. Self regulation consists of sets of rules and
regulations that securities firms must follow in
order to trade in securities as a member of a
security trading organization or to participate in
having securities listed on an exchange
2. Generally requires the separation of the oversight
organization from the businesses that rely upon
its oversight
3. Businesses maintain their own compliance
departments to ensure that they meet regulatory
prescriptions
D. Self Regulators and Self
Regulation
4. Self Regulatory Agencies
a. FINRA (The Financial Industry Regulatory
Authority ) – an independent regulatory authority
formed by a combination of the National
Association of Securities Dealers (NASD) and
the member regulation, enforcement and
arbitration functions that were a requirement for
participating in the New York Stock Exchange
i.
Oversees:
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Brokerage Firms
Branch Offices
Registered Representatives (Brokers)
D. Self Regulators and Self
Regulation
ii.
Main Regulatory Activities:
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Supervision of market trading on the NASDAQ and other
markets
Licensing and continuing education of registered
representatives
Mediation and arbitration of industry disputes
Review of advertising materials to protect from fraud and
misleading information
Increasing market efficiency through centralized information
systems
Investigations and disciplinary actions, including censure,
fines, suspensions, and/or baring from practice
D. Self Regulators and Self
Regulation
4. Self Regulatory Agencies
b. NYSE/EURONEXT – NYSE Regulation Inc. is
the securities regulation division of the New
York Stock Exchange
i.
Divisions:
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ii.
Market Surveillance
Enforcement
Listed Company Compliance
Main Regulatory Activities:
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Monitoring trading activities and investigating trading abuses
Investigate and prosecute rule violations
D. Self Regulators and Self
Regulation
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Oversight of listed companies to ensure that they meet
financial and corporate governance standards
Enforcing rules requiring timely disclosure of material
information
c. Exchange rules – requirements for securities to
be listed or traded on a particular exchange
E. Deregulation
1. Laissez – Faire – the belief that the
market works best without regulation
and/or interference
2. Deregulation – involves relaxing existing
governmental rules