New Primary Regulator of Securities Brokerage Firms Is Run Only By Brokerage Firms

The National Association of Securities Dealers (NASD) recently absorbed the regulatory unit of the New York Stock Exchange (NYSE) and changed its name to the Financial Industry Regulatory Authority (FINRA). Yet nothing has really changed. The primary regulator of securities brokerage firms industry is run solely by … brokerage firms.

There are a number of industry associations which oversee that industry. Yet, no other has the power of the FINRA. The Securities and Exchange Commission (SEC) is charged with the responsibility of policing the securities industry. (The last SEC commissioner appointed by a Democrat left this week leaving only Republican appointees and the Director is a former Republican Congressman, but that is another story.)

In any event, the SEC, the nation’s securities police force, delegates to the securities industry the power to police itself. There is now only FINRA, the rent-a-cop group in charge of that duty. FINRA is run by seven directors. Almost unbelievably, all of the directors of FINRA are representatives of brokerage firms. None are “public” directors.

To make matters worse, FINRA – the brokerage industry – not only regulates itself, it also administers the only justice system available to investors, the single securities arbitration forum. When they open accounts, investors are almost always required to sign documents stating that they agree to arbitrate any dispute they have with the brokerage firm and/or its broker. Investors therefore can NOT file a case in court.

Thus, the same industry that solely decides whether its members have broken the rules is the same industry which runs its own “court” system if clients of that industry are defrauded, et cetera. The situation is made even worse when we learn that every contending candidate for President in both parties are getting major contributions from the securities industry.

In the securities industry the fox is not only in charge of the henhouse, the fox actually owns the henhouse. Oh, and I should add that those candidates, and others in both parties, all agree the requirements to prove securities fraud must be lowered (on everyone) so that foreign companies will list their securities here. If you are an investor … good luck!

Shepherd Smith and Edwards represents investors nationwide in claims against securities firms. We have represented investors in more than 1,000 securities cases. To learn whether we might assist you with a claim contact us to arrange a free consultation with one of our attorneys.

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