The Financial Industry Regulatory Authority, known as FINRA, is a private corporation which is known as a “self regulatory organization.” meaning that is has the authority to regulate its membership.
FINRA is the primary regulator for the securities industry, and is responsible for the oversight of the country’s brokerage firms, stock brokers, analysts and other financial professionals. FINRA calls the brokerage firms “members” and calls the individuals it regulates “associated persons” or “registered representatives.”
FINRA is the predecessor to the National Association of Securities Dealers, Inc., which was formed
The NASD was created and registered with the SEC in response to the 1938 Maloney Act amendments to the Securities Exchange Act of 1934, which allowed it to supervise the conduct of its members subject to the oversight of the SEC. In 1971, the NASD created a new computerized stock trading system called the National Association of Securities Dealers Automated Quotations (NASDAQ) stock market.
In July 2007, the SEC approved the formation of a new SRO to be a successor to NASD. The NASD and the member regulation, enforcement and arbitration functions of the New York Stock Exchange were then consolidated into the Financial Industry Regulatory Authority (FINRA). See SEC Release No. 34-56145
The Financial Industry Regulatory Authority (“FINRA”) is “a national association of securities broker-dealers registered with the Securities and Exchange Commission (‘SEC’) under § 15A of the Exchange Act, 15 U.S.C. § 78o–3.” Dougherty v. VFG, LLC, 118 F. Supp. 3d 699, 709 n.5 (E.D. Pa. 2015). “In 2007, [the National Association of Securities Dealers (‘NASD’)] changed its name to [FINRA].” Id. (citation omitted). “FINRA is a self-regulatory organization and has the authority to, inter alia, create and enforce rules for its members in order to provide regulatory oversight of all securities firms that do business with the public.” Id. (citation omitted). “FINRA membership constitutes an agreement to adhere to FINRA’s rules and regulations, including its Code and relevant arbitration provisions contained therein.”
FINRA operates the largest arbitration forum in the United States for the resolution of disputes between customers and member firms, as well as between brokerage firm employees and their firms. Virtually all agreements between investors and their stockbrokers include mandatory arbitration agreements, whereby investors (and the brokerage firms) waive their right to trial in a court of law. Securities lawyer Mark Astarita provides a detailed description and walk-through of FINRA arbitration titled Introduction to Securities Arbitration at SECLaw.com
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