What Was the National Association of Securities Dealers (NASD)?
Let me explain the NASD directly: it was a self-regulatory organization in the securities industry from 1939 to 2007, serving as a predecessor to FINRA. You should know it handled the operation and regulation of the NASDAQ stock market and over-the-counter markets. It also administered exams for investment professionals, like the Series 7. Essentially, the NASD watched over NASDAQ's market operations under SEC supervision.
Key Takeaways on the NASD
As a predecessor to FINRA, the NASD regulated the securities industry, including NASDAQ oversight. It played a central role in managing stock trading from 1939 to 2007. Remember, it merged into FINRA in 2007, which took over its functions.
Understanding the National Association of Securities Dealers (NASD)
The NASD was founded in 1939 under the 1938 Maloney Act amendments to the Securities Exchange Act of 1934. It founded the NASDAQ stock market in 1971. Operating as an overseer of stock market activities and NASDAQ, all under SEC supervision, the NASD managed stock trading until 2007. That year, it merged with the regulation, enforcement, and arbitration arm of the New York Stock Exchange to form FINRA.
The 2007 Merger
In 2007, the NASD merged with the NYSE's regulation, enforcement, and arbitration arm to create FINRA. This marked the end of the NASD as a separate entity.
NASD vs. FINRA
FINRA is an independent regulatory entity that works much like the NASD did, overseeing all U.S. stock market operations. It monitors brokerage firms, branch offices, and securities representatives. FINRA is supervised by the SEC and enforces its rules. It handles licensing for securities representatives, with key licenses like Series 3, 6, and 7 developed alongside SEC regulations. Beyond licensing, FINRA offers educational seminars and monitors compliance for individuals and firms in the financial markets.
As the primary regulator, FINRA manages the Central Registration Depository (CRD), which holds records of securities activities for firms and representatives. It also acts as the main arbitrator for disputes in financial trading. Arbitration through FINRA is like a court case but cheaper, with panels issuing final rulings. FINRA works with the North American Securities Administrators Association (NASAA) on licenses like Series 63, 65, and 66.
Frequently Asked Questions
What was the NASD? It was a self-regulatory organization that oversaw and regulated the U.S. securities industry. When was it founded? In 1939, amid recovery from the Great Depression, as part of reforms following the 1929 crash. What bodies oversaw it? Primarily the SEC, which reviewed its rules for consistency with federal laws, and it coordinated with state regulators. What's its relationship to FINRA? In 2007, NASD merged with the NYSE's regulatory division to form FINRA, which succeeded it.
The Bottom Line
The NASD was established in 1939 to regulate the U.S. securities industry, ensure fair practices, and protect investors. It set standards and enforced compliance until merging with the NYSE’s regulatory division in 2007 to form FINRA.
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