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Financial Regulation and Compliance: How to Manage Competing and Overlapping Regulatory Oversight, + Website by H. David Kotz

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CHAPTER 5 How to Defend FINRA Examinations

FINRA is a private SRO registered with and overseen by the SEC pursuant to certain provisions of the Exchange Act.1 While FINRA is owned and operated by its members, all of its rules and regulations must be approved by the SEC. FINRA requires registration of any broker-dealers effecting securities transactions by means of interstate commerce.2 Additionally, in some circumstances, persons who provide services to broker-dealers, such as investment bankers, consultants, intermediaries, and finders, may be required to register as broker-dealers if they engage in activities that are characteristic of brokers or dealers. FINRA also has jurisdiction over the NASDAQ market and the many products traded on the over-the-counter (“OTC”) markets. The OTC markets include equities traded in the OTC and on the OTC Bulletin Board, third market trades of securities listed on national exchanges, and government and municipal securities. In addition, FINRA regulates members' activities in corporate debt, mutual funds, direct participation programs, limited partnerships, and variable annuities. FINRA also enforces rules for municipal securities, though the rules are passed by the Municipal Securities Rulemaking Board (“MSRB”) and approved by the SEC.

FINRA is the successor entity to the National Association of Securities Dealers (the ‘‘NASD’'). In 2007, FINRA was formed when the NASD merged with certain regulatory divisions of the New York Stock Exchange. ...

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