The National Association of Securities Dealers (NASD) was a regulatory organization established in 1939 to govern activities on the part of dealers and brokers active in financial markets in the United States. In 2007, the National Association of Securities Dealers was dissolved in a merger with another regulatory agency, the New York Stock Exchange Regulation Corporation, to create the Financial Industry Regulatory Authority (FINRA). This is a self-regulatory organization, intended to govern the financial industry from within, and FINRA is not a government agency.
Formation of the National Association of Securities Dealers was part of a series of regulations and reforms that swept through the financial industry as it recovered from the Great Depression. The organization had the power to license securities dealers as well as auditing dealers and firms for compliance with regulations established by the organization. In addition, it advised the Securities and Exchange Commission (SEC) on proposed regulations and possible steps for improving transparency in the investment community.
This organization worked to protect investors from unethical and unscrupulous business practices. In addition to regulating dealers, the National Association of Securities Dealers also provided investor education and other outreach programs. These steps were designed to provide people with information about matters of potential concern or interest, allowing people to learn more about their legal options in the face of fraud and other unethical activities, in addition to helping people avoid pitfalls in the securities industry.
The National Association of Securities Dealers also created and administered a binding arbitration program for dispute resolution among investors, brokers, and others. Binding arbitration has been criticized for preventing people from bringing cases to court and limiting legal remedies in some cases. Some people argue that consenting to binding arbitration agreements deprives people of legal remedies they are entitled to by right, including the ability to take a case to a court for a hearing and resolution.
With the merger, the National Association of Securities Dealers retained all these functions and joined in increasing auditing and regulation. FINRA has major offices in Washington, DC and New York City, the seats of political and investment activity in the United States. It also maintains branch offices in other states to oversee investment activities and broker licensure in these states. These regional offices also provide education, outreach, and information to investors with the goal of educating people about the financial industry and providing people with valuable resources they can use when they make decisions about investments.
