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Part of the mission of the SEC is “to maintain standards for fair, orderly, and efficient markets.” To do this, the SEC regulates a number of securities market participants. These include:
- Broker-Dealers – Broker-dealers charge a fee to handle trades between the buyers and sellers of securities. A broker-dealer may buy securities from their customer who is selling or sell from their own inventory to its customer who is buying.
- Clearing Agencies – Clearing Agencies are Self-Regulatory Organizations (SROs) that are required to register with the SEC. Like all SROs, they are responsible for writing and enforcing their rules and disciplining members. There are two types of clearing agencies– clearing corporations and depositories.
- Clearing corporations, such as the National Securities Clearing Corporation (NSCC) and the Fixed Income Clearing Corporation (FICC), compare member transactions, clear those trades and prepare instructions for automated settlement of those trades. Clearing corporations often act as intermediaries in making securities settlements.
- Depositories, namely The Depository Trust Company (DTC), hold securities certificates for their participants, transfer positions between participants, and maintain ownership records.
- Credit Rating Agencies – Credit Rating Agencies provide opinions on the creditworthiness of a company or security. They indicate the credit quality by means of a grade. Generally, credit ratings distinguish between investment grade and non-investment grade. For example, a credit rating agency may assign a “triple A” credit rating as its top “investment grade” rating, and a “double B” credit rating or below for “non-investment grade” or “high-yield” corporate bonds. Credit rating agencies registered as such with the SEC are known as “Nationally Recognized Statistical Rating Organizations.”
- ECNs/ATSs – Electronic Communications Networks, or ECNs, are electronic trading systems that automatically match buy and sell orders at specified prices for users of the system. ECNs register with the SEC as broker-dealers and are subject to Regulation ATS. ATSs are Alternative Trading Systems. This term encompasses all systems that perform securities exchange functions and are not registered with the Commission as exchanges.
- Investment Advisers – Investment advisers are persons or firms that are in the business of providing investment advice to investors or issuing reports or analyses regarding securities. They do these activities for compensation.
- Securities Exchanges – Securities exchanges are markets where securities are bought and sold. Currently, there are fifteen securities exchanges registered with the SEC as national securities exchanges, including NYSE Euronext, NASDAQ, The Chicago Board Options Exchange, and BATS Exchange. Securities Exchanges are also SROs.
- Self-Regulatory Organizations (SROs) – An SRO manages its industry through the adoption of rules governing the conduct of its members. SROs also enforce the rules they adopt and discipline members for violating SRO rules. Two well-known SROs are the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board (MSRB). FINRA is the largest SRO in the securities industry. It is the frontline regulator of broker-dealers. MSRB makes rules regulating dealers of municipal securities. The SEC oversees both FINRA and the MSRB. Other SROs include clearing agencies and securities exchanges.
