II. MARKET REGULATION

A. Government Regulation 1.Securities and Exchange Commission (SEC) – oversees the national securities industry, enforcing laws and regulationsSecurities and Exchange Commission 2.State Regulators – state securities agencies and attorneys general, complement and expand federal regulationState Regulators 3.Public Company Accounting Oversight Board – created by the 2002 Sarbanes – Oxley act to regulate corporate disclosurePublic Company Accounting Oversight Board

B. The Role of the SEC 1.Four Divisions a.Division of Corporate Finance – oversees company filings b.Division of Market Regulation – oversees exchanges and broker dealers c.Division of Investment Management – regulates investment advisors and mutual funds d.Division of Enforcement – investigates wrongdoing and recommends actions

B. The Role of the SEC 2.Two Types of Actions a.Civil actions – lawsuits in Federal District Court b.Administrative actions – penalties decided by an administrative law judge – requires an administrative hearing, not a full trial 3.SEC RulemakingSEC Rulemaking a.Expands the language of laws to provide specific guidance for legal requirements b.Proposed rule – draft regulations presented to the SEC for review, then public comment, then final reviewProposed rule c.Concept release – a description of ideas to address an issue prior to formulating a proposed ruleConcept release

B. The Role of the SEC 4.Required Disclosures – information that must be provided to the SEC and made available to allow complete evaluation for making investment decisions a.New securities must be registered with the SEC, and initial investors must be supplied with a prospectus that provides detailed information about the company and the security b.10-k – A corporations annual report that must be filed with the SEC, must be prepared by a qualified auditor c.10-q – An unaudited quarterly report, prepared by the corporation, that must be filed with the SEC

C. Nationally Recognized Statistical Rating Organizations (NRSROs) 1.NRSROs are entities recognized by the SEC as competent to issue publicly available credit ratingsNRSRO 2.A number of firms are recognized NRSROs, including Moody's Investors Service, Standard and Poor's (a division of McGraw Hill Publishing), Fitch Inc., Dominion Bond Rating Service Limited (DBRS), and A.M. Best Company Inc. (See)See

D. Self Regulators and Self Regulation 1.Self regulation consists of sets of rules and regulations that securities firms must follow in order to trade in securities as a member of a security trading organization or to participate in having securities listed on an exchange 2.Generally requires the separation of the oversight organization from the businesses that rely upon its oversight 3.Businesses maintain their own compliance departments to ensure that they meet regulatory prescriptions

D. Self Regulators and Self Regulation 4.Self Regulatory Agencies a.FINRA (The Financial Industry Regulatory Authority ) – an independent regulatory authority formed by a combination of the National Association of Securities Dealers (NASD) and the member regulation, enforcement and arbitration functions that were a requirement for participating in the New York Stock ExchangeFINRA i.Oversees: Brokerage Firms Branch Offices Registered Representatives (Brokers) b.Exchange rules – requirements for securities to be listed or traded on a particular exchangeExchange rules

D. Self Regulators and Self Regulation ii.Main Regulatory Activities: Supervision of market trading on the NASDAQ and other markets Licensing and continuing education of registered representatives Mediation and arbitration of industry disputes Review of advertising materials to protect from fraud and misleading information Increasing market efficiency through centralized information systems Investigations and disciplinary actions, including censure, fines, suspensions, and/or baring from practice

D. Self Regulators and Self Regulation 4.Self Regulatory Agencies b.NYSE/EURONEXT – NYSE Regulation Inc. is the securities regulation division of the New York Stock ExchangeNYSE/EURONEXT i.Divisions: Market Surveillance Enforcement Listed Company Compliance ii.Main Regulatory Activities: Monitoring trading activities and investigating trading abuses Investigate and prosecute rule violations

D. Self Regulators and Self Regulation Oversight of listed companies to ensure that they meet financial and corporate governance standards Enforcing rules requiring timely disclosure of material information c.Exchange rules – requirements for securities to be listed or traded on a particular exchangeExchange rules

E. Deregulation 1.Laissez – Faire – the belief that the market works best without regulation and/or interference 2.Deregulation – involves relaxing existing governmental rules