National Association of Securities Dealers (NASD)

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on January 21, 2024

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What Is the National Association of Securities Dealers (NASD)?

The National Association of Securities Dealers was a self-regulatory organization that oversaw the activities of the securities industry in the United States.

It was responsible for the regulation of broker-dealers and other securities firms and also operated the NASDAQ stock market.

In 2007, the NASD merged with the regulatory arm of the New York Stock Exchange (NYSE) to form the Financial Industry Regulatory Authority (FINRA), which now serves as the primary regulator of the securities industry in the US.

Structure and Organization of the NASD

Board of Directors and Key Personnel

The NASD was governed by a Board of Directors composed of industry professionals, public representatives, and NASD officials. The board was responsible for overseeing the organization's operations and ensuring that its regulatory responsibilities were fulfilled.

Membership and Eligibility Requirements

Broker-dealers, investment advisors, and other securities professionals were required to become members of the NASD to conduct business in the securities industry.

Membership eligibility was based on criteria such as financial stability, regulatory compliance, and a commitment to adhering to NASD rules and guidelines.

Key Departments and Divisions

The NASD had several departments and divisions responsible for various aspects of its regulatory and supervisory functions. These included the Office of General Counsel, the Office of Compliance, and the Division of Enforcement.

Regulatory Role of the NASD

Regulatory-Role-of-the-National-Association-of-Securities-Dealers-(NASD)

Securities Regulation and Enforcement

The NASD played a critical role in regulating and enforcing securities laws in the United States. It developed and enforced rules and regulations to protect investors, maintain fair and orderly markets, and promote transparency in the securities industry.

Licensing and Registration of Broker-Dealers

The NASD was responsible for the licensing and registration of broker-dealers and their associated persons. This included ensuring that individuals and firms met the necessary qualifications and standards to conduct business in the securities industry.

Monitoring and Supervision of Securities Markets

The NASD monitored and supervised securities markets to ensure compliance with federal securities laws and its own rules. This involved conducting routine examinations and investigations, as well as addressing potential violations and misconduct.

NASD Rulemaking and Governance

Rule Development and Approval Process

The NASD had a structured process for developing and approving rules and regulations. This involved input from industry professionals, public representatives, and regulatory authorities.

Proposed rules were subject to public comment and review by the Securities and Exchange Commission (SEC) before being approved and implemented.

Major Rules and Regulations Governing the Securities Industry

The NASD established numerous rules and regulations to govern the securities industry, covering areas such as the suitability of investments, disclosure requirements, and supervision of broker-dealer activities.

Dispute Resolution and Arbitration Services

The NASD provided dispute resolution and arbitration services for its members and their customers. This allowed for a more efficient and cost-effective way to resolve disputes compared to traditional litigation.

Merging With the New York Stock Exchange (NYSE) Regulation

Background and Rationale for the Merger

In 2007, the NASD and the NYSE Regulation merged to create the Financial Industry Regulatory Authority (FINRA). The merger aimed to streamline and strengthen securities regulation by consolidating resources and expertise.

Formation of the Financial Industry Regulatory Authority (FINRA)

FINRA was established as the successor to both the NASD and NYSE regulations, taking over their regulatory responsibilities and functions. FINRA is now the largest self-regulatory organization in the United States, overseeing the activities of broker-dealers and securities professionals.

Role of FINRA in Regulating the Securities Industry

FINRA continues to play a vital role in regulating the securities industry, carrying on the legacy of the NASD. Its responsibilities include rulemaking, enforcement, licensing, and supervision of broker-dealers, as well as providing dispute resolution services.

Impact of the NASD on the Securities Industry

Benefits of NASD Regulation for Investors and Market Participants

The NASD had a significant impact on the securities industry by enhancing investor protection, promoting market integrity, and fostering transparency.

Its regulations helped to create a more level playing field for all market participants and fostered public confidence in the securities markets. Investors benefited from improved disclosure requirements, suitability standards, and access to dispute resolution services.

Challenges and Criticisms of the NASD

Despite its many accomplishments, the NASD faced challenges and criticisms over the years. Some critics argued that, as a self-regulatory organization, the NASD might have been susceptible to conflicts of interest between its regulatory duties and its responsibility to serve its member firms.

Additionally, the NASD's enforcement actions and penalties were sometimes seen as inconsistent or insufficient to deter misconduct effectively.

NASD's Legacy and Influence on Securities Regulation

The NASD left a lasting legacy on the securities industry, setting the foundation for modern securities regulation in the United States.

Its rules and regulations have been adapted and incorporated into FINRA's current regulatory framework, and its emphasis on investor protection and market integrity continues to shape the way securities markets are regulated today.

Bottom Line

The National Association of Securities Dealers played a significant role in regulating the securities industry in the United States, overseeing the activities of broker-dealers and other securities firms, and operating the NASDAQ stock market.

The NASD was responsible for regulating and enforcing securities laws, licensing and registering broker-dealers, and monitoring securities markets.

Its regulations helped enhance investor protection, promote market integrity, and foster transparency, creating a more level playing field for all market participants.

Despite its many accomplishments, the NASD faced challenges and criticisms over the years.

Today, its legacy lives on in the Financial Industry Regulatory Authority (FINRA), the largest self-regulatory organization in the United States, which carries on its regulatory responsibilities and functions.

National Association of Securities Dealers (NASD) FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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