Financial Industry Regulatory Authority (FINRA)

Definition

FINRA is a non-governmental organization that regulates member brokerage firms and exchange markets in the U.S. Its main purpose is to protect investors by ensuring that the securities industry operates fairly and honestly. FINRA plays a crucial role in the oversight of trading practices, which includes addressing issues related to insider trading and market manipulation.

5 Must Know Facts For Your Next Test

1. FINRA was established in 2007 after the consolidation of the National Association of Securities Dealers (NASD) and the regulatory functions of the New York Stock Exchange.
2. It conducts regular audits and examinations of broker-dealers to ensure compliance with industry regulations and standards.
3. FINRA has the authority to enforce rules against insider trading, market manipulation, and other unethical practices in the financial markets.
4. The organization also provides educational resources for investors to help them understand their rights and responsibilities within the securities markets.
5. FINRA administers a dispute resolution forum for investors and brokers, allowing them to resolve conflicts without going to court.

Review Questions

• How does FINRA enforce regulations related to insider trading in the financial markets?
  • FINRA enforces regulations regarding insider trading by conducting investigations into suspected violations and imposing sanctions on individuals or firms found guilty of these practices. This includes monitoring trading activities for unusual patterns that may indicate insider trading, such as significant trading volumes before major announcements. By enforcing strict rules against insider trading, FINRA helps maintain trust in the integrity of financial markets.
• Discuss the relationship between FINRA and market manipulation, including how FINRA identifies and addresses such behavior.
  • FINRA takes a proactive approach to identifying and preventing market manipulation by monitoring trading activities and utilizing sophisticated surveillance systems. When suspicious activity is detected, such as wash trading or pump-and-dump schemes, FINRA investigates these incidents thoroughly. If violations are confirmed, FINRA can impose penalties, fines, or even revoke licenses, which reinforces its commitment to promoting fair market practices.
• Evaluate the overall impact of FINRA's regulations on investor protection and market integrity in relation to insider trading and market manipulation.
  • FINRA's regulations play a crucial role in enhancing investor protection and maintaining market integrity by creating a structured environment where ethical practices are enforced. By actively addressing insider trading and market manipulation, FINRA helps deter unethical behavior that could harm investors and distort market conditions. This oversight fosters confidence among investors, encouraging participation in the financial markets, which is essential for economic growth. Ultimately, FINRA's efforts contribute to a fairer marketplace where investors can make informed decisions without the fear of being exploited.

Related terms

Securities and Exchange Commission (SEC): The SEC is a U.S. government agency responsible for enforcing federal securities laws and regulating the securities industry, including protecting investors and maintaining fair market practices.

Insider Trading: Insider trading refers to the buying or selling of stocks based on non-public, material information about a company, which can lead to unfair advantages in the market.

Market Manipulation: Market manipulation involves actions taken to artificially inflate or deflate the price of a security, often to create misleading market conditions.