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Who regulates Investments in US stocks for Indians

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Published Date: 31 May 2023Updated Date: 01 Dec 20236 mins readBy MOFSL

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Introduction

In every hour of market day, thousands of individuals check stock exchange markets, hoping to make profits by investing and trading in stocks. Moreover, investment in the stock and financial market is risky.

Considering the amount of money, participants engaged, lack of assurances, and investor loss risk, the government ensures that the financial investment system is feasible and equitable. The US Government has made some regulatory agencies to oversee and ensure the lawful practice in the stock market to minimize the losses and risk involved. A few of them are as follows:

1. US Stock Market Regulation-

Various regulatory agencies oversee the equity market. The Securities and Exchange Commission is the primary regulatory body. The Securities and Exchange Commission (SEC) is responsible for regulating the stock exchanges. Previously called the National Association of Securities Dealers (NASD), the Financial Industry Regulatory Authority (FINRA) is a trade association representing securities dealers. It is responsible for regulating stockbrokers and brokerage firms.

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2. Federal Reserve Board-

FRB, the Federal Reserve Board, is among the prominent regulatory agencies around the globe. It is often blamed for economic downturns or is praised for economic boosts. The “Fed” affects the liquidity, capital, general credit, and money flow conditions. The selling and purchase of federal agencies and US Treasury assets in open market activities is its primary weapon to execute monetary policies.

3. Comptroller of the Currency’s Office

The 1863 National Currency Act established the Office of the Comptroller of the Currency, which makes it the oldest governmental institution. The primary goal of these institutions is to safeguard the banking system by regulating, supervising, and granting charters to United States-based banks. As a result, it helps banks to deliver and compete for efficient services, financial and banking.

4. Securities and Exchange Commission-

The Securities and Exchange Commission was established as an independent federal agency by the Securities Exchange 1934 Act. The SEC is among the most powerful and extensive authorities in the US that enforce Securities regulation in the USA, regulating the securities sector in bulk. SEC regulates stock exchanges, options exchanges, and markets in the US and various other electronic securities businesses and markets. They also look after the financial advisors who are in the market but not under government oversight.

SEC consists of 24 offices and six divisions- Corporate Finance Division, Enforcement Division, Investment Management Division, Analysis of the Economy and Risk Division, Examination Division, and Trading and Markets Division.

The objective of SEC-

To interpret and enforce security laws
To issue new rules and regulations
To oversee securities institutions
Coordinate and impose regulations across government levels.

5. FINRA-

Like Securities and Exchange Commission, FINRA is also another authority to prevent unlawful trading. Financial Industry Regulatory Authority monitors trade activities to determine illegal trading trends. There are about 634000 workers and 4750 members registered under it to sell securities.

FINRA is a government-approved private not-for-profit organisation to help regulate dealers-brokers across the United States. The organisation was founded in 2007 to set industry standards by conducting license testing, trade regulation, and background checks. It also ensures compliance with all security rules and regulations.

FINRA Objectives-

It ensures that adequate protection is available to every investor
It tests, qualifies, and certifies companies selling security products
Their role is to ensure that security product advertisement is not misleading and tells the facts.
It also ensures that every investor in the stock market receives investment product disclosure before they invest.

FINRA performs various functions to meet these objectives. Below are a few of them:

They write and enforce rules that govern the activities of registered brokers and broker-dealer companies in the USA.
Ensuring each registered broker and dealer follows the rules.
Conduct education programs for investors.
Fostering capital market transparency.

Conclusion

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