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Investors and FINRA

What is FINRA?

The Financial Industry Regulatory Authority, Inc. (FINRA) is a self-regulatory organization (SRO) under the Securities Exchange Act of 1934. For nearly 75 years FINRA, and its predecessor, the National Association of Securities Dealers, Inc. (NASD), have served as the primary private watchdog over its members within the securities and financial services industry.

While the SEC is the government agency that oversees and regulates all aspects of the securities industry, including FINRA, the private organization plays a vital role as a self-regulatory organization that exerts a strong influence over its members. Any reputable securities firm and individual brokers are expected to participate as members of FINRA and subject themselves to its oversight.

What is the Purpose of FINRA?

FINRA is dedicated to providing every investor, large and small, with an equal opportunity to invest and profit from participation in the securities industry. Achieving this fairness and avoiding fraud and manipulation requires aggressive and persistent vigilance. With a stated mission "to pursue investor protection and market integrity," FINRA oversees all components of the brokerage industry.

In carrying out its mission FINRA has built a nationwide network which works closely with local securities brokers, firms, and branch offices. It also oversees the functioning of the many firms that provide such services for brokers as education, testing and licensing of those seeking to be registered with the organization. Investors encounter the work of FINRA in dealing with those brokers and in transactions with the New York Stock Exchange, the NASDAQ Stock Market, Inc., the American Stock Exchange LLC, and/or the International Securities Exchange, LLC.

How Does FINRA Protect Investors?

The efforts of FINRA are both preventative and punitive. It seeks to develop and enforce regulations and guidelines to minimize common problems and practices that harm investors. It conducts regular inspections to evaluate and enforce compliance. When violations are found, changes are mandated and disciplinary actions are often taken. These can be against firms, individual brokers, or both.

Education of investors is one of the tools and goals of FINRA in fighting fraud and unprofessional practices in the securities industry. Investors can and should check with FINRA before using any securities firm or broker. They will quickly advise the investor of the status of membership, as well as any past violations and sanctions.

In the event of perceived wrongdoing, investors use the processes of mediation and arbitration (to which members must agree) to resolve issues and seek any recovery. FINRA has successfully overseen the return of hundreds of millions of dollars to investors.

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