Regulatory

Financial markets have multiple regulatory agencies that establish compliance with rules regarding financial transactions in exchanges and banks.
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Markets are typically regulated by governmental or independently established regulatory agencies. Regulatory agencies promote fair and orderly markets and ensure that all individuals and institutions operate within the laws set forth by the governing bodies. Regulators have the authority to investigate fraudulent activity and sanction or penalize market participants.

OCC

The Options Clearing Corporation (OCC) is the world's largest equity derivatives clearing organization. The OCC is responsible for listing all options and oversees the contract exercise and assignment process. The OCC is jointly owned by the exchanges that trade options.

The OCC helps provide a liquid market for options contracts, guaranteeing all trades by acting as the counterparty to any purchase or sale of options. By acting as guarantor for options trades, the OCC ensures that the obligations of the contracts are fulfilled and risk management practices are followed.

SEC

The Securities and Exchange Commission (SEC) is an agency of the United States government that regulates markets and investors. The SEC was created in 1934 in response to the irresponsibility exhibited during the stock market crash of 1929. The SEC’s role is to enforce laws that promote fair, orderly, and efficient markets while maintaining a functioning economy.

The SEC requires all issuers of stock to provide full disclosure regarding their business activity. The SEC has the power to administer lawsuits against investors who break laws such as insider trading, accounting fraud, falsifying information, and more. The SEC is composed of 5 bi-partisan members who serve five-year terms.

The SEC has many rulings that deal specifically with individual traders. One of those rulings defines a “pattern day trader” and impacts the trading activity of retail traders. According to the SEC’s rulings, a pattern day trader is a trader who executes four or more day trades in a five-day period using a margin account.

Pattern day trading regulations were put in place to discourage excessive trading. Pattern-day traders must maintain a margin account balance of at least $25,000 at all times. If the account drops below $25,000, no trading activity is allowed until the minimum requirement is fulfilled again. Day trading is defined as buying and selling a security in the same trading session. 

FINRA

The Financial Industry Regulatory Authority (FINRA) is an independent organization that enforces the rules that govern brokers and broker-dealer firms in the United States. FINRA regulates trading involving equities, futures, options, and bonds. FINRA has the authority to administer disciplinary action against members that violate industry standards.

FINRA’s goal is to protect investors from abuses by brokers, and they maintain a database of approved broker-dealers that meet their standards. 

SIPC

The Securities Investor Protection Corporation (SIPC) is an independent organization established by Congress to protect investors whose brokerage firm has gone bankrupt. The SIPC includes brokers, dealers, and members of exchanges. SIPC was put in place to insure clients in the event a firm dissolves.

The SIPC has the authority to compensate investors up to $500,000 of their assets, and $250,000 of cash holdings, in the event the brokerage firm that holds their money files for bankruptcy. The SIPC does not protect customer accounts from investment losses but ensures that the customer’s assets are not lost or missing. The SIPC’s sole focus is to reunite clients with their money, and they have no authority to investigate the reason for the firms’ financial insolvency. 

Federal Reserve

The Federal Reserve is the central bank for the United States. The Federal Reserve was created in 1913 to centralize the federal monetary system. The function of the Fed is to regulate the United States financial system and national banks. The Federal Reserve system has 12 regional banks located throughout the country.

The Federal Open Market Committee (FOMC) is the Fed's policy-making body and oversees the country's monetary supply. The Federal Reserve seeks to keep inflation in check by keeping the money supply stable while promoting full employment. Part of the FOMC’s responsibility is managing the federal funds rate, which controls interest rates.

The Federal Reserve is responsible for ensuring the health of the American economy but is independent of the government. The Federal Reserve has the power to purchase Treasury bonds to increase or decrease the money supply.

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FAQs

Does the OCC have powers to close branches?

The Office of the Comptroller of the Currency (OCC) is an agency responsible for governing federal banks. The OCC charters, regulates, and supervises all national banks within the United States, including foreign banks. The OCC has the power to approve and deny new branches of banks, dismiss bank managers, and take legislative action based on their examinations, including issuing cease and desist orders.

What is the role of the Securities and Exchange Commission?

The Securities and Exchange Commission (SEC) is an agency of the United States government that regulates markets and investors. The SEC’s role is to enforce laws that promote fair, orderly, and efficient markets while maintaining a functioning economy. The SEC requires all issuers of stock to provide full disclosure regarding their business activity.

The SEC has the power to administer lawsuits against investors who break laws such as insider trading, accounting fraud, falsifying information, and more. The SEC is composed of 5 bi-partisan members who serve five-year terms.

How does the Securities and Exchange Commission protect investors?

The SEC’s role is to enforce laws that promote fair, orderly, and efficient markets while maintaining a functioning economy. The SEC protects investors by requiring all issuers of stock to provide full disclosure regarding their business activity.

What is the difference between FINRA and the SEC?

The SEC regulates markets and investors. The SEC’s role is to enforce laws that promote fair, orderly, and efficient markets while maintaining a functioning economy.

FINRA regulates trading involving equities, futures, options, and bonds. FINRA’s goal is to protect investors from abuses by brokers, and they maintain a database of approved broker-dealers that meet their standards. 

Who are members of FINRA?

The Financial Industry Regulatory Authority (FINRA) is an independent organization that enforces the rules that govern brokers and broker-dealer firms in the United States. FINRA regulates trading involving equities, futures, options, and bonds. FINRA is the authority for thousands of brokerages, and Individuals must register with FINRA if they are involved with the securities business at a brokerage firm.

What is SIPC insurance coverage?

SIPC insurance coverage was put in place to insure clients in the event a firm dissolves. The Securities Investor Protection Corporation (SIPC) is an independent organization established by Congress to protect investors whose brokerage firm has gone bankrupt. The SIPC’s sole focus is to reunite clients with their money. The SIPC includes brokers, dealers, and members of exchanges.

The SIPC has the authority to compensate investors up to $500,000 of their assets, and $250,000 of cash holdings, in the event the brokerage firm that holds their money files for bankruptcy. The SIPC does not protect customer accounts from investment losses but ensures that the customer’s assets are not lost or missing. 

Is SIPC as good as FDIC?

The primary difference between SIPC and FDIC is that SIPC only insures cash in accounts that are used for the purchase of securities while FDIC insures cash in depository accounts. 

Is SIPC coverage per account?

The SIPC has the authority to compensate investors up to $500,000 of their assets and $250,000 of cash holdings in the event the brokerage firm that holds their money files for bankruptcy. SIPC protection is dictated by “separate capacity,” so if multiple accounts are managed, they will each be eligible for full protection if they are not similar account types held in the same capacity.

For example, if two brokerage accounts are managed by the same investor, they receive $500,000 of protection combined. However, if the investor has an IRA account and a personal margin account, each account would receive $500,000 of protection. 

Who owns the Federal Reserve Bank?

The Federal Reserve Bank is not owned by any individual or organization. The Federal Reserve is the central bank for the United States. The Federal Reserve was created in 1913 to centralize the federal monetary system.

The function of the Fed is to regulate the United States financial system and national banks. The Federal Reserve reports to and is held accountable by Congress through a federal agency known as the Board of Governors.  

How many Federal Reserve banks are there?

The Federal Reserve system has 12 regional banks located throughout the country. The Federal Reserve is the central bank for the United States, and its function is to regulate the United States financial system and national banks.

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