MARKET AND INVESTMENT

Market Participants

Part of the mission of the SEC is “to maintain standards for fair, orderly, and efficient markets.” To do this, the SEC regulates a number of securities market participants.

These include:

Broker-Dealers – Broker-dealers charge a fee to handle trades between the buyers and sellers of securities. A broker-dealer may buy securities from their customer who is selling or sell from their own inventory to its customer who is buying.

Clearing Agencies – Clearing Agencies are Self-Regulatory Organizations (SROs) that are required to register with the SEC. Like all SROs, they are responsible for writing and enforcing their rules and disciplining members. There are two types of clearing agencies– clearing corporations and depositories.

Clearing corporations, such as the National Securities Clearing Corporation (NSCC) and the Fixed Income Clearing Corporation (FICC), compare member transactions, clear those trades and prepare instructions for automated settlement of those trades. Clearing corporations often act as intermediaries in making securities settlements.

Depositories, namely The Depository Trust Company (DTC), hold securities certificates for their participants, transfer positions between participants, and maintain ownership records.
Credit Rating Agencies – Credit Rating Agencies provide opinions on the creditworthiness of a company or security. They indicate the credit quality by means of a grade. Generally, credit ratings distinguish between investment grade and non-investment grade. For example, a credit rating agency may assign a “triple A” credit rating as its top “investment grade” rating, and a “double B” credit rating or below for “non-investment grade” or “high-yield” corporate bonds. Credit rating agencies registered as such with the SEC are known as “Nationally Recognized Statistical Rating Organizations.”

ATSs – An Alternative Trading System (ATS) is a trading system that meets the definition of “exchange” under federal securities laws but is not required to register as a national securities exchange if the ATS operates under the exemption provided under Exchange Act Rule 3a1-1(a). To operate under this exemption, an ATS must comply with the requirements set forth in Rules 300-303 of Regulation ATS, which includes registering as a broker-dealer. ATSs that trade NMS stocks (“NMS Stock ATSs”) must publicly file with the Commission an initial Form ATS-N, amendments to initial Form ATS-N, and notices of cessations of operations. Form ATS-N requires disclosures about the manner of operations of the NMS Stock ATS and the ATS-related activities of the broker-dealer operator and its affiliates, among other things. A current list of NMS Stock ATSs can be found here. ATSs that do not trade NMS stocks file with the Commission a Form ATS. A current list of these ATSs can be found here.

Investment Advisers – Investment advisers are persons or firms that are in the business of providing investment advice to investors or issuing reports or analyses regarding securities. They do these activities for compensation.

Securities Exchanges – Securities exchanges are markets where securities are bought and sold. Currently, there are fifteen securities exchanges registered with the SEC as national securities exchanges, including NYSE Euronext, NASDAQ, The Chicago Board Options Exchange, and BATS Exchange. Securities Exchanges are also SROs.

Self-Regulatory Organizations (SROs) – An SRO manages its industry through the adoption of rules governing the conduct of its members. SROs also enforce the rules they adopt and discipline members for violating SRO rules. Two well-known SROs are the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board (MSRB). FINRA is the largest SRO in the securities industry. It is the frontline regulator of broker-dealers. MSRB makes rules regulating dealers of municipal securities. The SEC oversees both FINRA and the MSRB. Other SROs include clearing agencies and securities exchanges.

Transfer Agents -Transfer agents record changes of security ownership, maintain the issuer’s security holder records, cancel and issue certificates, and distribute dividends. Transfer agents stand between issuing companies and security holders. Transfer agents are required to be registered with the SEC, or if the transfer agent is a bank, with a bank regulatory agency. There is no SRO that governs transfer agents. The SEC has announced rules and regulations for all registered transfer agents. The intent is to facilitate the prompt and accurate clearance and settlement of securities transactions and assure the safeguarding of securities and funds.