First I note that officially the
National Association of Securities Dealers, Inc. has changed their name to
NASD, Inc. for
public relations reasons. However, this is merely a very recent (early 00's) cosmetic change, and therefore I prefer to use the full proper name. After all, it's been called
National Association of Securities Dealers for approximately seven decades.
What is the NASD?
Although the internal organization of the
NASD has changed in recent years, it still serves its founding mission.
NASD is a
private not-for-profit organization that oversees the
securities industry in the
United States. It founded the
Nasdaq markets and acquired the
American Stock Exchange (
AMEX) through a merger. However, both those assets were divested in its recent reorganization for financial reasons.
The NASD as a provider of regulatory services...
As the
NASD likes to promote in its
propaganda, "
NASD mission is to bring
integrity to the markets and
confidence to investors." This mission is a direct result of its unique history. In order to fully understand how the
NASD works, we will take a trip to
the Great Depression. By
1932, all gains ever made in the relatively young
capital markets were wiped out. Soon after,
Franklin D. Roosevelt sought to fix the derailed US economy with
New Deal legislation. Buried in the massive amount of legislation of the
New Deal Era was a broad
National Industrial Recovery Act (
NIRA). Under this act, the investment banking community formed a
Code Committee to better regulate the
capital markets.
Since the
NIRA was all encompassing, it is not surprising that it was soon overturned by the
United States Supreme Court in
A.L.A. Schechter Poultry Corp. v. United States (
295 U.S. 495) on May 27,
1935. Since the
NIRA was the source of the
Code Committee's power, its undoing forced the group to reorganize. After a ninety percent vote, the group became the
Investment Banker's Conference. In the years that followed, the group decided that it was in the best interests of all involve to self-regulate. A series of regulatory rules were established to
handle disputes between and against its members. Impressed with its '
Rules of Fair Practice', the
SEC helped the
Investment Banker's Conference to reform yet again into a regulatory organization. The result of this cooperation yielded the
Maloney Act. Not long after its introduction to
Congress on January 18,
1938, it was signed into law by
FDR on June 25,
1938. This act created the
National Association of Securities Dealers (
NASD).
Not soon after its experimental birth, the US got itself into
more trouble (another World War). During this time,
NASD demonstrated it's power by helping to finance the war effort with
war bonds. During the war,
NASD initiated a program to register all securities personnel despite the shortage of manpower. When the dust finally settled, the NASD continued inspection of its members, developed standards for securities sales literature, and started a certification program for stockbrokers.
It was business as usual until
1964 when the
Securities Exchange Act of 1934 was expanded to give the
NASD power to establish standards for its members and prosecute violators. This
Congressional amendment officially confirmed the regulatory power of the
NASD and settled complaints by disciplined member firms. In
1975, the NASD had its power expanded again to allow it oversight of
municipal securities dealers.
What does the NASD do?
Today the
NASD regulates about 5,000
member firms, with approximately 100,000 offices and 670,000 registered securities brokers. By regulate, I mean the NASD makes the rules, checks for violations, and enforces offenders.
Also, the
NASD oversees trading on the
Nasdaq markets.
This is all fun and dandy but my school report is about Nasdaq...
As a overseer of markets
NASD is directly responsible for the creation of the
Over-The-Counter Clearing Corporation (
1962), the
National Clearing Corporation (
1969), and the
National Securities Clearing Corporation (
1977). Over the years, the
NASD also had a direct hand in the
Nasdaq markets and the
American Stock Exchange. In
1976 it buys the
Nasdaq System from
Bunker Ramo Corporation and creates the
Nasdaq National Market six years later.
Over-The-Counter Bulletin Board (
OTC:BB) was added
1990 and the
AMEX was acquired in a
1998 merger. However, soon the
NASD started having financial issues and sells the
Nasdaq markets in 2000-2001 to its member and makes
American Stock Exchange independent in late 2003. These reorganizations allow the
NASD to concentrate on its primary mission: keeping the markets fair and liquid.