Regulatory Framework and Market Structure
Key Concepts
- Regulatory bodies: Understand the roles of the SEC, FINRA, and state regulators in the US, and equivalents like the FCA (UK) and ESMA (EU). Know their rulemaking, enforcement, and examination functions.
- Legislation: Key acts such as the Securities Act of 1933 (disclosure for new issues), Securities Exchange Act of 1934 (secondary markets, reporting), Investment Company Act of 1940 (funds), and Investment Advisers Act of 1940 (advisers). Also know Sarbanes-Oxley, Dodd-Frank, and Reg BI.
- Market structure: Primary vs. secondary markets; exchanges (NYSE, Nasdaq) vs. alternative trading systems (ATSs) and dark pools; broker-dealers, market makers, and ECNs. Understand the order routing and execution landscape.
- Self-Regulatory Organizations (SROs): FINRA as an SRO, its rulebook, and how it oversees member firms.
Traps
- Confusing the 1933 Act (new issues) with the 1934 Act (ongoing reporting).
- Mixing up investment adviser vs. broker-dealer registration requirements.
- Assuming all exchanges are national securities exchanges; ATSs are not.
Worked Example / Rule of Thumb
Rule of thumb: "33 = New, 34 = Ongoing." The Securities Act of 1933 governs primary offerings; the Exchange Act of 1934 governs trading and periodic reporting. Example: A company wants to raise capital via an IPO. It must file a registration statement under the 1933 Act. After listing, it must file annual 10-Ks under the 1934 Act.