The United States of America is home to numerous financial regulatory organizations that aim to safeguard the integrity of the US capital markets through constant surveillance of its market participants. Over the years, the US Government has tweaked its regulatory guidelines to incorporate new rules and recommendations that are believed to help in reducing the number of financial discrepancies. After the economic crisis of 2008, the US Government also started adopting a proactive approach to regulation by closely monitoring the conduct of financial firms and by ensuring that they adhere to all existing laws of the nation. The primary duty of a regulator is to prevent all instances of financial crimes and consumer abuse.
Therefore, the US Government’s continued efforts on regulatory reforms aims to increase investor trust and confidence by increasing the amount of transparency in the markets. The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization (SRO) that joins an elite list of financial regulators in the US that are concerned with ensuring a proper code of conduct for companies dealing in equities, futures, bonds, and options trading. FINRA is a successor to the
National Association of Securities Dealers (NASD) after the SEC approved the formation of a self-regulatory organization for regulating companies operating in the US stock markets. The move came after the recapitalization of the NASD into NASDAQ after its merger with NYSE Inc., and the SEC determined the need for an SRO that could regulate companies, enforce regulations, and provide arbitration services between companies and its clients.
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Financial Products Offered By FINRA Regulated Brokers
FINRA is a regulatory authority that supervises firms that deal in securities, equities, bonds, futures, and options. Therefore, all financial products that are listed in the US stock markets come under the direct regulation of FINRA. FINRA has a highly elaborate regulatory framework that concentrates on regulating member firms for its financial operations, and there are several restrictions which are enforced on the brokers to sell financial products to the general public.
Are There Any FINRA Forex Brokers?
The Forex and commodities market does not come under the FINRA regulation, as these products are regulated by the NFA and the CFTC. The FINRA has no role in regulating or supervising companies that provide brokerage or financial services in the field of FX or commodities, and if a FINRA regulated broker wishes to incorporate such products in its portfolio, it should create a different subsidiary according to a separate regulatory structure.
Although it is close to impossible to find FINRA regulated Forex brokers, some companies may have two different entities to provide Equities and Forex brokerage services under different brand manes. It is entirely possible for a single parent company to own two different brokerage models that are aimed at the US stock markets as well as the Forex and the commodities market. Nevertheless, every financial company that operates in the US must be regulated by its relevant authority to be able to carry out its operations on US soil.
How Does The FINRA Function In The Market?
FINRA is the single largest regulatory authority in the US that has been responsible for maintaining the integrity of the markets since its foundation in 2007. FINRA has the responsibility for regulating more than 4000 brokerages and around 650,000 registered entities in the US, which makes it a highly respected authority in the field of broker regulation. FINRA is a relatively large organization that has around 3,400 employees spread over 20 different regional offices across the US. Being a self-regulatory organization, the FINRA is entirely independent of any Government agency and operates out of funds collected from membership fees and fines imposed on regulated companies.
FINRA works according to the guidelines issued by the SEC but has the complete freedom of authority to regulate, enforce, and award sanctions against member firms. The FINRA has managed to collect more than $200 million in fines and restitutions since 2007 and is highly committed to dealing with financial scams by thoroughly investigating every financial entity for alleged misconduct. The FINRA works tirelessly with the SEC and the US Congress to create new laws, amend existing rules, and implement regulations that always change according to existing demands of the market. FINRA regulated brokers are expected to appear for the qualifying exams conducted by the FINRA that aims to test the company’s effectiveness in selling a wide range securities, insurance, and annuities products to its investors.
FINRA awards a valid certificate only to those brokers that can qualify with higher grades, and the FINRA reserves the right to invoke any licenses should the broker be found in violation of existing FINRA guidelines. Brokers are also expected to follow fair practices in advertising and promotions by ensuring that they don’t misrepresent any facts and only indulge in fair competition. Since the securities market is prone to market risks and fluctuations, brokers should clearly state the risks associated with such markets along with their product information. It is also the duty of a broker to inform its clients about the potential pitfalls of investing, thereby allowing investors the opportunity of weighing their options before investing.
How Do Investors, Companies, & Employees Benefit From FINRA?
FINRA organizes one of the largest arbitration services in the US that aims to address issues put forward by investors and employees against any organization. The FINRA has employed a system whereby investors and brokers are required to forego their rights to reaching a resolution in a court of law; instead, all disputes are taken care of by an arbitration panel that consists of members known as industry panelists and non-industry panelists.
Of course, disputes may be taken to court if the arbitration is unable to reach a resolution, but in most cases, the arbitration panel is highly effective in achieving a favorable compromise between two parties. FINRA has also managed to recover money for stricken investors who have faced financial abuse at the hands of dishonest brokers. Thousands of investors were able to recover their investments to the tune of millions by the intervention of FINRA, which has indeed helped FINRA to establish itself as a reputed and reliable organization that works towards securing the rights of an investor.
Forex traders who are looking to enjoy the high levels of protection offered by the FINRA may be disappointed by the lack of FINRA Forex brokers, but they can search for partners or allied entities of existing FINRA regulated brokers that provide dedicated Forex products under different brand names. The regulatory organizations in charge of regulating the Forex industry, the NFA, and the CFTC, have proved to be quite useful in countering broker scams, but the added protection of FINRA can help investors enjoy better peace of mind while tackling the riskiest financial market in the world.
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