Market Regulation

FINRA's Market Regulation department oversees and regulates over-the-counter (OTC) trading of exchange-listed and non-exchange-listed securities for compliance with FINRA rules and federal securities laws. Market Regulation also provides regulatory services to equities and options markets operated by other self-regulatory organizations. The department monitors approximately 99 percent of the equities market and approximately 70 percent of the options market.

Key to FINRA's mandate to maintain market integrity is effective, even-handed regulation, which protects investors and other market participants and enhances investor confidence in the markets. Market Regulation meets this mandate with sophisticated surveillance, examination, and enforcement programs. The surveillance units review trading activity to determine whether firms have failed to meet regulatory requirements. The examination unit conducts on-site reviews of firms' compliance with FINRA rules and federal securities laws. The Legal Section is responsible for the disciplinary program. In addition the department refers matters to the Securities and Exchange Commission when the market participant under investigation is not a FINRA member.

Surveillance

The department operates unique equity and options cross-market surveillance programs. Employing advanced technology, these programs collect and integrate trading data across exchanges and alternative trading systems to detect trading patterns not previously visible. In essence, FINRA's view is of one large, virtual market, instead of a disjointed patchwork of individual markets.

Highly sophisticated technology enables FINRA to analyze more than 50 billion market events every day. Market Regulation tracks orders from the moment they are placed, as they move through the markets, and are executed. The department combines that order data with market data from the exchanges and alternative trading systems to run a wide variety of surveillance patterns to look for abusive activity, including layering, spoofing, algorithm gaming, wash sales, marking the close and open, and front-running.

Examinations

Market Regulation's examination program is designed to complement the automated surveillance program with examinations focused on market activity. The examination program looks at how firms handle orders, including how they keep order information and other sensitive client information confidential, and execution quality. In addition, department examiners review firms' compliance with trading rules, reporting obligations. The program also assesses certain firm's financial and operational condition.

Legal Section

Market Regulation's Legal Section is responsible for bringing formal disciplinary actions against firms and their associated persons, concentrating on trading and quality of market cases. The Legal Section prosecutes cases generated by the department's surveillance and examination units and brings around 400 formal disciplinary actions each year.

Exchange Clients

Market Regulation provides regulatory services to the following equities and options markets:

  • BATS and Direct Edge
  • Boston Options Exchange
  • Chicago Board Options Exchange
  • International Securities Exchange
  • Miami International Exchange
  • NASDAQ, BX and Phlx
  • The New York Stock Exchange, ARCA and MKT

Market Regulation also monitors trading activity in more than 2.5 million individual fixed-income securities, including corporate bonds, municipal securities and mortgage-backed securities, for potential manipulative activity and to ensure investors receive fair prices.


Market Regulation Topics

2017 Exam Priorities Letter
Each year FINRA publishes its regulatory and exam priorities to highlight significant risks and issues that could adversely affect investors and market integrity in the coming year.

Targeted Exam Letters
FINRA conducts targeted exams, or sweeps, of firms in areas of regulatory concern to gather information and carry out investigations. Sweeps help pinpoint regulatory responses.