Securities and Exchange Commission Should Strengthen Its Inspection Oversight of the National Association of Securities Dealers
FGMSD-78-65: Published: Oct 5, 1978. Publicly Released: Oct 5, 1978.
- Full Report:
By legislation, the Congress delegated certain regulatory functions in the securities markets to the industry's self-regulatory organizations, subject to the oversight of the Securities and Exchange Commission (SEC). The National Association of Securities Dealers acts as the self-regulator of member securities firms and persons who trade in securities not sold on the stock exchanges. About 18,000 firms are members of the Association.
In 1977, the association conducted 2,032 routine examinations, 891 financial and operational examinations, and 402 special examinations to determine whether administrative rules and Federal securities laws were being followed. The SEC makes its own review of the association's examination efforts. As a result of its oversight efforts, the SEC has expressed concern about the adequacy of the association's examination staff, but the SEC's informal oversight approach has produced limited documentation on differences of opinion concerning the association's staffing needs for adequate self-regulation. The SEC has not dealt aggressively enough with inspection oversight problems; inspection oversight should reach beyond what the association is doing to what it might be doing in the public interest. The SEC inspection oversight is heavily concentrated on routine administration of the association's district offices and on its members' conformance with administrative rules and federal securities laws.
Recommendation for Executive Action
Comments: Please call 202/512-6100 for additional information.
Recommendation: The SEC should: develop guidelines to assist in determining the adequacy of the association's examiner staffing, issue guidelines for use by the staff assigned to inspection oversight of the association, obtain and use association policy information to develop a perspective of what the association might be doing to promote the public interest, improve its inspection planning, revise procedures for communicating and following up on findings, and eliminate delays that occur in processing complaints.