Securities and Futures:

How the Markets Developed and How They Are Regulated

GGD-86-26: Published: May 15, 1986. Publicly Released: May 15, 1986.

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Pursuant to a congressional request, GAO studied the securities industry oversight process, focusing on: (1) the history of securities and futures trading; (2) the detailed operations of the securities and futures markets; and (3) the self-regulatory organizations that govern the two markets.

GAO noted that: (1) competitive changes in the securities and futures exchange industries have resulted from changes in inflation and interest rates, technological advances in information and communications, changes in the federal regulatory climate, and increased overlap of securities and futures products; (2) the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have primary federal responsibility for regulating the securities and futures markets, respectively; and (3) the evolution of the financial markets has given rise to fears that new and unacceptable risks may accompany competitive changes. GAO also noted that: (1) securities markets began to develop very early in the nation's history, but Congress did not establish a federal role in securities regulation until 1933, when it enacted the Securities Exchange Act; (2) since 1933, Congress has gradually expanded SEC authority and responsibilities; and (3) self-regulatory organizations, such as the stock exchanges and the National Association of Securities Dealers, engage in many regulatory activities under SEC oversight. In addition, GAO noted that: (1) commodity futures contracts stabilize commodity prices and offer farmers and investors the opportunity to better manage financial risks; (2) self-regulatory organizations perform most regulatory functions in the futures markets, under CFTC supervision; and (3) both SEC and CFTC monitor self-regulatory organizations under their jurisdiction using market analysis techniques to identify various possibly illegal transactions.

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