Broker-Dealer Regulation – An Overview

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Broker-dealers (BDs) facilitate the buying and selling of securities for investors and themselves. Regulation of broker-dealers is critical to maintaining market integrity, protecting investors, and ensuring financial stability. In the United States, broker-dealer regulation encompasses a broad spectrum of rules and standards designed to govern the operations, ethical conduct, and financial responsibility of these firms.

What Is A Broker-Dealer?

A broker-dealer performs two main roles:

  1. as a broker, it acts on behalf of clients to execute trades in securities;
  2. as a dealer, it trades securities on its own behalf.

Examples of broker-dealers include major financial institutions like Goldman Sachs and Morgan Stanley, as well as smaller, investing firms for retail traders like, Interactive Brokers.

Which Organizations Regulate Broker-Dealers?

Broker-dealers in the U.S. are subject to regulation by several organizations, each with its own set of rules and oversight responsibilities.

Securities and Exchange Commission (SEC)

The SEC is the primary federal regulatory agency overseeing the securities industry, including broker-dealers. It enforces securities laws designed to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.

Financial Industry Regulatory Authority (FINRA)

FINRA is a not-for-profit organization authorized by Congress to protect America’s investors by ensuring the broker-dealer industry operates fairly and honestly. FINRA oversees brokerage firms and their registered securities representatives, enforces rules governing the industry, and provides education and resources for investors.

State Securities Regulators

Each state has its own securities regulator responsible for licensing and regulating broker-dealers within its jurisdiction. These regulators enforce state securities laws and respond to investor complaints and inquiries.

What Legislation Applies To Broker-Dealers?

Several key pieces of legislation govern the activities of broker-dealers in the U.S.:

Securities Exchange Act of 1934

This Act established the SEC and provides it with broad authority over all aspects of the securities industry, including the power to register, regulate, and oversee brokerage firms, transfer agents, and clearing agencies.

Dodd-Frank Wall Street Reform and Consumer Protection Act

Enacted in response to the 2008 financial crisis, this comprehensive set of financial regulations includes provisions that affect broker-dealers, such as those aimed at improving transparency and reducing risks in the financial system.

Regulation Best Interest (Reg BI)

Implemented by the SEC, Reg BI imposes a standard of conduct for broker-dealers, requiring them to act in the best interest of their retail customers when making investment recommendations.

What Responsibilities Do Broker-Dealers Have?

Broker-dealers have a wide range of responsibilities, including, but not limited to:

  • Communication: They must provide accurate and complete information to clients, disclosing all material facts and potential conflicts of interest.
  • Record-Keeping: Broker-dealers are required to maintain comprehensive records of all transactions, communications with clients, and other relevant activities.
  • Compliance: Firms must establish and enforce policies and procedures to comply with all applicable securities laws and regulations.


Who regulates broker-dealers in New York? In New York, broker-dealers are regulated by the New York State Department of Law, Investor Protection Bureau, in addition to federal oversight by the SEC and FINRA.

What is broker-dealer regulation? Broker-dealer regulation refers to the oversight and enforcement of laws and rules governing the conduct, ethics, and financial integrity of firms that buy and sell securities on behalf of clients and for their own accounts.

Who has regulatory oversight for broker-dealers? The SEC and FINRA are the primary regulatory bodies with oversight over broker-dealers in the United States, complemented by state securities regulators.

Who do broker-dealers need to register with? Broker-dealers must register with the SEC, become members of FINRA, and may also need to register with state securities regulators where they do business.

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