# **E.  SELF-REGULATORY ORGANIZATIONS**

The US regulatory system is heavily dependent on the use of self-regulatory organizations or SROs. An SRO is a non-government organization which is legally responsible for regulating its own members through the adoption of rules which it usually has the authority to enforce.<sup>20</sup> The SEC relies on SRO oversight to assist it in the regulation and day to day surveillance of both the equity and fixed income markets. As noted below, however, the scope of authority of the various SROs is not identical.<sup>21</sup>

1. _New York Stock Exchange._ The New York Stock Exchange was founded in 1792, initially as a bond-trading exchange.  It registered with the SEC as a national securities exchange in 1934, following the passage of the Securities Exchange Act of 1934, and is under the oversight of the SEC.  The NYSE is the world’s largest auction exchange, with about 2,800 issuers listed, and a total global market capitalization of about $13.3 trillion.<sup>22</sup>

The NYSE is a not-for-profit corporation, with a 25 member Board of Directors, comprised of a Chairman, Chief Executive Officer, 12 representatives of the public, and 12 representatives of the securities industry. It is a member organization, and is the lead examining authority for the major securities firms in the United States, including more than 250 member firms that deal with the public, as well as additional brokerage, specialist and registered traders who are members. The NYSE examines firms for their financial condition, operations and sales practices, as well as their compliance with NYSE rules and federal securities laws. The NYSE also conducts real-time surveillance of the market and oversees all trading activities on the Exchange floor.

The NYSE operates a centralized bond market, listing over 2000 corporate, government and agency bonds. The majority of the bonds listed on the NYSE are corporate securities. Listed bonds can trade through the NYSE’s Automated Bond System, which maintains and displays prices and matches price orders on a strict price and time priority basis. Both quotes and trades are reported on a real time basis.

2. _NASD._ The NASD was established under authority granted by Congress in the 1938 Maloney Act Amendments to the Securities Exchange Act of 1934. Like the NYSE, the NASD operates as an independent self-regulatory organization, supervised by the SEC. Virtually every broker-dealer in the United States that

> 20 The role of SROs in the regulatory system is undergoing significant change in the United States and globally, particularly as exchanges transform themselves from mutual, not-for-profit associations to demutualized, for-profit organizations.  Discussion of the implications of these developments for regulation is beyond the scope of this Report.

> 21 In addition to the SROs, trade associations can play an important, if not legally enforceable, role in the regulation of the market.  The Bond Market Association, for example, is not an SRO but, rather, is a trade association that represents broker-dealers in all aspects of their fixed-income operations.  While the BMA has no legal authority to regulate its members, or to take enforcement action against them, it nonetheless plays an extremely effective and important role in the market. _See infra_ .

> 22 _See_ NYSE Website, www.nyse.org.

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