Section 2. How Investors Are Protected
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This article is from the What Every Investor Should Know.
Section 2. How Investors Are Protected
Under the federal securities laws, the individuals and organizations engaged in the business of buying and selling securities have a great deal of responsibility for regulating their own behavior through SROs operating under the oversight of the SEC. These SROs include all of the exchanges, the NASD, the Municipal Securities Rulemaking Board (MSRB), which establishes rules that govern the buying and selling of securities offered by state and local governments, and other organizations concerned with somewhat less visible activities such as the processing of transactions. The SROs are responsible for establishing rules governing trading and other activities, setting qualifications for securities industry professionals, regulating the conduct of their members, and disciplining those who fail to abide by their rules.
In addition, the federal securities laws provide investors with certain protections, including the ability to sue if they have been harmed as a result of certain violations of those laws. However, many brokerage firms may require that their customers sign an agreement that may contain an arbitration clause when they open a brokerage account. If you sign an agreement with an arbitration clause, you are agreeing to settle any future disputes with the broker through binding arbitration, instead of through the courts. Arbitration proceedings are administered by the SROs, and the rules that apply in arbitration proceedings are specified by each SRO. Although the SEC oversees the arbitration process, it cannot intervene on behalf of or directly represent individual investors, nor can the SEC modify or vacate an arbitration decision. The grounds for judicial review are very limited.
Further protection for investors is provided by state laws designed to regulate the sale of securities within state boundaries.
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