February 20, 2009

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The SEC

The Securities and Exchange Commission has the authority to bring civil enforcement actions against individuals and companies that commit accounting fraud, provide false information, or engage in insider trader and other securities law violations. The SEC has five commissioners, who are appointed by the president with the consent of the Senate. Commissioners serve five-year terms, and there cannot be more than three from the same political party at a time. The president also appoints the Commission's chairman.

The SEC is made up of four divisions -- Corporation Finance, Trading and Markets, Investment Management and Enforcement.

The Trading and Markets division oversees the country's self-regulatory organizations (SROs), including the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board (MSRB), as well as all broker-dealer firms and investment banks. A significant amount of enforcement and rule making in this area is in fact delegated to FINRA, which requires all trading firms not regulated by other SROs to register with it and oversees the examination process for individual traders. The Investment Management division has authority over registered mutual funds and investment advisers.

The SEC also works with federal agencies, state securities regulators and law enforcement agencies. The Commission employs approximately 3,500 staff located in Washington, D.C., and in 11 regional offices throughout the country.

According to the SEC, there are approximately 12,000 public companies whose securities are registered with the agency; 11,300 investment advisers; 950 fund complexes (representing more than 4,600 registered funds); 5,500 broker-dealers (including 173,000 branch offices and 665,000 registered representatives); and 600 transfer agents. There are also 11 exchanges; five clearing agencies; 10 nationally recognized statistical rating organizations; SROs such as FINRA and MSRB; and the Public Company Accounting Oversight Board.

FINRA

Subject to oversight by the SEC, the Financial Industry Regulatory Authority was formed in 2007 to combine the regulatory efforts of the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASD). FINRA is responsible for resolving disputes between public investors, member firms and firm employees. FINRA also establishes rules and regulations for the standards of care required for the handling of customer accounts. The agency oversees nearly 5,000 brokerage firms, about 172,000 branch offices and approximately 663,000 registered securities representatives.

FINRA touches virtually every aspect of the securities business and also performs market regulation under contract for The Nasdaq Stock Market, the American Stock Exchange, the International Securities Exchange and the Chicago Climate Exchange.

FINRA has approximately 3,000 employees and operates from Washington, D.C., and New York, with 15 district offices across the country.

Source: SEC, FINRA Web sites

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