Stock Exchange Guidelines
Stock market guidelines cover virtually every aspect of market operation on all the North American stock exchanges. These rules and regulations were designed to protect investors and to ensure a healthy and transparent financial system. Confidence by the investing public is crucial to the success of all financial markets, hence the ever-increasing amount of guidelines and regulations by all stakeholders.
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History
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North American financial markets have come along way since that day in 1792 when 24 stockbrokers signed the Buttonwood Agreement. Until that point, stockbrokers traded on the street. The agreement was the first attempt to organize the markets. It took more than 100 years, until 1904, before trading practices began to be codified with the creation of the New York Curb Market Agency. Up to that pivotal moment, the stock market was very much a seat-of-the-pants operation. Since then, government and the industry itself have worked relentlessly to improve the financial markets.
Regulatory Benefits
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The orderly function of financial markets is crucial to ensure the availability of capital for business. Economic growth is powered by the growth of business. Stock exchange guidelines ensure that investors can invest with confidence, giving business access to the private funding it needs. Despite the number of parties involved in a financial transaction, a healthy portion of every dollar invested goes directly from buyer to seller. Regulation and oversight ensure that this happens an overwhelming majority of the time. Stock exchange guidelines make it very difficult, though unfortunately not impossible, for an investor to be misled.
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Misconceptions
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In theory, more regulations and guidelines reduce the risk of financial investment fraud. The reality is far different. Every rule and regulation needs oversight and enforcement by another party. Without that, fraud on any scale is imaginable. This was exactly what happened in 2008 when investment adviser Bernie Madoff swindled investors out of more than $50 billion in the largest Ponzi scheme in history. Despite all the rules that existed at that time, the unthinkable still happened. Many explanations as to what transpired and how it happened exist. Guidelines are often created after looking at what happened in the past, not what may happen in the future. Before Madoff's admission of guilt, nobody thought that such a scheme could happen.
What the Guidelines Cover
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Though guidelines may vary from one stock exchange to another, they all contain the same major components. The rules cover a wide variety of concerns, including: registering and becoming a member on the exchange, the manner in which business is conducted, in what manner trading occurs, how companies are listed on the exchange and how the rules are enforced. Becoming a member of an exchange means agreeing to abide by its rules and constitutions, and the consequences of an infraction.
Enforcement of Rules
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A separate division is usually created at a stock exchange to investigate and prosecute violations of the rules. These violations can be discovered in many ways, including customer complaint. Types of infractions may include, but are not limited to, insider trading, misconduct on the trading floor, market manipulation, short sale violations and incomplete records. Sanctions against the guilty party can range from a formal reprimand, a fine or suspension all the way to lifetime expulsion. These disciplinary actions take effect only after a disciplinary hearing and may be appealed all the way to the U.S. Supreme Court.
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References
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