As regulators, the major exchanges and markets have the ability to monitor trading and member firm activity closely, as it happens.
Exchange regulators use in-person visits and audits to examine firms’ financial reports and records, sales practices, and operations to see if they are obeying the rules of the exchange and securities law. For market surveillance, they employ staff to monitor activity on the trading floor. Regulators also analyze trading statistics with computer programs designed to identify suspicious patterns that could be a sign of wrongdoing — for example, illegal
insider trading
or market manipulation, which occurs when a firm or individual tries to artificially influence the price of a security.
In case of violations, an exchange can issue a warning, fine, or suspension, or it can bar individuals or firms from working in the industry. In general, exchanges cooperate with state and federal regulators to pursue the same goals of investor protections and market integrity through rulemaking and enforcement.
Independence at the NYSE
The largest and oldest self-regulating exchange is the
New York Stock Exchange (NYSE),
which has had its own governing rules and constitution since 1817. In response to criticisms about conflicts of interest between its member firms and its regulatory duties, the NYSE recently changed its structure. Its regulatory arm now reports solely to a board committee composed entirely of independent directors. Similarly, an independent compensation committee sets compensation for NYSE officers.
Exchange regulators use in-person visits and audits to examine firms’ financial reports and records, sales practices, and operations to see if they are obeying the rules of the exchange and securities law. For market surveillance, they employ staff to monitor activity on the trading floor. Regulators also analyze trading statistics with computer programs designed to identify suspicious patterns that could be a sign of wrongdoing — for example, illegal
