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Overview

The United States has no single financial markets regulator. Federal authority is divided between the Securities and Exchange Commission and the Commodity Futures Trading Commission, with each delegating substantial day-to-day oversight to self-regulatory organizations — FINRA for securities broker-dealers, NFA for futures and derivatives firms. State securities regulators (often called “blue sky” regulators) operate in parallel for certain matters.

Which regulator applies to a given market participant, product, or transaction depends on a combination of factors: the product traded (securities, futures, swaps, or spot), the venue used (national exchange, alternative trading system, swap execution facility, or over-the-counter), the registration category of the firm or individual, and the conduct at issue.

These divisions are statutory in origin and have been redrawn substantially since 2010, principally by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which extended federal oversight to previously unregulated swap markets and reorganized authority over mixed products.

Federal Regulators

Securities and Exchange Commission

The Securities and Exchange Commission was created by the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.) and administers the federal securities laws, including the Securities Act of 1933 (governing the offer and sale of securities), the Investment Company Act of 1940 (regulating mutual funds and other pooled investment vehicles), and the Investment Advisers Act of 1940 (regulating investment advisers).

The Commission’s core jurisdiction extends to:

• Securities, broadly defined under Section 2(a)(1) of the Securities Act of 1933
• Broker-dealers registered under Section 15 of the Securities Exchange Act of 1934
• Investment advisers registered under the Advisers Act
• National securities exchanges (NYSE, Nasdaq, IEX, and others)
• Alternative trading systems
• Self-regulatory organizations that oversee securities markets, principally FINRA
• Public company disclosure, proxy solicitations, and tender offers

Within these areas, the SEC has rulemaking authority, enforcement authority (administrative and federal court), and authority to approve SRO rule filings under Section 19(b) of the Exchange Act.

Commodity Futures Trading Commission

The Commodity Futures Trading Commission was established by the Commodity Futures Trading Commission Act of 1974, amending the Commodity Exchange Act of 1936 (7 U.S.C. § 1 et seq.). It administers the Commodity Exchange Act and has jurisdiction over:

• Futures contracts and options on futures
• Swaps, following the Dodd-Frank Act’s Title VII reforms
• Designated contract markets (CME Group, ICE Futures U.S., and other futures exchanges)
• Swap execution facilities
• Derivatives clearing organizations
• Registered intermediaries: futures commission merchants, introducing brokers, commodity pool operators, commodity trading advisors, and swap dealers
• Retail foreign exchange transactions under Section 2(c)(2) of the Commodity Exchange Act

The CFTC also has anti-fraud and anti-manipulation authority over commodity markets generally, including spot markets, where its broader regulatory jurisdiction is otherwise limited.

Self-Regulatory Organizations

Financial Industry Regulatory Authority (FINRA)

FINRA is a self-regulatory organization registered with the SEC under Section 15A of the Securities Exchange Act of 1934. It administers rules governing nearly every broker-dealer doing business with the U.S. public.

FINRA’s authority derives from membership: every firm registered as a broker-dealer with the SEC and conducting business with public customers must (with limited exceptions) be a FINRA member, and FINRA member firms agree by contract to be bound by FINRA rules. Those rules cover:

• Registration and qualification of broker-dealers and their associated persons (the Series examination system)
• Sales practices and customer relationships, including suitability (FINRA Rule 2111) and best execution obligations (Rule 5310)
• Supervisory obligations of firms over their associated persons (Rule 3110)
• Communications with the public (Rule 2210)
• Anti-money laundering obligations (Rule 3310)
• Recordkeeping requirements

FINRA’s enforcement authority includes the power to impose fines, suspensions, and bar individuals from the securities industry. Disputes between member firms, and between member firms and customers, are typically resolved through FINRA Dispute Resolution Services arbitration, addressed in detail under Disputes & Enforcement.

The SEC oversees FINRA under Sections 19 and 21 of the Exchange Act. FINRA’s rules require SEC approval, and the SEC can review FINRA disciplinary decisions.

National Futures Association (NFA)

The National Futures Association is a self-regulatory organization registered with the CFTC under Section 17 of the Commodity Exchange Act. It plays a role in the futures and derivatives industry comparable to FINRA’s in the securities industry.

NFA membership is mandatory for entities registered with the CFTC as futures commission merchants, introducing brokers, commodity pool operators, commodity trading advisors, swap dealers, and (for retail foreign exchange) retail foreign exchange dealers. NFA rules cover:

• Registration and proficiency requirements
• Supervisory obligations (NFA Compliance Rule 2-9)
• Customer protection rules, including segregation of customer funds for FCMs under NFA’s Financial Requirements (alongside CFTC Regulations 1.20–1.30)
• Anti-fraud and related matters (Compliance Rule 2-2) and just-and-equitable principles of trade (Compliance Rule 2-4)
• Anti-money laundering obligations
• Disclosure requirements for CPOs and CTAs

NFA also operates the BASIC (Background Affiliation Status Information Center) system, which provides public disciplinary information about registered persons and firms.

Like FINRA’s relationship to the SEC, NFA’s rules require CFTC approval. The CFTC retains the power to review NFA disciplinary decisions and to act directly when it elects to.

Overlapping Jurisdictions

Three areas illustrate where the SEC/CFTC line is not clean.

Security-based swaps and swaps. The Dodd-Frank Act created two parallel regulatory regimes for the swaps market. Security-based swaps — single-name credit default swaps, equity swaps on a single security or narrow index — fall under SEC jurisdiction. Other swaps — broad-based index CDS, interest-rate swaps, FX swaps, commodity swaps — fall under CFTC jurisdiction. The line is drawn at Section 1a(47) of the CEA and Section 3(a)(68) of the Exchange Act, but its application in practice often requires careful analysis.

Mixed swaps. A product that is both a security-based swap and a swap — for example, a swap with payoffs linked to both narrow-based and broad-based indexes — is jointly regulated. The SEC and CFTC issued a joint final rule in 2012 outlining how mixed swaps are treated.

Cryptocurrency and digital assets. Whether a particular digital asset is a “security” subject to SEC jurisdiction, a “commodity” subject to CFTC jurisdiction, or both has been the subject of significant enforcement litigation and policy debate. The Supreme Court’s analysis in SEC v. W.J. Howey Co., 328 U.S. 293 (1946), remains the principal test for whether a digital asset offering is an “investment contract” and therefore a security.

These overlaps have led to occasional concurrent enforcement — parallel SEC and CFTC actions for the same conduct — and to formal coordination through the President’s Working Group on Financial Markets. Legislation to consolidate or rationalize the divide is periodically debated in Congress.

Statutory Framework

The principal federal statutes governing U.S. financial markets are:

Securities Act of 1933 (15 U.S.C. §§ 77a–77aa): governs the offer and sale of securities, principally through the registration and disclosure regime administered by the SEC.

Securities Exchange Act of 1934 (15 U.S.C. §§ 78a–78qq): governs trading in the secondary markets, broker-dealer registration and conduct, exchange registration, and the SEC’s enforcement and rulemaking authority.

Investment Company Act of 1940 (15 U.S.C. §§ 80a-1 to 80a-64): regulates investment companies, including mutual funds.

Investment Advisers Act of 1940 (15 U.S.C. §§ 80b-1 to 80b-21): regulates investment advisers.

Commodity Exchange Act (7 U.S.C. §§ 1 et seq.): governs futures, options on futures, and (since 2010) swap markets, and provides for the CFTC’s authority.

Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203, 124 Stat. 1376 (2010)): substantially reformed financial markets regulation, extending CFTC and SEC jurisdiction to swap markets (Title VII), creating new regulatory bodies including the Financial Stability Oversight Council and the Office of Financial Research, and imposing new requirements on systemically important financial institutions.

Securities Investor Protection Act of 1970 (15 U.S.C. §§ 78aaa et seq.): provides for the Securities Investor Protection Corporation, which administers customer-protection insurance for securities broker-dealers in liquidation proceedings.

State Regulators

State securities regulators administer state securities laws — often called “blue sky laws” — which historically required state-level registration of securities offerings and remain in force for offerings that are not preempted by federal law. State authority has been substantially narrowed by the National Securities Markets Improvement Act of 1996 and Section 18 of the Securities Act of 1933, which preempt state registration for federally registered offerings and many private placements.

State regulators retain anti-fraud authority over securities transactions in or from their jurisdiction, regardless of federal registration status. State securities administrators coordinate through the North American Securities Administrators Association (NASAA), which publishes model rules, supports state adoption of uniform securities legislation, and runs coordinated examinations and enforcement initiatives.

In the futures and derivatives space, the framework is different. Section 12(e) of the Commodity Exchange Act expressly preempts state and local gaming and bucket-shop laws as applied to contracts traded on CFTC-regulated markets. Broader preemption of state-law claims arising from futures trading is governed by general preemption principles and remains the subject of substantial case law.

Frequently Asked Questions

Related Foundations

• Trading Conduct & Supervision — the substantive duties imposed on registered persons under the regulatory framework described here.
• Disputes & Enforcement — the procedures by which regulators and SROs enforce these rules, and how customer disputes are resolved.
• Expert Witness Practice — the methodology and qualifications governing expert testimony in financial-markets disputes.