Trillions. That’s how much money flows through the global securities marketplace each year. From the first modern stock market under the Dutch East India Company in the 17th century, the securities industry has only become more complex, with many key players and regulators involved. To make it all a little easier to navigate, we created a brief overview of the securities industry covering its history, regulators, and key players. Even some tips on entering the industry!
What are financial securities?
Securities are financial instruments that represent ownership in a company or debt obligation whose primary purpose is to raise capital. Examples of securities include stocks, bonds, and options. These financial assets can be bought, sold, and traded by individuals or firms in the global securities industry.
What is the securities industry?
The securities industry is a broad term encompassing the businesses and individuals involved in securities issuance, trading, and regulation. Numerous regulators, agencies and other organizations oversee the industry to ensure trade remains ethical and principled. Every securities professional must pass entry-level exams to ensure understanding of specific securities products and industry standards. Today, the marketplace and the regulators create an increasingly complex industry that circles the globe.
The History of the Securities Industry
Snapshots from the History of the Securities Industry
- 1611: The first modern stock market is created in Amsterdam.
- 1790: The first U.S. stock exchange is founded in Philadelphia.
- 1934: The Securities and Exchange Commission (SEC) is created as a primary regulator of the US securities industry.
- 1971: Electronic trading systems are introduced, revolutionizing the securities industry.
- 1990s: Online trading grows with the rise of the internet.
- 2008: A global financial crisis leads to more securities reforms.
- 2010: The Dodd-Frank Wall Street Reform and Consumer Protection Act is passed in response to the 2008 financial crisis.
- 2019: The SEC adopts Regulation Best Interest, enhancing a broker-dealers' obligations when making recommendations to clients.
- 2022: SEC proposed changes to short-seller disclosure rules in response to Reddit’s r/wallstreetbets run on GameStop’s stock.
The securities industry dates to the early days of the Dutch East India Company in the 17th century. In the early days, the industry was largely unregulated, resulting in many fraud and abuse cases. As a result, the US created the Securities and Exchange Commission (SEC) in 1934 to serve as the primary regulator of the US securities industry. Today, the securities industry is a global marketplace that facilitates the flow of trillions of dollars in securities every year.
Regulators of the Securities Industry
The securities industry has a number of regulators, oversight agencies, and self-regulatory organizations (SROs) with varying degrees of scope and authority. Of all of these regulators, it is the Securities and Exchange Commission (SEC) that serves as the principal regulator for the US securities industry.
The Securities and Exchange Commission (SEC)
The Securities and Exchange Commission (SEC) is the primary regulator of the US securities industry.
The SEC's responsibilities include:
- Interpreting and enforcing federal securities laws, including the Securities Act of 1933 and the Securities Exchange Aft of 1934
- Issuing new rules and amending existing rules
- Overseeing inspections of securities firms, brokers, investment advisers, and rating agencies
- Overseeing securities, accounting, and auditing regulators
- Coordinating US securities regulation with federal, state, and foreign authorities
In addition to the SEC, there are several other regulators, agencies, and self-regulatory organizations (SROs) that set professional standards and enforce industry and professional regulations.
Additional Regulators and Agencies
Many state and federal government agencies are also involved in the securities industry. These include:
Self-Regulatory Organizations (SROs)
Self-regulatory organizations, or SROs, are nongovernmental organization that adopt rules; set standards to promote ethics, equality, and professionalism; and enforce industry and professional regulations. SROs are also instrumental in education investors on appropriate business practices, providing information on how investments work and how to identify and mitigate potential risks associated with the securities industry. As part of enforcing industry rules and regulations, SROs can impose penalties, including barring association with an SRO, when an industry professional fails to operate within the boundaries of these rules and regulations
SROs include:
Key Players in the Securities Industry
The movers and shakers throughout the securities industry include a number of key players. What role does each one play in the industry? If you're thinking about a career in securities, which is the best fit for you?
Broker-Dealers
A broker-dealer is either a person or a firm that buys and sells securities for their own account or for their customers. More specifically, if a firm buys and sells securities for its own account, it acts as an agent or broker. When a firm buys and sells securities on customers' behalf, it acts as a principal or dealer. Most broker-dealers must register with the SEC and join an SRO; they are prohibited from buying or selling securities until such registration is complete.
Investment Advisers
Under the Investment Advisers Act of 1940, an investment adviser is any person or firm that is compensated for providing advice to others or issuing reports or analyses regarding securities. This includes financial planners, pension consultants, and others who provide investment advice as part of their services.
Municipal Advisers
A municipal adviser is an individual who provides advice to or on behalf of a municipal entity, such as a state, county, city, or obligated person. The client in these transactions is typically the issuer, not the municipal entity. Firms engaged in municipal advisory activities must register with the Municipal Securities Rulemaking Board (MSRB).
Issuers and Underwriters
Issuers are legal entities, such as corporations, investment funds, or other government entities, that issue or propose to offer securities to investors. Often these securities are offered as a means of financing operations.
An underwriter is a broker-dealer that assists issuers with selling securities to the public. The underwriter is commonly referred to as an investment banker. The managing underwriter will contract with an issuer through a contract between the issuer and the managing underwriter called an underwriting agreement. The underwriting agreement will specify the terms and conditions under which the underwriter can sell the shares to the public. A managing underwriter is typically responsible for due diligence, such as registration and disclosure.
Traders and Market Makers
Traders buy or sell securities on behalf of a broker-dealer and execute trades on behalf of a broker-dealer's Customers. Traders do not provide quotes to clients. Instead, they trade against the quotes of market making Firms.
Market makers are dealers who offer to buy or sell securities in the over-the-counter (OTC) market. Because market makers are willing and able to buy and sell at all times, they provide valuable liquidity to a security.
How to Become a Securities Professional
All securities professionals must pass entry-level exams to enter the industry. While all new securities professionals must take the Securities Industry Essentials (SIE) Exam, the other series exams are tailored to different roles within the securities industry. In other words, candidates only have to take exams most relevant to their position. These exams include:
Securities Industry Essentials (SIE) Exam is an introductory exam new securities professionals must pass to enter the industry. The exam was created by FINRA to reduce redundancies and ease entry into the securities industry. The SIE does not require sponsorship from a FINRA-registered firm making the exam more accessible to those outside the industry.
Series 6 is the investment company and variable products representative qualification exam.
Series 7 is the General Securities (GS) Registered Representative exam.
Series 63, also known as the Uniform Securities Agent State Law Examination, is a NASAA exam administered by FINRA.
Series 65 is the Uniform Investment Adviser Law Examination, a NASAA exam administered by FINRA.
Series 66 combines Series 63 and Series 65 into one, qualifying candidates to work as securities agents and investment adviser representatives (IARs).
Securities Exam Prep from WebCE
Thinking about a career in the securities industry? WebCE’s securities exam prep can help you pass the SIE and other series exams and launch your securities career. Our Complete Exam Prep Packages come with everything you need to pass your securities exam on your first try. If you’re ready to launch your securities career, WebCE has securities exam prep packages available for:
- Securities Industry Essentials (SIE)
- Series 6
- Series 7
- Series 63
- Series 65
- Series 66
- Plus, combination packages for the SIE and other series exams
Each of our securities exam prep courses follows the exam content outlines provided by FINRA and NASAA. To maximize your exam prep time, WebCE includes several helpful tools and features with our Complete Exam Prep Packages:
- Read-it-to-me audio for all course content
- Exam Tutor simulates full practice exams—or create a custom exam over specific topics
- Flash Tutor mobile-friendly flashcards perfect for reviewing key terms and concepts on-the-go
- Study Guide Workbook, designed as a companion to the course material
- My Study Planner for designing a customized learning roadmap
WebCE’s securities exam prep course packages provide convenient, effective study tools and materials to pass your exam the first time. To take that first step toward a securities career, visit our Securities Exam Prep Course catalog today.