Series 24: Chapter Four

Chapter Four

Sales Supervision and General Supervision of Employees

The Securities and Exchange Act of 1934 gave the securities exchanges, such as the New York Stock Exchange, authority to regulate themselves, under the condition that they register with the Securities and Exchange Commission (SEC) and devise a set of rules consistent with specific guidelines established by the Act. The over-the-counter (OTC) market was not included in the Exchange Act, because the market was considered too dispersed and amorphous to be effectively regulated.

Fearful that the OTC market would be next, a group of brokers and investment bankers, known as the Investment Bankers Committee, with the support of the SEC, began in 1936 to prepare a framework for a new self-regulatory organization. Many of the provisions it devised were quickly incorporated into the Maloney Act of 1937, which amended the Exchange Act, extending the concept of self-regulation to the unlisted and unlisted over-the-counter (OTC) markets.

The Maloney Act required that broker-dealers register with