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Table of Contents

National Association of Securities Dealers (NASD) Definition

By
Julia Kagan
Julia Kagan
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Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

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Updated July 27, 2024
Reviewed by
Chip Stapleton
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Reviewed by Chip Stapleton
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Chip Stapleton is a Series 7 and Series 66 license holder, CFA Level 1 exam holder, and currently holds a Life, Accident, and Health License in Indiana. He has 8 years experience in finance, from financial planning and wealth management to corporate finance and FP&A.
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What Was the National Association of Securities Dealers (NASD)?

The National Association of Securities Dealers (NASD) was a self-regulatory organization of the securities industry and a predecessor of the Financial Industry Regulatory Authority (FINRA). It was responsible for the operation and regulation of the NASDAQ stock market and over-the-counter markets. It also administrated exams for investment professionals, such as the Series 7 exam. The NASD was charged with watching over the NASDAQ’s market operations. 

Key Takeaways

  • A predecessor of the FINRA, the National Association of Securities Dealers (NASD) was a regulatory organization that oversaw the securities industry, including the NASDAQ.
  • NASD played a leading part in the management of stock trading in the market from 1939 to 2007.
  • The NASD was a predecessor of the Financial Industry Regulatory Authority (FINRA), which was formed in 2007.

Understanding the National Association of Securities Dealers (NASD)

The NASD was founded in 1939, under provisions of the 1938 Maloney Act amendments to the Securities Exchange Act of 1934. It was also the leading founder of the NASDAQ stock market, which was established in 1971. Operating as an overseer of stock market operations for market activity and the NASDAQ under the overall supervision of the Securities and Exchange Commission (SEC), the NASD played a leading part in the management of stock trading in the market from 1939 to 2007. In that year, it merged with the regulation, enforcement, and arbitration arm of the New York Stock Exchange to form FINRA.

2007

The year NASD merged with the regulation, enforcement, and arbitration arm of the New York Stock Exchange to form the Financial Industry Regulatory Authority (FINRA).

NASD vs. FINRA

FINRA is an independent regulatory entity that functions similarly to the NASD, overseeing all stock market operations in the United States. Its functions include the oversight of all brokerage firms, branch offices, and securities representatives. FINRA is monitored by the SEC and authorized to enforce the rules and regulations of the SEC.

It provides for and facilitates the licensing of securities representatives dealing in all aspects of the market. Its licensing requirements are developed in conjunction with the regulations and oversight of the SEC. Leading FINRA licenses include the Series 3, 6, and 7. In addition to licensing for individuals and firms, FINRA also provides ongoing educational seminars and monitors individuals and firms active in the financial markets for regulatory compliance.

As the leading regulatory entity in the securities markets, FINRA manages the market’s Central Registration Depository (CRD), which includes records of securities activity for all firms and securities representatives trading in the market. FINRA is also the lead arbitrator for all financial market trading disputes. In the financial markets, arbitration is the leading procedure for resolution in dispute between entities and trading representatives. FINRA facilitates arbitration proceedings, which are similar to formal court cases but have lower costs. FINRA arbitration panels are responsible for issuing final rulings on arbitration cases.

FINRA collaborates with the North American Securities Administrators Association (NASAA), which oversees the licensing requirements of three key market licenses: the Series 63, 65, and 66.

What Was the National Association of Securities Dealers?

The NASD was a self-regulatory organization that oversaw and regulated the securities industry in the United States.

When Was the NASD Founded?

The NASD was founded in 1939, during a time when the U.S. securities markets were recovering from the Great Depression. Its creation was part of broader efforts to reform and regulate the financial industry, following the stock market crash of 1929.

What Were the Key Regulatory Bodies That Oversaw the NASD?

The NASD was primarily overseen by the SEC. The SEC had the authority to review NASD rules and actions to ensure they were consistent with federal securities laws. The NASD operated in conjunction with other regulatory bodies such as state securities regulators as well.

What Is the Relationship Between the NASD and FINRA?

In 2007, the NASD merged with the Regulatory Division of the New York Stock Exchange to form the Financial Industry Regulatory Authority. FINRA succeeded the NASD as the primary self-regulatory organization for the securities industry.

The Bottom Line

The National Association of Securities Dealers was a self-regulatory organization established in 1939 to oversee and regulate the U.S. securities industry, ensuring fair practices and protecting investors. It set industry standards and enforced compliance until it merged with the NYSE’s regulatory division in 2007 to form the Financial Industry Regulatory Authority.