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Self-Regulatory Organizations: Watchdogs With Teeth
Self-Regulatory Organizations (SROs) are private entities that regulate the operations, standards and conduct of its members and their representatives in order to promote open, transparent business practices and protect the public interest. SROs, although private, are in turn themselves responsible to governmental regulatory agencies. Most widely used in the financial industry, SROs are widely used around the world by countries including the US, Japan, Brazil, Germany and Australia.

One of the best known American SROs, the National Association of Securities Dealers, Inc. (NASD), just put the bite on one of its members' representatives after taking similar action against the member company. An article on, a well known financial website, entitled "Watchdog Snarls at Rumor-Pushing Analyst," discusses punitive action taken by the NASD.

According to the new story, "A securities regulator slapped the... analyst Friday with its first-ever fine for circulating a negative rumor." The analyst was fined "$75,000 for spreading false information on a stock -- one he happened to have a short position in -- more than two years ago." The fine amounted to almost ten times the analyst's ill-gotten profit. The article also notes that the analyst's employer was fined $75,000 in May "for poor supervision" related to the case.

Winston is intrigued with the SRO regulatory model. SROs offer the potential to provide effective regulation with a minimum of government intervention. On the other hand, Winston is quite familiar with the myriad of still-unfolding Wall Street scandals and knows that SROs require vigilant oversight from a government regulatory agency. Although SROs are most widely used in the securities industry, Winston wonders in what other industries might an SRO model be appropriate

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