WEBVTT 00:00:00.000 --> 00:00:03.160 OK, let's unpack this. We're diving into a structure 00:00:03.160 --> 00:00:06.660 that sits right at the center of American finance. 00:00:06.960 --> 00:00:10.060 Yet, you know, it remains largely invisible to 00:00:10.060 --> 00:00:13.199 most people. So who is the ultimate financial 00:00:13.199 --> 00:00:16.120 watchdog for your broker? If you're like most 00:00:16.120 --> 00:00:19.140 people, you immediately think of the SEC, the 00:00:19.140 --> 00:00:21.440 Securities and Exchange Commission. And you're 00:00:21.440 --> 00:00:23.600 not wrong. Technically, they're the ultimate 00:00:23.600 --> 00:00:27.620 authority. But the day to day reality is. It's 00:00:27.620 --> 00:00:30.320 different. It's very different. The actual frontline 00:00:30.320 --> 00:00:32.979 regulator, the one that licenses the individual 00:00:32.979 --> 00:00:36.179 who manages your portfolio, is a private corporation. 00:00:36.479 --> 00:00:39.399 Right. A massive, self -funded, industry -led 00:00:39.399 --> 00:00:42.060 entity owned as FINRA. The Financial Industry 00:00:42.060 --> 00:00:44.420 Regulatory Authority. We are talking about an 00:00:44.420 --> 00:00:46.799 American corporation, but it operates as what's 00:00:46.799 --> 00:00:48.859 called a self -regulatory organization or an 00:00:48.859 --> 00:00:51.840 SRO. And that duality right there. Private industry 00:00:51.840 --> 00:00:54.039 setting and policing its own rules, but under 00:00:54.039 --> 00:00:56.740 federal supervision. That's the core tension 00:00:56.740 --> 00:00:59.560 of this entire deep dive. Absolutely. It is an 00:00:59.560 --> 00:01:01.979 essential context for anyone who invests in the 00:01:01.979 --> 00:01:04.840 U .S. markets. Its official mission, you know, 00:01:04.840 --> 00:01:06.560 what's printed on the letterhead, is pretty clear. 00:01:06.920 --> 00:01:10.040 To protect investors by making sure the securities 00:01:10.040 --> 00:01:12.620 industry operates fairly and honestly. But the 00:01:12.620 --> 00:01:15.140 unique thing and the controversial thing is that 00:01:15.140 --> 00:01:18.099 Funera is funded by the very firms it regulates. 00:01:18.099 --> 00:01:22.099 It's the fox guarding the hen house. But... A 00:01:22.099 --> 00:01:24.280 fox that has the SEC watching it from a distance. 00:01:24.459 --> 00:01:26.980 So our mission today is to give you the comprehensive 00:01:26.980 --> 00:01:31.120 shortcut to decoding funera. We're going to trace 00:01:31.120 --> 00:01:33.500 its surprisingly deep and contentious history, 00:01:33.680 --> 00:01:36.579 detail its enormous scale because the numbers 00:01:36.579 --> 00:01:38.939 are just staggering. They really are. And we'll 00:01:38.939 --> 00:01:41.180 explore the essential public tools like broker 00:01:41.180 --> 00:01:43.359 check that you really need to be using. And then 00:01:43.359 --> 00:01:46.500 we'll analyze the critical yet fiercely contested 00:01:46.500 --> 00:01:48.920 system of mandatory arbitration. Right. This 00:01:48.920 --> 00:01:51.180 is the invisible regulator that ultimately dictates 00:01:51.180 --> 00:01:53.560 the career and compliance of nearly every registered 00:01:53.560 --> 00:01:56.719 representative in the country. And frankly, understanding 00:01:56.719 --> 00:01:58.819 its rules and structure is vital to protecting 00:01:58.819 --> 00:02:01.709 yourself. Let's get started. So Funera itself, 00:02:01.989 --> 00:02:04.609 the name, is relatively young. It was officially 00:02:04.609 --> 00:02:07.230 formed back in July 2007, right? That's right. 00:02:07.310 --> 00:02:10.009 After getting the final SEC approval on July 00:02:10.009 --> 00:02:14.629 26th of that year. But its influence is, well, 00:02:14.629 --> 00:02:17.129 it's much older. It's rooted in the foundational 00:02:17.129 --> 00:02:20.050 laws of the 1930s. So it wasn't created out of 00:02:20.050 --> 00:02:22.430 thin air. No, not at all. It was a strategic 00:02:22.430 --> 00:02:25.610 consolidation. A merger, really. It took the 00:02:25.610 --> 00:02:27.969 two most powerful regulatory arms of the time. 00:02:28.610 --> 00:02:31.349 The National Association of Securities Dealers, 00:02:31.349 --> 00:02:34.610 Inc., the NASD. The NASD, yeah, I've heard of 00:02:34.610 --> 00:02:36.849 that. Right. And it combined it with the entire 00:02:36.849 --> 00:02:39.449 member regulation, enforcement, and arbitration 00:02:39.449 --> 00:02:41.930 operations of the New York Stock Exchange. So 00:02:41.930 --> 00:02:44.969 it was like creating one singular unified regulatory 00:02:44.969 --> 00:02:48.909 behemoth. Exactly. The goal was efficiency, standardization. 00:02:48.969 --> 00:02:51.409 Yeah. Bringing two massive, sometimes redundant 00:02:51.409 --> 00:02:53.810 systems under one roof. And to really get the 00:02:53.810 --> 00:02:55.930 weight of the NASD, we have to go back even further. 00:02:55.969 --> 00:02:58.699 We do. To appreciate the power it carried, you 00:02:58.699 --> 00:03:00.520 have to look back at the origins of market self 00:03:00.520 --> 00:03:03.319 -regulation in the U .S. The ISD traces its roots 00:03:03.319 --> 00:03:06.460 back to September 3, 1936. Back then, it was 00:03:06.460 --> 00:03:08.120 called the Investment Bankers Conference, Inc. 00:03:08.400 --> 00:03:10.240 But the real legal muscle, that came three years 00:03:10.240 --> 00:03:12.580 later. It formally registered as the National 00:03:12.580 --> 00:03:15.819 Association of Securities Dealers on August 7th, 00:03:15.819 --> 00:03:19.800 1939. And this isn't just like a historical footnote. 00:03:19.840 --> 00:03:22.259 This is important. Very important. That registration 00:03:22.259 --> 00:03:25.159 was authorized under the groundbreaking Maloney 00:03:25.159 --> 00:03:27.639 Act amendments to the Securities Exchange Act 00:03:27.639 --> 00:03:30.819 of 1934. The Maloney Act. That's the foundational 00:03:30.819 --> 00:03:32.900 legal pillar for all of this, right? For self 00:03:32.900 --> 00:03:34.879 -regulation. It is. It was passed in the shadow 00:03:34.879 --> 00:03:37.379 of the Great Depression, the 29 market crash. 00:03:37.870 --> 00:03:40.110 Confidence in the financial system was at an 00:03:40.110 --> 00:03:42.810 all time low and regulators realized the government 00:03:42.810 --> 00:03:45.449 just couldn't police every single transaction. 00:03:45.710 --> 00:03:48.509 So the act essentially created a legal mechanism 00:03:48.509 --> 00:03:51.189 for a National Securities Association, an SRO, 00:03:51.349 --> 00:03:54.319 to supervise its own members. But. And this is 00:03:54.319 --> 00:03:55.819 the key part. With the federal government, the 00:03:55.819 --> 00:03:59.199 SEC, acting as the ultimate oversight authority. 00:03:59.500 --> 00:04:01.979 It was a compromise. A compromise to leverage 00:04:01.979 --> 00:04:04.719 industry expertise while trying to maintain public 00:04:04.719 --> 00:04:06.759 accountability. That's the compromise right there. 00:04:06.860 --> 00:04:08.979 And it's critical because it explains why Afai 00:04:08.979 --> 00:04:11.439 Anrai, a private company, has such immense public 00:04:11.439 --> 00:04:14.000 authority today. That power was delegated to 00:04:14.000 --> 00:04:16.579 it by Congress. The industry essentially said, 00:04:16.720 --> 00:04:19.220 let us police ourselves because we understand 00:04:19.220 --> 00:04:22.170 the market best. And the government agreed. But 00:04:22.170 --> 00:04:25.350 only if the SEC kept veto power over their rules. 00:04:25.670 --> 00:04:27.470 Okay, here's where it gets really interesting. 00:04:28.250 --> 00:04:30.790 This connects this whole regulatory history to 00:04:30.790 --> 00:04:34.149 a commercial success story everyone knows. The 00:04:34.149 --> 00:04:37.509 NASAid, FINRA's direct predecessor, actually 00:04:37.509 --> 00:04:39.689 founded one of the most famous stock markets 00:04:39.689 --> 00:04:43.290 in the world. NASDAQ. That link is incredible. 00:04:43.490 --> 00:04:45.509 It really demonstrates Finnery's deep industrial 00:04:45.509 --> 00:04:49.110 roots and just how ambitious the NSD was. In 00:04:49.110 --> 00:04:51.350 1971, they launched the National Association 00:04:51.350 --> 00:04:54.009 of Securities Dealers Automated Quotations Stock 00:04:54.009 --> 00:04:56.589 Market. It was revolutionary. It moved trading 00:04:56.589 --> 00:04:59.029 from, you know, paper tickets and people shouting 00:04:59.029 --> 00:05:02.550 on a floor to a modern computerized system. It 00:05:02.550 --> 00:05:04.689 totally transformed how over -the -counter stocks 00:05:04.689 --> 00:05:06.329 were traded. It really paved the way for the 00:05:06.329 --> 00:05:08.410 electronic markets we all use today. And even 00:05:08.410 --> 00:05:11.569 though NASDAQ eventually merged and evolved on 00:05:11.569 --> 00:05:14.110 its own? Right. It merged with AMX in 98, became 00:05:14.110 --> 00:05:16.889 independent. But then NSD only completely sold 00:05:16.889 --> 00:05:19.410 its remaining ownership in 2006. Just one year 00:05:19.410 --> 00:05:21.910 before Fineral was formally created. The narrative 00:05:21.910 --> 00:05:24.629 there is just so powerful. The same organization 00:05:24.629 --> 00:05:27.810 responsible for regulating broker behavior also 00:05:27.810 --> 00:05:29.949 created the platform for them to execute trades. 00:05:30.480 --> 00:05:33.139 It just perfectly underscores that tension between 00:05:33.139 --> 00:05:36.100 commercial interest and regulatory duty. OK, 00:05:36.180 --> 00:05:38.220 let's jump forward because this whole structure, 00:05:38.379 --> 00:05:40.839 this private entity with quasi -governmental 00:05:40.839 --> 00:05:43.579 power is constantly being tested. Constantly. 00:05:43.620 --> 00:05:45.720 And Fanarai's authority was fiercely challenged 00:05:45.720 --> 00:05:48.920 and ultimately upheld in June of 2025. That's 00:05:48.920 --> 00:05:51.420 right. The U .S. Supreme Court declined to hear 00:05:51.420 --> 00:05:54.500 a challenge arguing that Fanarai itself was unconstitutional. 00:05:54.740 --> 00:05:57.589 Why? Because it wasn't a governmental body. Exactly. 00:05:57.730 --> 00:05:59.910 The challenge came after Fennera issued a big 00:05:59.910 --> 00:06:02.990 2019 judgment against a broker dealer for alleged 00:06:02.990 --> 00:06:05.209 client theft. And the Supreme Court's denial. 00:06:05.449 --> 00:06:07.589 I mean, that's basically a rubber stamp for Fennera's 00:06:07.589 --> 00:06:10.129 power. It reaffirmed its legal standing. It did. 00:06:10.329 --> 00:06:12.550 It signaled that the constitutional challenge 00:06:12.550 --> 00:06:15.329 to the entire SRO framework, at least for now, 00:06:15.490 --> 00:06:19.250 has failed. But that legal validation. only intensified 00:06:19.250 --> 00:06:21.310 the political debate. Well, for sure. We're seeing 00:06:21.310 --> 00:06:24.750 continued active efforts in Congress to dismantle 00:06:24.750 --> 00:06:27.269 or at least radically reshape Feneri's role. 00:06:27.689 --> 00:06:30.129 Specifically, you have to look at the legislation 00:06:30.129 --> 00:06:34.470 introduced in the 119th Congress by Congresswoman 00:06:34.470 --> 00:06:37.550 Lisa McClain. Her bill is a direct assault on 00:06:37.550 --> 00:06:41.050 the SRO model. a complete assault. It seeks to 00:06:41.050 --> 00:06:43.829 transfer all rulemaking, examination and enforcement 00:06:43.829 --> 00:06:47.290 authority from FINRO directly to the SEC. Just 00:06:47.290 --> 00:06:49.889 hand it all over. And this reflects that deep 00:06:49.889 --> 00:06:52.129 political skepticism around self -regulation. 00:06:52.800 --> 00:06:54.759 Critics argue that, you know, maybe the model 00:06:54.759 --> 00:06:57.620 was necessary in the 1930s, but now the markets 00:06:57.620 --> 00:07:00.860 are mature enough and regulated enough that enforcement 00:07:00.860 --> 00:07:03.879 is too vital to be delegated to a private entity 00:07:03.879 --> 00:07:06.240 that's accountable to its members, not just the 00:07:06.240 --> 00:07:08.399 public. And that's the core question. Is the 00:07:08.399 --> 00:07:10.959 expertise you gain from industry management worth 00:07:10.959 --> 00:07:13.100 the potential conflicts of interest? Right. is 00:07:13.100 --> 00:07:15.540 the private efficiency of FINRA, which runs on 00:07:15.540 --> 00:07:17.680 industry fees, better than the public transparency 00:07:17.680 --> 00:07:20.800 of direct government control? It's a debate between 00:07:20.800 --> 00:07:23.939 efficiency and pure public trust. And the answer 00:07:23.939 --> 00:07:25.600 to that informs everything we're about to discuss, 00:07:25.759 --> 00:07:27.720 starting with its staggering size. Let's look 00:07:27.720 --> 00:07:30.240 at the numbers, because the sheer scale of FINRA 00:07:30.240 --> 00:07:33.300 is, it's just difficult to comprehend. It really 00:07:33.300 --> 00:07:36.240 is. To understand its power, you have to grasp 00:07:36.240 --> 00:07:39.379 how much of the market it covers. As of October 00:07:39.379 --> 00:07:46.360 2023, Finger .io oversaw 3 ,394 individual brokerage 00:07:46.360 --> 00:07:49.819 firms. And that number means? What? That basically 00:07:49.819 --> 00:07:52.240 every firm dealing with retail customers in the 00:07:52.240 --> 00:07:54.500 U .S. is under their watch. Pretty much. Unless 00:07:54.500 --> 00:07:56.620 they're regulated by a very specific smaller 00:07:56.620 --> 00:07:59.589 SRO. like the one for municipal bonds, then yes, 00:07:59.750 --> 00:08:02.470 Femina Rai is their regulator. And this oversight 00:08:02.470 --> 00:08:07.490 extends to 149 ,887 branch offices. And get this, 00:08:07.610 --> 00:08:11.949 approximately 612 ,457 registered securities 00:08:11.949 --> 00:08:15.529 representatives. Wow. 600 ,000 people. So if 00:08:15.529 --> 00:08:17.050 you've ever dealt with a broker or an investment 00:08:17.050 --> 00:08:19.769 advisor, that person's credentials, their behavior, 00:08:19.949 --> 00:08:22.910 it's all dictated by Feminar rules. All of it. 00:08:22.930 --> 00:08:25.029 And this requires a massive operation to manage. 00:08:25.230 --> 00:08:27.310 So how many people work for them? FinRI employs 00:08:27.310 --> 00:08:29.329 about 4 ,200 people. They've got headquarters 00:08:29.329 --> 00:08:31.649 in D .C. and New York, plus 20 regional offices 00:08:31.649 --> 00:08:33.629 across the country to do all their exams and 00:08:33.629 --> 00:08:35.429 enforcement. And the cost of running all this 00:08:35.429 --> 00:08:37.490 has got to be huge. Oh, yeah. We're talking about 00:08:37.490 --> 00:08:39.929 an organization with a 2023 budget of over $1 00:08:39.929 --> 00:08:44.559 .4 billion. A billion four. Okay, so let's get 00:08:44.559 --> 00:08:47.559 right to the funding mechanism. How does a regulator 00:08:47.559 --> 00:08:50.379 run a billion -dollar budget without using taxpayer 00:08:50.379 --> 00:08:54.440 money? This is the crux of the SRO model. FANR 00:08:54.440 --> 00:08:57.600 is almost entirely self -funded, primarily through 00:08:57.600 --> 00:09:00.000 fees and assessments levied on the industry itself. 00:09:00.379 --> 00:09:02.559 So they charge the firms they regulate. Exactly. 00:09:02.659 --> 00:09:05.259 Assessments on registered reps, application fees, 00:09:05.539 --> 00:09:08.830 annual fees. a gross income assessment, fees 00:09:08.830 --> 00:09:11.909 for principals, a charge for each branch office. 00:09:12.190 --> 00:09:14.750 Wait, you said something else. I did. Crucially, 00:09:14.870 --> 00:09:16.970 they also get to keep the funds generated from 00:09:16.970 --> 00:09:19.149 the fines they levy against firms and individuals. 00:09:19.529 --> 00:09:21.409 Okay, that immediately sounds like a conflict. 00:09:21.529 --> 00:09:23.690 If the regulator funds itself through fines, 00:09:23.929 --> 00:09:27.129 doesn't that create a perverse incentive to just 00:09:27.129 --> 00:09:29.409 generate revenue? That is the exact criticism 00:09:29.409 --> 00:09:31.559 leveled against the model. Right. Maybe they'd 00:09:31.559 --> 00:09:33.559 avoid going after the biggest firms who pay the 00:09:33.559 --> 00:09:35.960 most in annual fees. Critics argue that relying 00:09:35.960 --> 00:09:38.659 on fines means the regulator might, consciously 00:09:38.659 --> 00:09:41.840 or not, view them as an income stream rather 00:09:41.840 --> 00:09:44.940 than a deterrent. It puts FINRA in this position 00:09:44.940 --> 00:09:47.740 of balancing its own financial stability with 00:09:47.740 --> 00:09:50.399 its investor protection mandate. It's a constant, 00:09:50.419 --> 00:09:52.519 inherent struggle. So let's shift to what they 00:09:52.519 --> 00:09:55.139 actually do. Their scope covers everything from 00:09:55.139 --> 00:09:58.590 stocks and bonds to futures and options. Let's 00:09:58.590 --> 00:10:00.450 detail those core functions. Okay. The first 00:10:00.450 --> 00:10:02.090 core function is rule writing and licensing. 00:10:02.649 --> 00:10:06.169 They admit firms, license individuals, but more 00:10:06.169 --> 00:10:08.889 importantly, they write the actual rules governing 00:10:08.889 --> 00:10:11.789 their behavior. Detailed prescriptive rules. 00:10:11.929 --> 00:10:14.070 Very. Covering everything from how a broker can 00:10:14.070 --> 00:10:16.350 communicate with the public, do minimum capital 00:10:16.350 --> 00:10:18.950 for firms, to complex supervision requirements. 00:10:19.389 --> 00:10:21.490 The second function is compliance and examination. 00:10:21.830 --> 00:10:24.409 This is the actual policing. Right. They conduct 00:10:24.409 --> 00:10:26.990 thousands of compliance exams every year. They're 00:10:26.990 --> 00:10:28.850 checking to make sure firms are following both 00:10:28.850 --> 00:10:31.610 federal securities laws and FINRA's own rules. 00:10:31.769 --> 00:10:34.909 And third is enforcement. Yes. They have sanctioning 00:10:34.909 --> 00:10:38.529 power delegated by the SEC to investigate, charge, 00:10:38.730 --> 00:10:41.909 and discipline firms and registered reps. They 00:10:41.909 --> 00:10:44.870 can impose fines, suspend brokers, or even bar 00:10:44.870 --> 00:10:46.559 them permanently from the industry. But their 00:10:46.559 --> 00:10:48.580 reach doesn't stop with their own members. They 00:10:48.580 --> 00:10:52.259 also sell regulatory services. Correct. FINRAI's 00:10:52.259 --> 00:10:55.259 Market Regulation Services Division sells its 00:10:55.259 --> 00:10:59.299 expertise to major stock markets. The NYSE, NASDAQ, 00:10:59.779 --> 00:11:02.120 Amex, the International Securities Exchange. 00:11:02.559 --> 00:11:05.379 So FINRAI is essentially monitoring trading for 00:11:05.379 --> 00:11:07.600 these exchanges, looking for manipulation, fraud, 00:11:07.919 --> 00:11:10.740 unusual activity. Exactly. It lets the exchanges 00:11:10.740 --> 00:11:13.639 focus on commerce while FINRAI handles the heavy 00:11:13.639 --> 00:11:15.860 lifting of market surveillance. We should also 00:11:15.860 --> 00:11:17.879 mention the Investor Education Foundation. It 00:11:17.879 --> 00:11:20.200 sort of nods to their public service role. Absolutely. 00:11:20.759 --> 00:11:23.519 Established in 2003, the foundation uses research 00:11:23.519 --> 00:11:26.340 and tools to support financial literacy, particularly 00:11:26.340 --> 00:11:29.120 for underserved Americans. It's a crucial part 00:11:29.120 --> 00:11:31.000 of the investor protection mission. OK, let's 00:11:31.000 --> 00:11:33.259 focus on the compliance engine. Finnerow doesn't 00:11:33.259 --> 00:11:35.320 just examine randomly. They focus on specific 00:11:35.320 --> 00:11:38.299 risks they detail in their annual reports. What 00:11:38.299 --> 00:11:41.070 were the takeaways from the 2023 report? The 00:11:41.070 --> 00:11:43.590 annual report is basically Finero's warning shot. 00:11:43.769 --> 00:11:46.529 It details findings from last year's exams and 00:11:46.529 --> 00:11:49.049 tells firms what their programs are prioritizing 00:11:49.049 --> 00:11:51.330 for the coming year. It's designed to let firms 00:11:51.330 --> 00:11:53.690 self -correct before they get inspected. And 00:11:53.690 --> 00:11:56.370 the 2023 report showed a clear focus on market 00:11:56.370 --> 00:11:59.129 integrity and complex products. Right. We saw 00:11:59.129 --> 00:12:01.470 topics like monitoring for manipulative trading, 00:12:01.690 --> 00:12:04.870 ensuring fair pricing and fixed income, and scrutinizing 00:12:04.870 --> 00:12:07.330 compliance with fractional shares and regulation 00:12:07.330 --> 00:12:10.049 SHO, which deals with short selling. They also 00:12:10.049 --> 00:12:13.450 hit hard on internal firm infrastructure, financial 00:12:13.450 --> 00:12:16.230 crimes, cybersecurity defenses. Well, given the 00:12:16.230 --> 00:12:18.629 high profile data breaches we see, FineArray 00:12:18.629 --> 00:12:20.850 is pushing firms to improve digital resilience. 00:12:21.129 --> 00:12:24.159 A cyber failure is a... regulatory failure. But 00:12:24.159 --> 00:12:26.240 the biggest compliance burden on the industry 00:12:26.240 --> 00:12:29.100 lately has arguably been regulation best interest 00:12:29.100 --> 00:12:32.080 or RegBI. Oh, absolutely. The report dedicated 00:12:32.080 --> 00:12:34.779 significant attention to compliance with RegBI 00:12:34.779 --> 00:12:38.779 and its companion, Form CRS. This is a deep concept 00:12:38.779 --> 00:12:41.200 that needs some clarity. So RegBI fundamentally 00:12:41.200 --> 00:12:43.799 changed the legal relationship between a broker 00:12:43.799 --> 00:12:47.500 and a client. It did. It replaced the old suitability 00:12:47.500 --> 00:12:50.639 standard, which only required a broker to recommend 00:12:50.639 --> 00:12:53.019 investments that were suitable. With the best 00:12:53.019 --> 00:12:56.220 interest standard. So under the old rule, if 00:12:56.220 --> 00:12:58.879 three funds were suitable, the broker could recommend 00:12:58.879 --> 00:13:00.340 the one that paid them the highest commission. 00:13:00.700 --> 00:13:04.139 Exactly. Under Reg BI, the broker has to mitigate 00:13:04.139 --> 00:13:06.700 conflicts and act in the customer's best interest 00:13:06.700 --> 00:13:09.080 at the time of the recommendation, even if that 00:13:09.080 --> 00:13:11.299 means picking a lower commission product. It 00:13:11.299 --> 00:13:13.960 was a massive operational and legal shift. And 00:13:13.960 --> 00:13:16.820 form CRS. That's the customer relationship summary. 00:13:17.360 --> 00:13:19.480 It's the document that has to be given to retail 00:13:19.480 --> 00:13:22.460 investors, detailing services, fees, and the 00:13:22.460 --> 00:13:25.200 firm's disciplinary history. Venture Ray's 2023 00:13:25.200 --> 00:13:27.860 report shows they're actively checking that this 00:13:27.860 --> 00:13:30.139 shift in conduct is actually happening in practice, 00:13:30.279 --> 00:13:32.799 not just on paper. Let's turn back to enforcement. 00:13:32.980 --> 00:13:35.080 The fine trends are really revealing. We saw 00:13:35.080 --> 00:13:38.379 a big dip in fines from 2021 to 2022. We did. 00:13:38.559 --> 00:13:42.379 In 2022, Fentra issued $48 .1 million in fines. 00:13:42.500 --> 00:13:45.120 A lot of money. But it was nearly half the $90 00:13:45.120 --> 00:13:47.639 .1 million from 2021. So the enforcement magnitude 00:13:47.639 --> 00:13:50.059 can be very inconsistent year to year. And that 00:13:50.059 --> 00:13:52.820 2021 number was an anomaly, right? It was inflated 00:13:52.820 --> 00:13:55.639 by one massive action. Heavily inflated. The 00:13:55.639 --> 00:13:58.990 $57 million fine against Robinhood. That one 00:13:58.990 --> 00:14:01.950 fine was over 60 % of that year's total. If you 00:14:01.950 --> 00:14:04.750 take that out, the overall penalties show a clear 00:14:04.750 --> 00:14:07.110 reduction. And this pattern isn't new. Analysts 00:14:07.110 --> 00:14:08.909 have tracked this stuff before. Right. Going 00:14:08.909 --> 00:14:11.950 back to the pre -Fan Roe era in 2005 and 2006, 00:14:12.370 --> 00:14:15.309 studies noted a marked drop in supersized fines, 00:14:15.509 --> 00:14:18.549 penalties over a million dollars. And that study 00:14:18.549 --> 00:14:21.230 showed those major actions dropped from 35 down 00:14:21.230 --> 00:14:24.720 to 19 in just one year. The analysis then suggested 00:14:24.720 --> 00:14:27.000 regulators might be retrenching their efforts, 00:14:27.259 --> 00:14:30.100 focusing on routine compliance instead of boundary 00:14:30.100 --> 00:14:32.659 -pushing enforcement. When you see such dramatic 00:14:32.659 --> 00:14:36.100 swings, it raises a question. Is Fanara prioritizing 00:14:36.100 --> 00:14:38.700 broad, consistent compliance checks, or are they 00:14:38.700 --> 00:14:41.200 waiting for a few massive public failures like 00:14:41.200 --> 00:14:43.360 Robinhood to justify their enforcement efforts? 00:14:43.659 --> 00:14:46.279 For the investor, consistency is what builds 00:14:46.279 --> 00:14:48.580 confidence. And the trends suggest that consistency 00:14:48.580 --> 00:14:51.080 can be hard to achieve in a revenue -dependent 00:14:51.080 --> 00:14:55.450 SRL model. So... If FENRA is this massive, powerful 00:14:55.450 --> 00:14:58.309 police force, how does the public know if it's 00:14:58.309 --> 00:15:01.409 doing its job or if a particular broker is trustworthy? 00:15:01.750 --> 00:15:03.929 That accountability question leads us directly 00:15:03.929 --> 00:15:07.169 to the Central Registration Depository, the CRD, 00:15:07.250 --> 00:15:10.190 and the public tool that pulls from it, BrokerCheck. 00:15:10.409 --> 00:15:13.429 The CRD, that's the core utility. It is. It's 00:15:13.429 --> 00:15:16.580 not just a file. It's the single massive electronic 00:15:16.580 --> 00:15:19.659 database that FINRA maintains for all state regulators. 00:15:19.960 --> 00:15:22.240 It's the single source of truth for the entire 00:15:22.240 --> 00:15:25.019 U .S. securities industry. So it prevents so 00:15:25.019 --> 00:15:27.919 -called rogue brokers from just moving from state 00:15:27.919 --> 00:15:30.419 to state without disclosing their history. Exactly. 00:15:30.679 --> 00:15:33.879 FINRA is the central hub ensuring every state 00:15:33.879 --> 00:15:36.200 has immediate access to the same disciplinary 00:15:36.200 --> 00:15:38.409 data. And broker check is the public -facing 00:15:38.409 --> 00:15:40.590 website that pulls from the CRD. This is the 00:15:40.590 --> 00:15:43.529 need -to -know tool for you, the investor. It 00:15:43.529 --> 00:15:45.429 really is. It lets you check the background and 00:15:45.429 --> 00:15:48.210 experience of any licensed broker, advisor, or 00:15:48.210 --> 00:15:50.590 firm before you commit your money. Let's get 00:15:50.590 --> 00:15:52.730 specific. What does a broker check report on 00:15:52.730 --> 00:15:55.470 an individual broker actually show you? For an 00:15:55.470 --> 00:15:58.450 individual, you get the basics credentials, licenses, 00:15:58.909 --> 00:16:02.289 proof of past exams like the Series 7. But crucially, 00:16:02.429 --> 00:16:04.690 you get a full 10 years of employment history. 00:16:04.870 --> 00:16:06.629 So you can track where they've worked. You can 00:16:06.629 --> 00:16:09.509 track their professional migration. But the section 00:16:09.509 --> 00:16:12.129 everyone jumps to is the disclosure section. 00:16:12.799 --> 00:16:14.840 This is the heart of accountability. And this 00:16:14.840 --> 00:16:17.080 is where you see the red flags. This is where 00:16:17.080 --> 00:16:19.120 you see customer disputes settled, withdrawn, 00:16:19.399 --> 00:16:21.940 or arbitrated disciplinary events like fines 00:16:21.940 --> 00:16:24.779 or suspensions, and certain criminal or financial 00:16:24.779 --> 00:16:27.879 matters like bankruptcies or tax liens. The broker 00:16:27.879 --> 00:16:29.940 also gets to add their own comments to provide 00:16:29.940 --> 00:16:32.779 context. And for firms, the details are just 00:16:32.779 --> 00:16:35.019 as important. For a firm, the report confirms 00:16:35.019 --> 00:16:37.059 their history, ownership, that kind of thing. 00:16:37.980 --> 00:16:40.440 The disclosure section shows major arbitration 00:16:40.440 --> 00:16:42.960 awards against the firm, formal, disciplinary 00:16:42.960 --> 00:16:46.120 events. But it's important to note some items 00:16:46.120 --> 00:16:49.159 might be unresolved allegations, not proven violations. 00:16:49.559 --> 00:16:52.519 The point is transparency, even if a case is 00:16:52.519 --> 00:16:55.139 still open. Okay, a key question. What if someone 00:16:55.139 --> 00:16:58.299 retires or leaves the industry? How long does 00:16:58.299 --> 00:17:01.000 this public record follow them? FINRA has a specific 00:17:01.000 --> 00:17:04.109 data retention rule for this. Generally, if someone 00:17:04.109 --> 00:17:06.890 is out of the industry for 10 years, they disappear 00:17:06.890 --> 00:17:09.309 from the public broker check system. But there 00:17:09.309 --> 00:17:11.930 are exceptions for serious misconduct. Very specific, 00:17:12.009 --> 00:17:14.569 serious exceptions. An individual stays in the 00:17:14.569 --> 00:17:17.769 system indefinitely if they were, say, barred 00:17:17.769 --> 00:17:20.250 or suspended, convicted of certain serious crimes, 00:17:20.450 --> 00:17:22.730 or found to have violated investment -related 00:17:22.730 --> 00:17:25.529 statutes in a civil court. What about for customer 00:17:25.529 --> 00:17:27.529 disputes? That's the most relevant exception. 00:17:28.170 --> 00:17:30.069 They stay in the system if they were named in 00:17:30.069 --> 00:17:32.450 an arbitration or lawsuit alleging a sales practice 00:17:32.450 --> 00:17:35.250 violation that resulted in an award against them. 00:17:35.490 --> 00:17:38.069 Those are the red flags Finnero says must never 00:17:38.069 --> 00:17:40.930 be erased. This data is so comprehensive, it's 00:17:40.930 --> 00:17:43.210 become the foundational data set for academics 00:17:43.210 --> 00:17:46.150 and journalists studying misconduct. Absolutely. 00:17:46.369 --> 00:17:48.990 The data is priceless. There was a 2016 paper 00:17:48.990 --> 00:17:50.650 from the Universities Chicago and University 00:17:50.650 --> 00:17:53.230 of Minnesota that used broker check data to find 00:17:53.230 --> 00:17:56.450 that 7 % of advisors industry -wide had been 00:17:56.450 --> 00:17:58.900 disciplined for misconduct. Seven out of every 00:17:58.900 --> 00:18:01.960 hundred. That's a stunning number. It is. And 00:18:01.960 --> 00:18:04.279 it defines the scope of the problem Venerai is 00:18:04.279 --> 00:18:08.250 supposed to address. Then in 2017, a Reuters 00:18:08.250 --> 00:18:10.329 analysis found that a disproportionately high 00:18:10.329 --> 00:18:13.049 percentage of brokers with multiple disclosures 00:18:13.049 --> 00:18:16.349 worked at just 48 specific firms. So misconduct 00:18:16.349 --> 00:18:19.710 isn't random. It clusters. Exactly. And while 00:18:19.710 --> 00:18:22.390 Fenneri has an internal unit to track these high 00:18:22.390 --> 00:18:25.269 risk firms, they don't publicly name them. They 00:18:25.269 --> 00:18:27.130 leave it up to the public to piece that together 00:18:27.130 --> 00:18:29.890 using broker check. Which brings us to the most 00:18:29.890 --> 00:18:33.180 volatile controversy around broker check. Expungement. 00:18:33.180 --> 00:18:35.779 The process where brokers can get negative disclosures 00:18:35.779 --> 00:18:37.900 wiped from their public record. The controversy 00:18:37.900 --> 00:18:40.920 comes from how easy it used to be. Before 2023, 00:18:41.440 --> 00:18:44.059 academic studies showed that Fenner Eye was approving 00:18:44.059 --> 00:18:46.500 an astonishing 84 % of expungement requests. 00:18:46.839 --> 00:18:49.619 84%. That's insane. Four out of five brokers 00:18:49.619 --> 00:18:51.220 who tried to clear their record got it done. 00:18:51.440 --> 00:18:53.400 It suggests the system was operating more like 00:18:53.400 --> 00:18:55.660 a rubber stamp for the industry than a safeguard 00:18:55.660 --> 00:18:58.380 for the investor. It was a clear failure of accountability. 00:18:58.779 --> 00:19:01.450 And it greased political attention. It did. Senator 00:19:01.450 --> 00:19:04.109 Elizabeth Warren, among others, publicly called 00:19:04.109 --> 00:19:07.049 for reform in 2019, arguing that such a high 00:19:07.049 --> 00:19:10.049 approval rate meant fine RO was failing to protect 00:19:10.049 --> 00:19:12.529 critical information for investors. So the regulator 00:19:12.529 --> 00:19:15.589 responded. The 2023 rule amendments made the 00:19:15.589 --> 00:19:18.430 process demonstrably stricter. These new rules 00:19:18.430 --> 00:19:21.150 are a major overhaul. First and most critically, 00:19:21.390 --> 00:19:24.329 expungement cases must now be decided unanimously 00:19:24.329 --> 00:19:27.529 by a three -member panel of public arbitrators. 00:19:27.630 --> 00:19:30.150 No more single arbitrator making the call. Right. 00:19:30.210 --> 00:19:33.569 And no industry arbitrators on that panel. Unanimity 00:19:33.569 --> 00:19:35.769 from three public members is a massive new barrier. 00:19:36.170 --> 00:19:39.529 Second, those arbitrators now need enhanced expungement 00:19:39.529 --> 00:19:41.589 training. To make sure they understand the gravity 00:19:41.589 --> 00:19:44.309 of what they're doing. Exactly. Third, they tackled 00:19:44.309 --> 00:19:46.769 what are called straight -in requests. Those 00:19:46.769 --> 00:19:49.089 now have to be filed within two years of a customer 00:19:49.089 --> 00:19:51.829 case closing, so brokers can't wait years for 00:19:51.829 --> 00:19:54.150 the customer to forget the details. And finally, 00:19:54.289 --> 00:19:56.630 they mandated earlier notification of customers 00:19:56.630 --> 00:19:59.609 and state regulators. Why is that state regulator 00:19:59.609 --> 00:20:02.250 part so critical? Because state regulators are 00:20:02.250 --> 00:20:04.529 often the fiercest advocates for customer protection. 00:20:05.450 --> 00:20:08.089 They can now show up in the hearing and argue 00:20:08.089 --> 00:20:11.220 against the expungement. It brings an adversarial 00:20:11.220 --> 00:20:13.680 perspective to a process that critics said was 00:20:13.680 --> 00:20:16.519 far too friendly. Okay, now we come to the most 00:20:16.519 --> 00:20:19.539 legally complex and really consequential aspect 00:20:19.539 --> 00:20:23.579 of Fennerise operations. It's dispute resolution 00:20:23.579 --> 00:20:26.539 forum, which governs arbitration. Right. If you 00:20:26.539 --> 00:20:28.980 lose money because of broker misconduct, this 00:20:28.980 --> 00:20:31.259 is likely the only practical path you have toward 00:20:31.259 --> 00:20:33.839 getting it back. And Fennerise operates the largest 00:20:33.839 --> 00:20:36.359 forum of its kind in the U .S. for this. It does. 00:20:36.420 --> 00:20:38.859 It resolves disputes between customers and firms 00:20:38.859 --> 00:20:41.480 and also between employees and their firms. The 00:20:41.480 --> 00:20:44.440 stakes here are enormous. And the critical factor 00:20:44.440 --> 00:20:46.759 we have to stress is that for most retail investors, 00:20:47.099 --> 00:20:49.559 arbitration is not optional. It's mandatory. 00:20:49.960 --> 00:20:52.640 That's the key. Virtually all standard agreements 00:20:52.640 --> 00:20:54.700 you sign to open a brokerage account include 00:20:54.700 --> 00:20:57.140 mandatory arbitration clauses. And by signing 00:20:57.140 --> 00:20:58.980 that agreement, you are waiving your constitutional 00:20:58.980 --> 00:21:01.519 right to a trial in a court of law. No jury. 00:21:01.799 --> 00:21:04.420 Exactly. And this system has been solidified 00:21:04.420 --> 00:21:07.880 by several key Supreme Court rulings that upheld 00:21:07.880 --> 00:21:10.460 the enforceability of these clauses. This goes 00:21:10.460 --> 00:21:13.839 back decades. In 1987, there was Shearson American 00:21:13.839 --> 00:21:16.339 Express v. McMahon. Right. That upheld mandatory 00:21:16.339 --> 00:21:18.980 arbitration for disputes under the Securities 00:21:18.980 --> 00:21:22.279 Exchange Act of 34. Then, three years later, 00:21:22.400 --> 00:21:25.809 in 1990... The case Rodriguez, the Keyes v. Shearson 00:21:25.809 --> 00:21:28.390 American Express, extended that to the Securities 00:21:28.390 --> 00:21:31.170 Act of 33. So those two rulings together made 00:21:31.170 --> 00:21:33.849 FINRA arbitration the primary and often the only 00:21:33.849 --> 00:21:36.809 legal avenue for retail investors. They did. 00:21:36.930 --> 00:21:38.769 Wait, if the clause is mandatory, is there any 00:21:38.769 --> 00:21:41.349 exception? Any way a customer can still go to 00:21:41.349 --> 00:21:44.410 court? Yes. One crucial caveat. Fine and raw 00:21:44.410 --> 00:21:46.750 rules explicitly say that firms are not allowed 00:21:46.750 --> 00:21:49.210 to limit customers' rights to pursue class actions 00:21:49.210 --> 00:21:52.109 in court. Ah, so individual claims are funneled 00:21:52.109 --> 00:21:54.230 into arbitration, but systemic failures affecting 00:21:54.230 --> 00:21:56.609 a huge group of investors can still be litigated. 00:21:56.670 --> 00:21:58.529 That's the distinction. For the individual, though, 00:21:58.730 --> 00:22:01.089 I &R arbitration is basically their only courtroom. 00:22:01.329 --> 00:22:03.569 So let's get into the mechanics, especially for 00:22:03.569 --> 00:22:07.109 larger claims. For disputes over $100 ,000, the 00:22:07.109 --> 00:22:10.029 case is heard by a three -member panel. The traditional 00:22:10.029 --> 00:22:12.509 structure is one industry panelist. Someone from 00:22:12.509 --> 00:22:15.710 the securities industry, one non -industry panelist, 00:22:15.730 --> 00:22:18.230 and one non -industry chairperson. And what does 00:22:18.230 --> 00:22:20.690 that arbitrator pool look like? The goal is balance. 00:22:20.930 --> 00:22:24.990 As of 2023, the pool was nearly split. About 00:22:24.990 --> 00:22:28.710 4 ,200 industry panelists and 4 ,000 non -industry 00:22:28.710 --> 00:22:31.869 panelists. Finara trains them all to serve in 00:22:31.869 --> 00:22:33.990 this quasi -judicial role. And the selection 00:22:33.990 --> 00:22:36.049 process isn't just random, right? It's a bit 00:22:36.049 --> 00:22:38.670 of a game. Not at all. It's designed for strategic 00:22:38.670 --> 00:22:41.319 striking. The customer and the firm each get 00:22:41.319 --> 00:22:43.799 lists of 10 local arbitrators for each category. 00:22:44.119 --> 00:22:46.200 Each side can strike up in four names from each 00:22:46.200 --> 00:22:48.119 list without giving a reason, and then they rank 00:22:48.119 --> 00:22:50.779 the rest. And Finery's system picks the highest 00:22:50.779 --> 00:22:53.400 ranked available arbitrator. So both sides are 00:22:53.400 --> 00:22:55.759 trying to eliminate perceived bias. What information 00:22:55.759 --> 00:22:57.819 do they get to make those decisions? They get 00:22:57.819 --> 00:23:01.140 detailed 10 -year biographies for each potential 00:23:01.140 --> 00:23:03.779 arbitrator, plus their prior award histories. 00:23:04.200 --> 00:23:07.299 This is critical. A firm's lawyer might look 00:23:07.299 --> 00:23:09.519 for an arbitrator who historically awards low 00:23:09.519 --> 00:23:12.299 damages, while an investor's attorney might want 00:23:12.299 --> 00:23:14.539 someone who tends to find for claimants. The 00:23:14.539 --> 00:23:16.700 due diligence in that selection phase can often 00:23:16.700 --> 00:23:18.680 determine the outcome before the hearing even 00:23:18.680 --> 00:23:21.299 starts. It absolutely can. Now, what about smaller 00:23:21.299 --> 00:23:23.819 claims? Not everyone is disputing six figures. 00:23:24.099 --> 00:23:27.299 For claims up to $50 ,000, Finanar has simplified 00:23:27.299 --> 00:23:29.579 arbitration. It's meant to be quicker and less 00:23:29.579 --> 00:23:32.400 costly. It's usually decided by a single arbitrator 00:23:32.400 --> 00:23:34.700 just reviewing the documents without an in -person 00:23:34.700 --> 00:23:36.599 hearing. Okay, let's get to the most controversial 00:23:36.599 --> 00:23:40.059 statistic, the customer win rate. The numbers 00:23:40.059 --> 00:23:43.680 are pretty sobering. Through July 2023, there 00:23:43.680 --> 00:23:47.779 were about 1 ,900 new cases filed. Of the 163 00:23:47.779 --> 00:23:50.200 customer cases that were fully decided, customers 00:23:50.200 --> 00:23:53.700 were awarded damages in only 26 % of them. 26%. 00:23:53.700 --> 00:23:56.380 So the brokerage firm wins or the customer gets 00:23:56.380 --> 00:23:58.559 nothing almost three quarters of the time? That's 00:23:58.559 --> 00:24:00.609 right. If Federer's mission is investor protection, 00:24:00.990 --> 00:24:03.970 why is the success rate for the defense so much 00:24:03.970 --> 00:24:07.190 higher? Is the deck stacked? That low success 00:24:07.190 --> 00:24:10.190 rate is the primary argument from critics of 00:24:10.190 --> 00:24:12.849 mandatory arbitration. They argue the process 00:24:12.849 --> 00:24:16.059 inherently favors the firms. And it's worth stressing, 00:24:16.220 --> 00:24:18.400 Fender or Rack counts any positive award as a 00:24:18.400 --> 00:24:21.740 win, even if you lost $50 ,000 and only got awarded 00:24:21.740 --> 00:24:24.720 $500. And the process itself has become incredibly 00:24:24.720 --> 00:24:26.980 complex, right? It mirrors traditional litigation 00:24:26.980 --> 00:24:30.299 now. It has. Louis Lowenfels, a key author on 00:24:30.299 --> 00:24:33.099 securities fraud, said back in 2006 that what 00:24:33.099 --> 00:24:35.779 started as a relatively swift and economical 00:24:35.779 --> 00:24:39.799 process had evolved into a costly, extended adversarial 00:24:39.799 --> 00:24:42.539 proceeding dominated by trial lawyers. And that's 00:24:42.539 --> 00:24:44.460 still the reality. Imagine walking into... a 00:24:44.460 --> 00:24:46.640 hearing representing yourself against three high 00:24:46.640 --> 00:24:48.539 -priced corporate defense attorneys. That's the 00:24:48.539 --> 00:24:50.460 situation for many customers. And while there 00:24:50.460 --> 00:24:53.140 are organizations like PIAB, the Public Investors 00:24:53.140 --> 00:24:55.700 Arbitration Bar Association, that represent customers, 00:24:55.920 --> 00:24:58.259 the cost of hiring a lawyer can be prohibitive. 00:24:58.599 --> 00:25:00.279 Brokerage firms, on the other hand, just see 00:25:00.279 --> 00:25:02.200 litigation defense as a cost of doing business. 00:25:02.400 --> 00:25:05.140 The resource imbalance is substantial. The pushback 00:25:05.140 --> 00:25:08.099 against this perceived imbalance led to a major 00:25:08.099 --> 00:25:11.200 reform. the shift toward all public arbitration 00:25:11.200 --> 00:25:14.019 panels. Yes. There was real speculation Congress 00:25:14.019 --> 00:25:16.819 might just ban mandatory arbitration clauses 00:25:16.819 --> 00:25:19.799 entirely. So to preempt that, Fennara launched 00:25:19.799 --> 00:25:23.000 a pilot program in 2008 to evaluate using all 00:25:23.000 --> 00:25:26.119 public panels with no industry arbitrator. The 00:25:26.119 --> 00:25:28.420 logic being, remove the potential perception 00:25:28.420 --> 00:25:30.920 of bias from having a colleague of the defendant 00:25:30.920 --> 00:25:33.960 on the panel. Exactly. The change became permanent 00:25:33.960 --> 00:25:37.549 in February 2011. Fenara said the goal was to 00:25:37.549 --> 00:25:40.109 increase public confidence by giving customers 00:25:40.109 --> 00:25:42.869 the option to request an all public panel. But 00:25:42.869 --> 00:25:44.869 there's a serious counter argument to getting 00:25:44.869 --> 00:25:47.529 rid of industry arbitrators entirely. There is. 00:25:47.730 --> 00:25:50.450 And it's based on expertise. Some argue industry 00:25:50.450 --> 00:25:53.009 arbitrators are vital because they provide specific 00:25:53.009 --> 00:25:55.910 industry knowledge and past experience to explain 00:25:55.910 --> 00:25:58.150 some of the complexities. Right. These disputes 00:25:58.150 --> 00:26:00.430 can involve really complex products or trading 00:26:00.430 --> 00:26:02.930 strategies that a public arbitrator might not 00:26:02.930 --> 00:26:05.460 fully grasp. It becomes the ultimate structural 00:26:05.460 --> 00:26:08.740 question then. Do you sacrifice some perceived 00:26:08.740 --> 00:26:12.240 fairness to include someone with deep industry 00:26:12.240 --> 00:26:14.900 knowledge who can accurately assess the complex 00:26:14.900 --> 00:26:17.420 facts? Or do you prioritize public confidence 00:26:17.420 --> 00:26:20.319 by using only non -industry panelists, accepting 00:26:20.319 --> 00:26:23.619 they might miss critical nuances? It's the constant 00:26:23.619 --> 00:26:27.500 duality of fun and raw. leveraging industry expertise 00:26:27.500 --> 00:26:30.359 to police the market, but battling the appearance 00:26:30.359 --> 00:26:32.339 of self -interest when it comes to resolving 00:26:32.339 --> 00:26:35.039 disputes. So what we've decoded today is this 00:26:35.039 --> 00:26:38.160 massive, complex reality of funerals. A self 00:26:38.160 --> 00:26:40.460 -funded, industry -led entity that writes the 00:26:40.460 --> 00:26:42.759 rules, polices its members, and then provides 00:26:42.759 --> 00:26:45.039 the only available courtroom for the vast majority 00:26:45.039 --> 00:26:47.619 of retail investors. An entity that manages nearly 00:26:47.619 --> 00:26:50.099 all licensing and enforcement with authority 00:26:50.099 --> 00:26:52.460 that was just affirmed by the Supreme Court in 00:26:52.460 --> 00:26:56.640 2025. Yet every single major action it takes, 00:26:56.720 --> 00:26:58.759 from defining what disclosure stays on broker 00:26:58.759 --> 00:27:00.980 check to deciding the structure of an arbitration 00:27:00.980 --> 00:27:03.119 panel, it all involves this constant internal 00:27:03.119 --> 00:27:05.640 tension. It's a tightrope walk between industry 00:27:05.640 --> 00:27:08.420 efficiency and investor confidence. The evolution 00:27:08.420 --> 00:27:11.140 of Fenham, like with the 2023 expungement reforms 00:27:11.140 --> 00:27:13.779 and the all -public arbitration option, shows 00:27:13.779 --> 00:27:16.859 a reactive organization. It's pressured by politics 00:27:16.859 --> 00:27:19.480 and public demand to prioritize investor protection. 00:27:19.880 --> 00:27:22.200 But the structural conflicts of the SRO model, 00:27:22.380 --> 00:27:24.829 they remain. And we've seen that the low win 00:27:24.829 --> 00:27:26.970 rate for investors in mandatory arbitration is 00:27:26.970 --> 00:27:29.470 a persistent critique, regardless of who is on 00:27:29.470 --> 00:27:32.430 the panel. And its funding mechanism, reliant 00:27:32.430 --> 00:27:35.250 on industry fees and fines, creates pressure 00:27:35.250 --> 00:27:37.890 to balance punishment with revenue. This raises 00:27:37.890 --> 00:27:39.890 a final provocative thought for you to consider. 00:27:40.299 --> 00:27:43.299 If the Supreme Court continues to affirm Feneré's 00:27:43.299 --> 00:27:46.380 constitutionality, but Congress introduces legislation 00:27:46.380 --> 00:27:50.480 like the McLean bill to strip Feneré of its core 00:27:50.480 --> 00:27:53.460 powers and hand them to the SEC, is the SRO model 00:27:53.460 --> 00:27:55.220 reaching its breaking point? Will the continuous 00:27:55.220 --> 00:27:57.380 battle between industry expertise and investor 00:27:57.380 --> 00:27:59.740 protection ultimately lead to the end of self 00:27:59.740 --> 00:28:02.599 -regulation in U .S. financial markets? Or is 00:28:02.599 --> 00:28:04.900 the current structure simply too efficient and 00:28:04.900 --> 00:28:07.799 too ingrained to ever be replaced? That is the 00:28:07.799 --> 00:28:13.779 essential political and financial... A comprehensive 00:28:13.779 --> 00:28:16.359 deep dive into the silent power governing the 00:28:16.359 --> 00:28:18.519 brokerage world. Thank you for joining us.