The financial institutions are firms that specialize in the sale, purchase and creation of financial assets. The financial institutions work as an intermediaries between the surplus (those who have money to invest) to the deficit (those who need to borrow money) spending units. Because surplus and deficit units have different needs the problems with permanent financing ca occur. The main role of the financial institutions is to change the characteristic of the funds acquired from surplus units to make them more attractive to the deficit units. To eliminate the mismatches they perform four types of intermediation: size, maturity, risk, and information intermediation. The size intermediation occurs because the surplus units (households) can normally supply the small amount of money while the deficit units usually need the grate amount at ones.
Financial institutions perform this intermediation by collecting small amount of money from many individuals and transferring it in the big amount to the businesses. It would take a lot of time for the deficit units to collect all the money from individuals, the financial institutions do this for them and satisfies the needs of both sides. Maturity intermediation occurs because of different time horizons and liquidity needs for surplus and deficit units. While the household don’t want to give their money for the very long period of time (30 years for example) the firms usually need those money for so long. Financial institutions resolve this problem by providing continuous financing to the firms over the entire time by attracting new contributors to replace those one who withdraw the funds before the project is completed. Risk intermediation occurs because of different risk preferences of surplus and deficit units. It can be very risky to the household to invest in some factory but not so risky to invest in the commercial bank which provides guaranties. Financial institutions are also expected to gather information about users of funds, and they have much more possibilities to do it then the individual contributors. The information intermediation help to remedy the lack of information confronting many suppliers of funds. We ca see that financials institutions play a big role in the development of the economy by raising funds from the surplus and provide them to deficit units.
2. The national association of securities dealers(NASD) responsibilities.
NASD is the private-sector provider of the financial regulatory service who is now considered to be the one of the leaders in the world. It touches every aspect of the security industry, it brings integrity to the markets and confidence to investors for more then 60 years. By law every securities firm that does business with the American public must register with NASD. Its main role is to serve as a primary private-sector regulator of American’s securities industry. It is a self-regulatory organization which is responsible for the operations and regulations of the NASDAQ stock market and over-the-counter markets. NASD licenses individuals and admits firms to the industry. It is responsible to write rules to regulate their behavior, to examine them for regulatory compliance. It has a power to expel its members from an exchange in the case of wrongdoing and not following the rules, but it cannot take legal actions against a member other then by reporting it to the SEC. By this the NASD disciplines its members who fail to comply. It oversees and regulates trading in equities, corporate bonds, securities futures and options. The organization guidelines for ethics and standardize industry practices. It also administrates exams for investment professionals (such as the series 7 exam) as well as provides education. The National Association of Securities Dealers operates the largest securities dispute resolution forum in the world, it is processing over 8,000 arbitrations and 1,000 mediations a year. So as we see the NASD is a world leader in the capital market regulations which performs its good work for about 6o years. It is very powerful regulator and law-maker on the NASDAQ stock market and over-the-counter markets, which enter the zone of its main responsibilities. It provides a stable and clever regulations and is a powerful institution in the financial arena. It brings the integrity to the markets and the confidence to investors.