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Late last year, the New York Stock Exchange (“NYSE”) and the National Association of Securities Dealers (“NASD”) proposed rule changes designed to strengthen the requirements relating to supervision and internal controls. Through these rule proposals, the NASD and NYSE appear to be emphasizing the need for brokerage firms to have in place internal controls separate and distinct from supervisory systems. In speeches, the staff of the U.S. Securities and Exchange Commission (“SEC”) also has emphasized that internal controls are integral to a brokerage firm’s operations. But, where did the concepts of “supervision” and “internal controls” come from? How has the concept of “internal controls” evolved in the brokerage industry? Do the NYSE and NASD proposals change the substantive supervisory obligations of broker‐dealers? What steps can brokerage firms take now to prepare for, and respond to, regulatory scrutiny of their systems for supervision and internal controls? This article explores these issues.