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Difficulty: HardRegulatory Entities and Self-Regulatory Organizations (SROs)

A broker-dealer firm actively engages in both corporate underwriting and municipal bond trading. During a compliance audit, potential violations of fair pricing and markup rules on municipal securities transactions are uncovered. Which of the following statements accurately describes the division of regulatory rulemaking and enforcement authority governing this scenario?

  1. The Municipal Securities Rulemaking Board (MSRB) establishes conduct rules for municipal transactions, but examination and enforcement against the broker-dealer are carried out by FINRA and the SEC.Answer
  2. B
    The Municipal Securities Rulemaking Board (MSRB) directly conducts firm examinations and possesses independent statutory authority to levy administrative fines and suspend broker-dealer registrations.
  3. C
    FINRA functions as a federal executive agency holding exclusive criminal prosecution powers over associated persons who violate industry pricing rules.
  4. D
    The Federal Reserve Board maintains primary jurisdiction for inspecting broker-dealer trade execution pricing and enforcing SRO markup rules across corporate and municipal desks.

Answer

The Municipal Securities Rulemaking Board (MSRB) establishes conduct rules for municipal transactions, but examination and enforcement against the broker-dealer are carried out by FINRA and the SEC.
The Municipal Securities Rulemaking Board (MSRB) proposes and adopts rules for municipal securities firms and advisors, but by federal statute, it lacks examination and enforcement powers. Enforcement of MSRB rules for registered securities broker-dealers is delegated to FINRA and the Securities and Exchange Commission (SEC).

Step-by-Step Solution

1
Identify the specific regulator responsible for writing municipal securities rules.
Recognize that the MSRB is the SRO tasked with creating rules for municipal securities dealers and advisors.
Congress established the MSRB under the Securities Acts Amendments of 1975 to regulate municipal market rulemaking.
2
Determine the statutory enforcement limitations of the MSRB.
Confirm that the MSRB does not possess examination or enforcement capabilities.
The MSRB relies entirely on other regulatory bodies to inspect firms and enforce its rules.
3
Map the correct enforcement bodies for a non-bank broker-dealer firm.
Identify FINRA and the SEC as the entities with examination and enforcement jurisdiction over broker-dealers.
FINRA enforces both its own rules and MSRB rules for member broker-dealers under SEC oversight.

Key Concept

Division of Rulemaking vs. Enforcement Authority in Municipal Regulation
Estimated Time:1m 30s
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Topics

Regulatory Entities and Self-Regulatory Organizations (SROs)

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