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

A newly hired financial associate is reviewing the roles of various regulatory bodies within the U.S. capital markets. Which of the following entities is a self-regulatory organization (SRO) that directly regulates member broker-dealers and registered representatives under the oversight of the Securities and Exchange Commission (SEC)?

  1. Financial Industry Regulatory Authority (FINRA)Answer
  2. B
    Securities and Exchange Commission (SEC)
  3. C
    Depository Trust & Clearing Corporation (DTCC)
  4. D
    Federal Reserve Board (FRB)

Answer

The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization (SRO) responsible for regulating member broker-dealers and associated persons under SEC oversight.
The Financial Industry Regulatory Authority (FINRA) is a private, non-governmental self-regulatory organization (SRO) empowered to license, examine, and regulate member broker-dealers and associated persons, working under the statutory supervision of the Securities and Exchange Commission (SEC).

Step-by-Step Solution

1
Identify the structural definition of a self-regulatory organization (SRO).
An SRO is an industry-funded entity granted regulatory authority over its member firms while remaining under the ultimate jurisdiction of a government agency.
Distinguishing between government regulatory agencies and self-regulatory organizations is essential for categorizing market entities.
2
Evaluate the choices to locate the SRO governing broker-dealers.
FINRA functions as the primary non-governmental SRO overseeing member broker-dealers and registered representatives, supervised directly by the SEC.
The SEC and FRB are government agencies, while the DTCC handles trade settlement and clearing.

Key Concept

Classification of Self-Regulatory Organizations (SROs) versus government regulatory bodies
Estimated Time:45s
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Topics

Regulatory Entities and Self-Regulatory Organizations (SROs)

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