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

An investor purchasing municipal bonds through a registered broker-dealer asks about the regulatory structure governing municipal securities transactions. The investor learns that while the Municipal Securities Rulemaking Board (MSRB) creates rules for municipal market participants, it does not have statutory authority to inspect firms or enforce its own rules. Which of the following regulatory entities is directly responsible for examining non-bank broker-dealers and enforcing MSRB rules?

  1. Financial Industry Regulatory Authority (FINRA)Answer
  2. B
    Municipal Securities Rulemaking Board (MSRB)
  3. C
    Depository Trust & Clearing Corporation (DTCC)
  4. D
    Federal Deposit Insurance Corporation (FDIC)

Answer

Financial Industry Regulatory Authority (FINRA) is responsible for examining non-bank broker-dealers and enforcing MSRB rules.
The Municipal Securities Rulemaking Board (MSRB) is authorized by Congress to formulate rules governing municipal securities activities, but it explicitly lacks statutory examination and enforcement powers. For non-bank broker-dealers, the Financial Industry Regulatory Authority (FINRA) performs routine examinations and enforces compliance with MSRB rules.

Step-by-Step Solution

1
Identify the statutory authority and limitations of the Municipal Securities Rulemaking Board (MSRB).
The MSRB creates rules for municipal securities dealers and municipal advisors, but possesses no examination or enforcement powers.
Understanding the legislative design of the MSRB clarifies why another entity must handle inspection and discipline.
2
Determine which regulatory organization executes rule enforcement for non-bank securities firms.
FINRA is designated to inspect non-bank broker-dealers and enforce compliance with MSRB rules.
FINRA maintains primary SRO oversight for securities broker-dealers operating in the municipal market.

Key Concept

MSRB Rulemaking Scope and FINRA Enforcement Jurisdiction
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Topics

Regulatory Entities and Self-Regulatory Organizations (SROs)

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