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Question

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

A non-bank broker-dealer is being reviewed for potential trade confirmation non-compliance during a series of secondary market municipal bond transactions. The compliance team notes that the underlying conduct rule was created by the Municipal Securities Rulemaking Board (MSRB). Which entity possesses the statutory authority to examine this non-bank broker-dealer and enforce compliance with MSRB rules?

  1. Financial Industry Regulatory Authority (FINRA)Answer
  2. B
    Municipal Securities Rulemaking Board (MSRB) Enforcement Division
  3. C
    Federal Reserve Board (FRB)
  4. D
    National Securities Clearing Corporation (NSCC)

Answer

Financial Industry Regulatory Authority (FINRA) is empowered to examine non-bank broker-dealers and enforce rules established by the Municipal Securities Rulemaking Board (MSRB).
While the Municipal Securities Rulemaking Board (MSRB) formulates rules governing municipal securities trading, underwriting, and disclosure, it lacks statutory examination and enforcement authority. For non-bank broker-dealers, the Financial Industry Regulatory Authority (FINRA)—along with the SEC—is empowered to conduct examinations and enforce compliance with MSRB rules.

Step-by-Step Solution

1
Identify the role and statutory limitations of the Municipal Securities Rulemaking Board (MSRB).
The MSRB creates rules governing municipal market participants but lacks legislative authority to examine firms or enforce its own regulations.
Congress established the MSRB purely as an SRO rulemaking body for the municipal securities industry.
2
Determine the entity responsible for examining and enforcing MSRB rules on non-bank securities firms.
Enforcement of MSRB rules for non-bank broker-dealers is delegated to FINRA (along with oversight by the SEC).
FINRA is the self-regulatory organization with direct examination and disciplinary jurisdiction over registered broker-dealers and their associated persons.

Key Concept

MSRB Rulemaking vs. Enforcement Jurisdiction
Estimated Time:1m 30s
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Topics

Regulatory Entities and Self-Regulatory Organizations (SROs)

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