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

When setting up a new brokerage account, a client asks about the distinction between governmental agencies and industry self-regulatory organizations (SROs). Which of the following bodies operates as a primary self-regulatory organization (SRO) responsible for licensing, regulating, and enforcing conduct rules for member broker-dealers under SEC oversight?

  1. A
    Securities and Exchange Commission (SEC)
  2. B
    Federal Deposit Insurance Corporation (FDIC)
  3. Financial Industry Regulatory Authority (FINRA)Answer
  4. D
    Depository Trust & Clearing Corporation (DTCC)

Answer

Financial Industry Regulatory Authority (FINRA)
The Financial Industry Regulatory Authority (FINRA) is a private, non-governmental self-regulatory organization (SRO) authorized by federal law to regulate member broker-dealers and associated persons under the direct supervision of the Securities and Exchange Commission (SEC).

Step-by-Step Solution

1
Distinguish between federal government regulatory agencies and self-regulatory organizations (SROs).
Federal agencies (like the SEC) derive authority directly from statutory legislation, whereas SROs are membership-based organizations that enforce industry rules among member firms.
SROs function under government oversight to handle day-to-day regulation of member securities firms and registered representatives.
2
Identify which entity matches the definition of a primary securities industry SRO.
The Financial Industry Regulatory Authority (FINRA) is the primary SRO governing registered broker-dealers and associated persons.
FINRA writes and enforces rules governing member firm sales practices and professional conduct subject to ultimate approval by the SEC.

Key Concept

Classification and Regulatory Function of Self-Regulatory Organizations (SROs)
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Topics

Regulatory Entities and Self-Regulatory Organizations (SROs)

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