A registered non-bank broker-dealer expands its commercial activities into secondary market trading of municipal obligations alongside its existing equity business. During a regulatory review of the firm's municipal transactions, a compliance query arises regarding which regulatory entity possesses the legal authority to inspect the firm's records and discipline its registered personnel for rule infractions. Which of the following statements correctly describes the operational distribution of regulatory authority in this scenario?
- The statutory rulemaking body for municipal securities establishes conduct rules, while compliance examinations and disciplinary enforcement against non-bank broker-dealers are conducted by FINRA and the SEC.Answer
- BThe Municipal Securities Rulemaking Board directly conducts routine compliance audits and levies administrative fines against non-bank broker-dealers.
- CFINRA functions as a federal executive agency possessing independent statutory authority to initiate criminal prosecution against non-compliant registered representatives.
- DRoutine examination of municipal dealer activities and trade netting functions are executed directly by the Federal Reserve Board through the National Securities Clearing Corporation (NSCC).
Answer
The statutory rulemaking body for municipal securities establishes conduct rules, while compliance examinations and disciplinary enforcement against non-bank broker-dealers are conducted by FINRA and the SEC.
The correct response accurately reflects the bifurcated regulatory model of municipal market oversight. Under the Securities Exchange Act of 1934 and subsequent amendments, the MSRB creates rules for municipal market participants, but lacks statutory enforcement and examination powers. For non-bank broker-dealers, compliance examination and rule enforcement are performed by FINRA and the SEC.
Step-by-Step Solution
Key Concept
Division of Rulemaking and Enforcement Jurisdiction between MSRB, FINRA, and SEC