SIE Ready🏛️ Regulators & Market Participants · Lesson 2 of 5 · 5 min
SROs: FINRA, MSRB and the Exchanges
🧑⚖️ The MSRB writes every rule for municipal securities dealers, yet it cannot fine a single firm. Knowing who writes rules and who enforces them is classic SIE material.
💡 Key idea
SROs write and enforce rules for their members under SEC oversight. The MSRB is the exception: it writes muni rules, while FINRA, the SEC and bank regulators enforce them.
🧠 Why it matters
A self-regulatory organization (SRO) is an industry body that writes and enforces rules for its members, under SEC oversight. The SEC must approve SRO rules. FINRA regulates its member broker-dealers and their registered people: it writes conduct rules, examines firms, runs qualification exams and can fine, suspend or expel. National securities exchanges such as the NYSE, Nasdaq and Cboe are SROs for their own markets and members; Cboe is best known for listed options. The MSRB (Municipal Securities Rulemaking Board) writes rules for dealers in municipal securities and for municipal advisors, but it has no enforcement power. Its rules are examined for and enforced by FINRA, the SEC and bank regulators. The MSRB also runs EMMA, the public municipal disclosure website.
📈 In the real world
🏙️ A small dealer overcharges customers on municipal bonds. The rule it broke is an MSRB rule, but the examiner who finds it works for FINRA, and FINRA brings the case and imposes the fine. The MSRB's job was done years earlier, when it wrote the fair-pricing rule.
📌 Takeaways
- SROs regulate their own members; the SEC oversees SROs and approves their rules
- FINRA writes rules, examines, tests and disciplines member broker-dealers
- The MSRB writes muni rules but does not enforce them: FINRA, the SEC and bank regulators do
📖 Terms in this lesson
Self-regulatory organization (SRO): An SEC-overseen organization, such as FINRA or an exchange, that writes and enforces rules for its own members.
FINRA: The SRO for broker-dealers: it writes rules, examines firms, administers qualification exams and disciplines members and their people.
Municipal Securities Rulemaking Board (MSRB): The body that writes rules for municipal securities dealers and advisors but has no power to enforce them.
✅ Test yourself
Who enforces MSRB rules for a broker-dealer that is a FINRA member?
- The issuing municipality
- The MSRB itself
- The Federal Reserve alone
- FINRA and the SEC
Answer: D · FINRA and the SEC
The MSRB writes rules but has no enforcement authority. For FINRA member firms, FINRA and the SEC examine and enforce; bank regulators enforce for bank dealers. Issuers are not regulators of dealers.
Which organization is a self-regulatory organization?
- Cboe
- FDIC
- NASAA
- SIPC
Answer: A · Cboe
Cboe is a national securities exchange and therefore an SRO for its market and members. SIPC is a nonprofit created by Congress, the FDIC is a federal agency, and NASAA is an association of state regulators.
Which statement about FINRA is accurate?
- It sets the interest rates firms charge on margin loans
- It is a federal government agency
- It insures customer brokerage accounts
- It writes and enforces rules for member firms
Answer: D · It writes and enforces rules for member firms
FINRA is a private SRO overseen by the SEC; it writes rules for its member broker-dealers, examines them and disciplines violations. It is not a government agency, does not insure accounts (SIPC protects customers of failed firms) and does not set margin rates.
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