SRO Meaning: What Is a Self-Regulatory Organization?
A self-regulatory organization (SRO) is a non-governmental body, such as FINRA, the MSRB, or a securities exchange, that writes and enforces rules for its members under SEC oversight. FINRA is the SRO for broker-dealers; rules an SRO proposes generally take effect only after SEC review.
How SROs fit into securities regulation
The Securities Exchange Act of 1934 lets the SEC delegate day-to-day oversight of the industry to SROs. The SEC sits above them: it approves their rules and can inspect and discipline them. The main SROs on the SIE and Series 7 are FINRA (broker-dealers), the exchanges such as the NYSE and Nasdaq (listed companies and member conduct), and the MSRB (municipal securities rulemaking).
Who enforces what
The MSRB writes municipal securities rules but does not enforce them. FINRA, the SEC, and the bank regulators enforce MSRB rules against the firms they supervise. FINRA writes and enforces its own rules for member firms and registered representatives.
Frequently asked questions
What is Self-Regulatory Organization (SRO)?
A self-regulatory organization (SRO) is a non-governmental body, such as FINRA, the MSRB, or a securities exchange, that writes and enforces rules for its members under SEC oversight. FINRA is the SRO for broker-dealers; rules an SRO proposes generally take effect only after SEC review.
How does Self-Regulatory Organization (SRO) show up on the exam?
Expect questions asking which body writes versus enforces a rule. Remember: the MSRB writes, but does not enforce; FINRA does both for its members; the SEC oversees all of them.
Practice this concept
Sources
- Securities Exchange Act of 1934, Sections 6 and 15A
- Securities Exchange Act of 1934, Section 15B (MSRB)
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