Understanding Self-Regulatory Organizations (SROs)
- April 1, 2025
- Posted by: 'FINRA Exam Mastery'
- Category: Finance
🏛️ Understanding Self-Regulatory Organizations (SROs)
In the world of U.S. securities regulation, Self-Regulatory Organizations (SROs) play a vital role in maintaining market integrity, enforcing compliance, and protecting investors. Though they are not government agencies, SROs operate under the supervision of the Securities and Exchange Commission (SEC) and have the authority to create and enforce industry rules.
Here’s what you need to know about SROs — especially if you’re preparing for a FINRA exam.
📘 What Is a Self-Regulatory Organization?
An SRO is a non-governmental organization that has the power to:
- Set industry rules and standards
- Monitor member behavior
- Enforce disciplinary actions
- Promote ethical practices and investor protection
SROs operate in partnership with the SEC, helping to regulate the daily activities of broker-dealers, investment advisers, and trading platforms.
🧱 Key Functions of SROs
- 🧾 Rulemaking – Create rules governing the conduct of members
- 🔍 Surveillance & Audits – Monitor trading activity and firm behavior
- 🛡️ Disciplinary Authority – Fine or suspend members for violations
- 📚 Education & Licensing – Develop qualification exams and continuing education
- 🤝 Investor Protection – Promote transparency and fair treatment of customers
🏢 Major U.S. SROs You Should Know
| SRO | Role in the Industry |
|---|---|
| FINRA | Regulates broker-dealers and registered reps |
| MSRB | Regulates municipal securities market |
| NYSE / Nasdaq | Operate as SROs for listed companies & trading |
| CBOE | Oversees options trading and options exchanges |
| NFA (for futures) | Regulates the U.S. derivatives and futures market |
⚖️ SROs vs. Government Regulators
| Feature | SROs (e.g., FINRA) | Government Agencies (e.g., SEC) |
|---|---|---|
| Type | Non-governmental | Governmental |
| Oversight | Supervised by the SEC | Operate under U.S. federal law |
| Funding | Member fees | Government budget |
| Focus | Daily operations & compliance | Broader regulatory and enforcement role |
🧠 Why SROs Matter for FINRA Exams
If you’re studying for Series 6, 7, 63, 65, or 66, understanding SROs is essential because:
- They appear in regulatory framework questions
- You’ll need to understand how disciplinary actions and compliance rules work
- Many exam scenarios involve how SROs regulate customer interactions and firm behavior
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