1.1.2 Self-regulatory Organizations (SROs)

Question 1

John, a new compliance officer at a brokerage firm, is preparing a training session on SROs for his colleagues. What should he emphasize as the primary purpose of an SRO like FINRA?

A. Maximizing the profits of member firms.
B. Ensuring fair and honest markets.
C. Marketing member firms to the public.
D. Providing technological solutions for trading platforms.

Answer 1

B) Ensuring fair and honest markets.

Explanation: The primary purpose of Self-regulatory Organizations like FINRA is to protect investors by maintaining fair and honest trading practices. This helps ensure the integrity of the markets.

Question 2

XYZ Securities is planning to expand its operations to include municipal bond trading. Which SRO should XYZ Securities ensure they are compliant with in terms of specific regulations governing municipal securities?

A. CBOE
B. FINRA
C. MSRB
D. SEC

Answer 2

C. MSRB

Explanation: The Municipal Securities Rulemaking Board (MSRB) establishes rules governing firms that engage in underwriting, trading, and selling municipal securities. Compliance with MSRB regulations is essential for any firm dealing with municipal bonds.

Question 3

ABC Brokerage, a member of FINRA, has been accused of violating trading practices. Which of the following is a likely action that FINRA might take?

A. Impose trading sanctions and fines
B. Direct payment of damages to affected customers
C. Provide legal representation to the accused firm
D. Take the matter to the state court

Answer 3

A. Impose trading sanctions and fines

Explanation: FINRA has the authority to enforce trading compliance and impose sanctions, fines, and disciplinary actions on its member firms that violate its rules or federal securities laws.

Question 4

Which of the following best describes the purpose and mission of a Self-regulatory Organization (SRO) like FINRA?

A. Protecting investors and ensuring market integrity by regulating broker-dealers
B. Providing financial assistance to investors in bankruptcy cases
C. Offering legal advice to broker-dealers on securities-related matters
D. Conducting monetary policy to stabilize the economy

Answer 4

A. Protecting investors and ensuring market integrity by regulating broker-dealers

Explanation: The primary mission of SROs like FINRA is to protect investors by maintaining fair and honest markets, which involves regulating activities of broker-dealers and enforcing compliance with securities laws

1.1.2 Self-regulatory Organizations (SROs)

Question 5

A new options trading platform wishes to commence operations in the U.S. Under which SRO’s jurisdiction should the platform ensure compliance specifically for options trading?

A. CBOE
B. FINRA
C. MSRB
D. NASDAQ

Answer 5

A. CBOE

Explanation: The Chicago Board Options Exchange (CBOE) is the specific SRO that governs the options markets, setting and enforcing standards and regulations for options trading platforms and activities.

1.1.2 Self-regulatory Organizations (SROs)

Question 6

Which SRO would be responsible for disciplining a brokerage firm if it engaged in unethical practices while dealing with corporate bonds?

A. CBOE
B. FINRA
C. MSRB
D. SIPC

Answer 6

B. FINRA

Explanation: FINRA has jurisdiction over all types of securities firms and brokers in the U.S., including those dealing with corporate bonds. It is responsible for regulatory oversight, rulemaking, and disciplinary actions related to brokerage firms and their activities in corporate securities.

1.1.2 Self-regulatory Organizations (SROs)

Question 7

An investment firm has been found to have discrepancies in its trading records. Which SRO is primarily responsible for conducting an investigation into this firm?

A. CBOE
B. FINRA
C. MSRB
D. NYSE

Answer 7

B. FINRA

Explanation: FINRA is responsible for overseeing brokerage firms and ensuring their compliance with ethical trading practices and accurate record-keeping.

1.1.2 Self-regulatory Organizations (SROs)

Question 8

When a broker-dealer wants to initiate municipal securities dealings, to which SRO must it report and adhere to guidelines specifically for these securities?

A. CBOE
B. FINRA
C. MSRB
D. SEC

Answer 8

C. MSRB

Explanation: The MSRB specifically regulates firms involved in underwriting, trading, and selling municipal securities, setting rules that these firms must follow.

1.1.2 Self-regulatory Organizations (SROs)

Question 9

A firm engaged in options trading on the NASDAQ has committed several minor regulatory infractions. Who would most likely handle these infractions?

A. CBOE
B. FINRA
C. MSRB
D. NASDAQ

Answer 9

D. NASDAQ

Explanation: As the NASDAQ oversees the operations and compliance of its trading platform, it would handle infractions related to options trading conducted on its system.

1.1.2 Self-regulatory Organizations (SROs)

Question 10

Which SRO would a new futures exchange in the U.S. most likely need to register with for regulatory oversight?

A. CFTC
B. FINRA
C. MSRB
D. SEC

Answer 10

A. CFTC

Explanation: The Commodity Futures Trading Commission (CFTC) oversees the U.S. derivatives markets, including futures, swaps, and certain types of options.

1.1.2 Self-regulatory Organizations (SROs)

Question 11

A broker-dealer is accused of fraudulent practices in the equities market. What is the most likely course of action by FINRA?

A. Providing a bailout fund to the broker-dealer
B. Conducting an audit and possibly imposing penalties
C. Referring the case directly to the U.S. Congress
D. Issuing new stock to compensate the victims

Answer 11

B. Conducting an audit and possibly imposing penalties

Explanation: FINRA would likely conduct an audit and, if necessary, impose penalties or sanctions on the broker-dealer for fraudulent practices.

1.1.2 Self-regulatory Organizations (SROs)

Question 12

Which SRO has the authority to set rules for corporate bond trading among its members?

A. CBOE
B. FINRA
C. MSRB
D. NYSE

Answer 12

B. FINRA

Explanation: FINRA has comprehensive authority over all types of securities trading among its member firms, including corporate bonds.

1.1.2 Self-regulatory Organizations (SROs)

Question 13

For compliance in options trading, which SRO’s rules must be adhered to by a member firm?

A. CBOE
B. FINRA
C. MSRB
D. NASDAQ

Answer 13

A. CBOE

Explanation: The Chicago Board Options Exchange (CBOE) sets and enforces rules specifically for options trading.

1.1.2 Self-regulatory Organizations (SROs)

Question 14

A financial advisor at a broker-dealer has been charged with unethical practices related to the sale of municipal bonds. Which SRO would handle this case?

A. CBOE
B. FINRA
C. MSRB
D. SEC

Answer 14

C. MSRB

**Explanation: **The MSRB, which regulates municipal securities, would handle cases involving unethical practices related to the sale of these securities.

1.1.2 Self-regulatory Organizations (SROs)

Question 15

Who is responsible for regulating the conduct of firms that trade government securities?

A. Federal Reserve
B. FINRA
C. MSRB
D. Treasury Department

Answer 15

B. FINRA

Explanation: FINRA oversees the conduct of all securities firms operating in the U.S., including those trading government securities.

1.1.2 Self-regulatory Organizations (SROs)

Question 16

A brokerage firm wishes to start offering trading services for derivatives. Under which regulatory body should they ensure compliance for derivatives trading?

A. CFTC
B. FINRA
C. MSRB
D. NASDAQ

Answer 16

A. CFTC

Explanation: The Commodity Futures Trading Commission (CFTC) oversees derivatives markets in the U.S., including futures and certain types of options.

1.1.2 Self-regulatory Organizations (SROs)

Question 17

Which SRO is responsible for ensuring that firms comply with the federal securities laws concerning the sale of newly issued municipal bonds?

A. CBOE
B. FINRA
C. MSRB
D. SEC

Answer 17

C. MSRB

Explanation: The MSRB specifically regulates the municipal securities market, including rules concerning the issuance and sale of municipal bonds.

1.1.2 Self-regulatory Organizations (SROs)

Question 18

An investment advisor is considering offering options trading services. Which SRO’s certification or training should the advisor primarily seek?

A. CBOE
B. FINRA
C. MSRB
D. NASDAQ

Answer 18

A. CBOE

Explanation: Since CBOE specializes in options, an advisor should seek training and certification from CBOE to offer options trading services effectively.

1.1.2 Self-regulatory Organizations (SROs)

Question 19

If a broker-dealer wants to engage in the trading of both equities and options, which SROs should they primarily be concerned with regarding compliance?

A. CBOE and MSRB
B. FINRA and CBOE
C. MSRB and FINRA
D. NASDAQ and CBOE

Answer 19

B. FINRA and CBOE

Explanation: FINRA regulates broker-dealers across all securities, while CBOE focuses specifically on options, making both relevant for a firm trading equities and options.

1.1.2 Self-regulatory Organizations (SROs)

Question 20

A municipal bond dealer has been found to use misleading advertising in its sales practices. Which SRO would initiate disciplinary action?

A. CBOE
B. FINRA
C. MSRB
D. NASDAQ

Answer 20

C. MSRB

Explanation: The MSRB regulates practices related to municipal securities, including advertising and sales practices, and would take action in this case.

1.1.2 Self-regulatory Organizations (SROs)