Jurisdiction and authority of SROs (e.g., CBOE, FINRA, MSRB)
Self-Regulatory Organizations (SROs) are non-governmental entities with the authority to regulate and oversee specific parts of the securities industry. They complement government agencies like the SEC by ensuring that financial markets operate fairly, transparently, and with investor protection. SROs enforce rules, oversee member conduct, and impose penalties for violations.
1. FINRA (Financial Industry Regulatory Authority)
- Jurisdiction: FINRA regulates broker-dealers and their registered representatives. It oversees trading activities, enforces rules, and ensures firms meet financial and ethical standards.
- Example: FINRA can investigate and fine brokers who engage in unethical practices, such as churning (excessive trading to generate commissions). In 2019, FINRA fined a firm $1.75 million for failing to supervise its brokers’ activities.
2. CBOE (Chicago Board Options Exchange)
- Jurisdiction: The CBOE regulates options trading, overseeing the buying and selling of options contracts and ensuring fair and orderly markets.
- Example: In 2018, CBOE was involved in managing the Volatility Index (VIX) options market. The exchange took action against market manipulation, ensuring compliance with market rules and protecting investors.
3. MSRB (Municipal Securities Rulemaking Board)
- Jurisdiction: The MSRB oversees the municipal securities market, regulating broker-dealers, municipal advisors, and issuers of municipal bonds. It sets rules to ensure transparency and fair practices in the municipal bond market.
- Example: The MSRB ensures that municipal bond issuers provide accurate and timely disclosures to investors. In 2020, the MSRB updated rules to improve disclosure of financial data related to municipal securities, enhancing market transparency.
In summary, SROs like FINRA, CBOE, and MSRB have the authority to create and enforce rules within their specific sectors, maintaining market integrity and investor confidence.
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