Non-governmental entities that have the power to create and enforce industry regulations and standards. SROs are responsible for regulating their members, which typically include broker-dealers, investment advisors, and other financial professionals. These organizations work in conjunction with government regulatory agencies, such as the Securities and Exchange Commission (SEC), to oversee the activities of their members and enforce compliance with applicable laws and regulations. Key points about SROs:
- Purpose: The primary purpose of SROs is to protect investors and maintain the integrity of the financial markets by establishing and enforcing rules and standards for their members.
- Delegation of authority: SROs are granted their authority by the government through legislation, such as the Securities Exchange Act of 1934, which requires the registration of national securities exchanges and associations as SROs.
- Responsibilities: SROs have a range of responsibilities, including:
- Establishing rules and standards for their members related to business conduct, financial responsibility, and market integrity
- Monitoring and enforcing compliance with these rules and standards, as well as applicable federal securities laws
- Providing education and training to their members to promote compliance and ethical behavior
- Conducting examinations and investigations of their members and imposing disciplinary actions for violations
- Oversight: While SROs have significant autonomy in regulating their members, they are subject to oversight by government agencies like the SEC, which reviews and approves SRO rules and can take enforcement action against SROs that fail to fulfill their regulatory responsibilities.
SROs play a critical role in the financial regulatory framework by leveraging their industry expertise and close proximity to market participants to establish and enforce rules that protect investors and maintain the integrity of the financial markets.