Practice: 1.1.2 Self-regulatory Organizations (SROs)

Section 1: Knowledge of Capital Markets. 13 question(s) in this unit's pool (3 above the exam). Free up to ten a day; the coach picks which ones based on what you have already answered and when each is next due.

Section 1: Knowledge of Capital MarketsSIE outline 1.1.2
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Today's practice

Pick an answer, say how sure you are, then reveal. Every wrong choice gets its own explanation. Questions you have already answered correctly and confidently stay out of the way until they are due for review again.

Question 1Exam level

Which of these bodies has no examination staff and no enforcement authority of its own?

How sure are you?

Correct: C. The MSRB writes municipal rules and stops there; it has no examiners of its own.
A. FINRA examines its own member firms and brings enforcement actions.
B. The SEC has its own enforcement powers over federal securities law.
D. The Federal Reserve supervises banks directly and enforces Regulation T within its own domain.

Unit: SIE outline 1.1.2

Question 2Harder

Which SRO's scope is limited to standardized options, and cannot itself clear or guarantee a contract?

How sure are you?

Correct: C. CBOE is the SRO for standardized options, the narrowest scope of the three named SROs, and it does not itself clear or guarantee a contract; that belongs to the Options Clearing Corporation.
A. FINRA's scope is broker-dealers generally, across most product lines, not limited to options.
B. The MSRB's scope is municipal securities, unrelated to options.
D. NASAA is a state-level association, not an options SRO.

Unit: SIE outline 1.1.2

Question 3Exam level

Which SRO is the exchange SRO for listed options, writing and enforcing its own rulebook for trading on that market?

How sure are you?

Correct: A. CBOE is scoped to listed options and, like FINRA, both writes and enforces its own rulebook.
B. The MSRB writes municipal-securities rules but never enforces them, and its scope is municipal securities, not listed options.
C. The SEC oversees SROs but does not write or enforce exchange-trading rules directly.
D. FINRA governs broker-dealers broadly; the outline names CBOE specifically as the exchange SRO for listed options.

Unit: SIE outline 1.1.2

Question 4Exam level

An SRO finishes writing a new rule for its own members. What must happen before that rule can take effect?

How sure are you?

Correct: A. Every SRO's rulebook is filed with and can be reviewed by the SEC before it stands.
B. An internal member vote does not replace SEC review of the filed rule.
C. Publication alone, without SEC review, is not how an SRO's rulebook is checked.
D. An unwritten-into-force rule with no SEC review at all contradicts the oversight structure the outline names.

Unit: SIE outline 1.1.2

Question 5Exam level

What must be true of a body before it counts as a self-regulatory organization on this outline?

How sure are you?

Correct: A. A self-regulatory organization is an industry body, not a government one, given authority under SEC oversight to write and enforce rules for its own members.
B. An SRO is explicitly an industry body, not a government one.
C. SEC oversight is part of the definition, not its absence.
D. SROs are industry-funded, not funded directly by the Treasury.

Unit: SIE outline 1.1.2

Question 6Exam level

Which statutory provision is the hook for FINRA's existence as a registered securities association?

How sure are you?

Correct: C. Exchange Act Section 15A, Registered Securities Associations, is the provision under which FINRA registers with the SEC.
A. Securities Act Section 7 sets what a registration statement must contain, unrelated to an association's own registration.
B. Exchange Act Section 12 governs registration of securities, not of an association.
D. Securities Act Section 23 governs claims of SEC approval, a different subject entirely.

Unit: SIE outline 1.1.2

Question 7Exam level

A municipal securities dealer at a bank breaks MSRB Rule G-32. Who enforces it against that dealer?

How sure are you?

Correct: C. The MSRB has no examination staff; at a bank dealer, that bank's own federal banking regulator enforces the rule.
A. The MSRB writes rules but brings no enforcement actions of its own.
B. FINRA enforces MSRB rules only against broker-dealers, not against bank dealers.
D. The SEC oversees the SRO layer; it is not the first-line enforcer of an MSRB rule at a bank dealer.

Unit: SIE outline 1.1.2

Question 8Exam level

What is CBOE's jurisdiction, as the SIE outline frames it?

How sure are you?

Correct: B. CBOE's jurisdiction is the listed options contracts traded on its own market, and the members who trade them there.
A. Overstates CBOE's reach; stocks and bonds generally are not its jurisdiction.
C. Municipal securities are the MSRB's subject, not CBOE's.
D. No single SRO covers every other SRO's members; each has its own defined lane.

Unit: SIE outline 1.1.2

Question 9Harder

A registered representative at a broker-dealer breaks an MSRB primary-offering disclosure rule. Which body wrote the rule, and which body enforces it here?

How sure are you?

Correct: B. MSRB Rule G-32 is written by the MSRB; because the rep works at a FINRA member firm and the MSRB has no examiners, FINRA brings the action.
A. The MSRB never enforces its own rules; it has no examination staff.
C. Reverses the roles; FINRA does not write municipal disclosure rules, the MSRB does.
D. The SEC did not write this rule; the MSRB did, under its own rulemaking authority.

Unit: SIE outline 1.1.2

Question 10Harder

A rep at a FINRA member firm sells a new municipal issue without the required disclosure. The identical conduct then happens at a bank's own municipal dealer desk. In both cases, whose rule was broken, and does the enforcer change?

How sure are you?

Correct: B. The rule broken is MSRB Rule G-32 in both cases; the enforcer changes with the firm type, FINRA for the broker-dealer, the bank's own federal banking regulator for the bank dealer.
A. The rule does not change between the two scenarios, only the enforcer does.
C. The MSRB brings no enforcement action in either scenario; it has no examination staff.
D. The SEC oversees the SRO structure; it is not the first-line enforcer in either scenario.

Unit: SIE outline 1.1.2

Question 11Above the exam

A bank that operates a municipal securities dealer desk fails, and separately, that same bank's affiliated broker-dealer violates an MSRB rule on an unrelated municipal bond sale. Which body insures the bank depositors, and which body enforces the MSRB rule violation at the broker-dealer?

How sure are you?

Correct: B. A bank failure is the FDIC's subject, insuring deposits up to its stated limit. The MSRB rule violation happened at the broker-dealer, a FINRA member firm, so FINRA enforces it there, regardless of the affiliated bank's separate failure.
A. SIPC responds to a failed brokerage, not a failed bank, and the MSRB never enforces its own rules.
C. The enforcer of an MSRB rule depends on where the violation occurred, at the broker-dealer, not on which entity in the group happened to fail; a bank regulator enforces MSRB rules against a bank municipal dealer, not against an affiliated broker-dealer.
D. Wrongly assigns SIPC to a bank failure and the wrong enforcer to the broker-dealer violation.

Unit: SIE outline 1.1.2

Question 12Above the exam

A new association of broker-dealers wants to register with the SEC as a national securities association, the way FINRA did. Which provision would it register under, and would that registration make it a federal agency?

How sure are you?

Correct: A. Exchange Act Section 15A, Registered Securities Associations, is the same hook FINRA registers under; registering there does not turn a body into a federal agency, it becomes an SRO, non-governmental and industry-funded, the same as FINRA.
B. Securities Act Section 7 governs registration statement contents, unrelated to an association's own registration, and confers no federal-agency status.
C. Exchange Act Section 12 registers securities, not associations, and invents a state-regulator outcome the source never states.
D. Securities Act Section 23 governs claims of SEC approval, an unrelated subject, and invents a reporting relationship to Congress found nowhere in the source.

Unit: SIE outline 1.1.2

Question 13Above the exam

Of the three SROs the outline names, FINRA, the MSRB and CBOE, which two both write their own rules and enforce them directly against their own members, unlike the third?

How sure are you?

Correct: A. FINRA writes and enforces against its member firms; CBOE writes and enforces on its own exchange floor. The MSRB is the one that writes and then hands enforcement to FINRA or a bank regulator.
B. Wrongly includes the MSRB among the write-and-enforce pair; the MSRB has no examination staff of its own.
C. Wrongly excludes FINRA, which both writes and enforces its own rules against member firms.
D. Treats all three as identical, erasing the one structural difference the lesson is built around.

Unit: SIE outline 1.1.2