Which statement best describes the fundamental difference between the SEC and FINRA in the regulation of the US securities markets?
- AFINRA is a federal government agency created by statute, while the SEC is a private membership body that reports to FINRA on broker-dealer conduct.
- BBoth the SEC and FINRA are self-regulatory organisations owned by the exchanges, sharing identical statutory authority over issuers.
- CBoth the SEC and FINRA are agencies of the federal government, differing only in the geographic regions of the country that each supervises.
- DThe SEC is a federal government agency created by statute, while FINRA is a self-regulatory organisation that oversees broker-dealers under SEC supervision. Correct
Why A is wrong: Tempting because both bodies regulate firms, but it reverses their nature: FINRA is the private SRO and the SEC is the government agency, not the other way round.
Why B is wrong: Tempting because both write rules for the industry, but the SEC is a government agency, not an SRO, and the two do not hold identical authority.
Why C is wrong: Tempting because both have national reach, but FINRA is not a government agency and neither is divided by region; the distinction is agency versus SRO.
Why D is correct: Correct: the SEC is a government agency established by the Securities Exchange Act of 1934, and FINRA is an SRO whose rules and enforcement are subject to SEC oversight.