What is the purpose of a Self-Regulatory Organization (SRO)?

What is the purpose of a Self-Regulatory Organization (SRO)?

• A. To exempt firms from all regulations
• B. To create confidential agreements between investors
• C. To establish and enforce industry regulations
• D. To manage all financial institutions directly

Answer: (C)

The purpose of a Self-Regulatory Organization (SRO) is to establish and enforce industry regulations. SROs play a crucial role in the financial industry by creating a framework of rules and guidelines that members must follow to ensure fair practices, transparency, and investor protection. They are tasked with monitoring the adherence to these regulations and can impose penalties on members who fail to comply, thereby maintaining the integrity of the market. SROs operate independently but are often recognized by regulatory authorities, allowing them to operate with a degree of authority in overseeing specific sectors of the financial industry.

The other options suggest functions that do not align with the primary role of an SRO. Exempting firms from all regulations undermines the purpose of regulation in the first place, while creating confidential agreements between investors does not pertain to the enforcement of industry standards. Managing all financial institutions directly is also outside the scope of an SRO, which typically operates in a more focused manner within a specific sector rather than overseeing all financial entities comprehensively.