Self-regulatory organization

Self-regulatory organization

A self-regulatory organization (SRO) is an organization that exercises some degree of regulatory authority over an industry or profession. The regulatory authority could be applied in addition to some form of government regulation, or it could fill the vacuum of an absence of government oversight and regulation. The ability of an SRO to exercise regulatory authority does not necessarily derive from a grant of authority from the government.

In United States securities law, a self-regulatory organization is a defined term. The principal federal regulatory authority — the Securities and Exchange Commission (SEC) — was established by the Federal Securities Exchange Act of 1934. The SEC delegates authority to the National Association of Securities Dealers (the NASD) and to the national stock exchanges (e.g., the NYSE) to enforce certain industry standards and requirements related to securities trading and brokerage. On July 26, 2007 the SEC approved a merger of the enforcement arms of the NYSE and the NASD, to form a new SRO, the Financial Industry Regulatory Authority. In addition, Congress created the Municipal Securities Rulemaking Board (the MSRB) as an SRO charged with adopting investor protection rules governing broker-dealers and banks that underwrite, trade and sell tax-exempt bonds, 529 college savings plans and other types of municipal securities.

The American Arbitration Association is also an SRO with official, statutory status.

Because of the prominence of the SROs in the securities industry, the term SRO is often used too narrowly to describe an organization authorized by statute or government agency to exercise control over a certain aspect of the industry.

The National Association of Realtors (NAR) is an example of an SRO that fills the vacuum left by the absence of government oversight or regulation. The NAR sets the rules for Multiple Listing Services and how brokers use them. Another example is the American Medical Association which sets rules for ethics, conflicts, disciplinary action, and accreditation in medicine.


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