Securities Industry Essentials (SIE) ExamOverview of Regulatory FrameworkHard
A broker-dealer firm is preparing to open for business and needs to ensure it is properly registered. According to FINRA rules, which of the following is true regarding membership for broker-dealers?
- AAll broker-dealers conducting a securities business with the public must be FINRA members.
- BBroker-dealers dealing exclusively in municipal securities are exempt from FINRA membership.
- CBroker-dealers can choose to be regulated by either FINRA or the SEC, but not both.
- DMembership in FINRA is voluntary for broker-dealers that only conduct business intrastate.
Show answer & explanationAnswer & explanation
Correct answer: A. All broker-dealers conducting a securities business with the public must be FINRA members.
FINRA rules generally require that all broker-dealers conducting a securities business with the public, unless specifically exempt (which is rare), must be members of FINRA. This requirement ensures broad regulatory oversight.
Why the other options are wrong
- B. Broker-dealers dealing in municipal securities are subject to MSRB rules but are still required to be FINRA members for enforcement and general conduct rules.
- C. FINRA is an SRO under the SEC; broker-dealers are regulated by both the SEC (federal law) and FINRA (SRO rules).
- D. Intrastate broker-dealers are still typically required to be FINRA members if they engage in public securities business.
Mandatory FINRA Membership
With very few exceptions, all broker-dealers engaged in the securities business with the public in the United States are required to be members of FINRA.
- Applies to nearly all broker-dealers.
- Ensures uniform industry standards and oversight.
- Exceptions are very limited (e.g., direct issuer sales, some bank activities).
Memory trick: All Public Dealers Must Join FINRA.