Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

Which organization is the SRO for the OTC market?

1. National Association of Securities Dealers

2. Financial Industry Regulatory Authority (FINRA)

3. Securities and Exchange Commission (SEC)

4. Investment Company Institute

The correct answer is: Financial Industry Regulatory Authority (FINRA)

The correct answer identifies the Financial Industry Regulatory Authority (FINRA) as the self-regulatory organization (SRO) for the over-the-counter (OTC) market. FINRA plays a critical role in overseeing brokerage firms and ensuring fair trading practices in the securities industry. It establishes rules for conducting business in the OTC market, monitors compliance, and enforces regulations to protect investors. Study of the OTC market is essential because it operates differently from stock exchanges. In this market, securities are traded directly between parties, and the need for effective regulation and oversight by an SRO like FINRA is crucial to maintaining the integrity and transparency of these transactions. Other organizations mentioned, such as the National Association of Securities Dealers, no longer operates independently as it merged into FINRA in 2007. The Securities and Exchange Commission (SEC) is a federal regulatory agency that oversees the securities industry more broadly but does not serve as an SRO for specific markets. The Investment Company Institute is a trade association for mutual funds and other investment companies, rather than a regulatory body. Thus, the association of FINRA with the SRO for the OTC market stands out as the most accurate option.