what is a self regulatory organization sro 
a self regulatory organization sro is an entity such as a non governmental organization which has the power to create and enforce stand alone industry and professional regulations and standards on its own in the case of financial sros such as a stock exchange the priority is to protect investors by establishing rules regulations and setting standards of procedures that promote ethics equality and professionalism understanding self regulatory organizations sros although sros are private organizations they are still subject to government imposed regulation to a degree however the government does delegate some aspects of the industry oversight to self regulatory organizations since the sro has some regulatory influence over an industry or profession it can often serve as a watchdog to guard against fraud or unprofessional practices the ability of an sro to exercise regulatory authority does not stem from a grant of power from the government instead sros often accomplish control through internal mechanisms that regulate the flow of business operations the authority may also come from an external agreement between businesses the purpose of these organizations is to govern from within while avoiding ties to a country s governance any applicable laws or governmental regulations will apply and be foremost while those set by the sro become supplemental authority of srosonce the self regulating organization sets regulations and provisions to guide activity those rules are binding failure to operate within the given regulations can have consequences and a firm must understand those rules when it considers associating with the sro further the sro may set standards for professionals or businesses to meet before becoming a member such as having a specified educational background or working in a manner that is considered ethical by the industry an additional function undertaken by the sro is educating investors on appropriate business practices the sro will provide information and allow input on any areas of interest or concern which may include fraud or other unethical industry activities the sro may also help investors understand how their investments work and advise on methods to mitigate potential risks associated with the securities industry examples of srosmost people have heard of sros even if they did not realize the organization in question was self regulatory these include several prominent asset exchanges and regulatory bodies including there may also be self regulatory organizations specific to the country they serve such as the investment industry regulatory organization of canada iiroc and the association of mutual funds in india amfi some industries may also create sros with examples being the american bar association and the institute of nuclear power operations inpo financial sros are required to file form 19b 4 with the sec before making any changes to its rules specifically in regard to trading rules in the filing the sro must justify the new rules to sec staff making it clear that the rule change supports fair trading markets and provides investor protections and requisite oversight procedures as an example the financial industry regulatory authority finra has the power to license securities dealers their authority includes the ability to audit dealers and associated firms and to ensure compliance with the standards currently in place the goal is to promote ethical industry practices and improve transparency within the sector finra also oversees arbitration between investors brokers and other involved parties this oversight provides a standard to address various disputes although it also limits actions a firm may take outside of the system finra is not a governmental organization instead it is a private organization populated by member firms that consist of financial institutions like broker dealers and financial professionals the rules and regulations promoted and enforced by finra are thus under the auspices of a self regulatory framework governmental laws or mandates fall under the control of the securities and exchange commission sec the laws of the federal or state level of government will supersede any finra specific regulations 