What is the primary focus of Self-Regulatory Organizations (SROs)?

• A. To limit the number of market participants
• B. To protect investors and ensure ethical practices
• C. To maximize profits for their members
• D. To eliminate competition within the market

Answer: (B)

The primary focus of Self-Regulatory Organizations (SROs) is to protect investors and ensure ethical practices within the securities industry. SROs function as overseers of market participants, establishing rules and guidelines that promote fairness, transparency, and integrity in financial markets. By enforcing compliance with these regulations, SROs aim to build investor confidence and maintain the stability of the financial markets.

Through their regulatory framework, SROs also monitor the activities of broker-dealers and other financial institutions, ensuring that they adhere to established ethical standards and conduct their business in a manner that safeguards the interests of investors. This protective role is crucial in fostering a trustworthy and stable investment environment, which ultimately contributes to the health of the whole financial system.

Other options do not align with the core purpose of SROs. For example, limiting market participants or eliminating competition would counteract the principles of a free market, while maximizing profits for members at the expense of ethical behavior would undermine investor protection.