Financial Industry Regulatory Authority (FINRA) Practice Exam 2025 - Free FINRA Practice Questions and Study Guide

The reason why credit unions cannot function as a depository for securities transactions stems from the nature of their operations and regulatory framework. Credit unions primarily serve as financial institutions that provide banking services such as savings accounts, loans, and other financial products to their members. They are not designated as depositories for securities, which are specialized institutions that handle the custody and transfer of securities.

In contrast, entities like the National Securities Clearing Corporation (NSCC) and the Depository Trust Company (DTC) are specifically established to facilitate the clearing, settlement, and safekeeping of securities transactions. These organizations have the infrastructure and regulatory compliance in place to manage large volumes of securities efficiently and securely. Carrying firms, which are broker-dealers that hold client securities and maintain customer accounts, also play a role in the handling of securities transactions, but they do not operate as central depositories themselves.

Therefore, while credit unions serve a vital role in the broader financial system, they do not have the specialization or regulatory status required to function as a depository for securities transactions.