Chapter 1 Flashcards
(26 cards)
What is the Securities Act of 1933
Paper Act. Requires public disclosure prior to offering securities for sale. Prohibits fraud and deceit in marketing of securities.
What securities are exempt from registration under the 1933 Securities Act?
Securities issued by: Federal government; Municipal entities, banks and credit unions, gov agencies and GSEs.
What is the composition of the MSRB?
21 members, each serving a four year term
11 must be independent of the industry including at least one institutional or retail investor, one representative of municipal entities, one knowledgeable member of the public.
10 must be regulated entities including at least one bank dealer, one broker-dealer, and one MA. Not less than 30% should be MAs.
Examples of General Advice
Do not need to register as MA, so long as advice is limited to:
Info about professional qualifications
General market and financial information
Information regarding a client’s currently available investments
Information requested by client regarding price quotes that are readily available in the market meeting criteria defined by client
Factual information describing various types of debt structures, including pro/cons of these structures
What is the Securities Exchange Act of 1934?
Regulates reselling of securities “the secondary market”. Known as the “people act”. Four critical provisions include:
1) Contains important trading laws - including insider trading
2) Allows securities exchanges to regulate themselves as long as they register with the SEC and devise a set of rules
3) Creates the SEC to create and enforce securities laws
4) Requires brokers and dealers to register with securities associations
Acceptable business promotional materials
1) Potential price range for factors in current market conditions
2) Info about client’s current debt and how it compares to current market yields.
3) Potential range of interest rates for a new issuance of debt
4) Quoting SLGS
5) Info demonstrating savings as long as the new debt has the same structure as existing debt
What is a bank dealer?
Bank dealer is a muni securities dealer that is a bank or separate department of a bank engaged in muni dealer activities.
Activities include underwriting, financial advising, processing or clearing activities, research or investment advice, and maintenance of records.
What does Dodd/Frank do?
Creates new agencies designed do:
1) Monitor and limit financial businesses that are too big to fail;
2) Prevent predatory lending;
3) Control banks who could threaten the financial system
4) Provide regulations to make the muni market more transparent.
Amends 1934 Act to prevent: Pay to Play Undisclosed conflicts of interest Giving advice without being qualified Placing own interests above municipal entity
MSRB registration
1) Must fill out form A-12
2) Must pay initial registration and annual registration fees of $1,000 each
3) Must update A-12 within 30 days of info becoming inaccurate
4) Annual registration fee is due by 10/31
5) May be assessed late fees of $25 per month
What is form MA-I?
Form that must be sent to the SEC for any person engaging in MA activities on behalf of the firm. $500 annual fee to SEC.
What are the conflicts of interest of MAs that must be disclosed?
How do you disclose them?
1) If MA has an affiliate that is advising the client in the same issue
2) MA paid, directly or indirectly, to be the MA
3) MA was paid by 3rd party to recommend the 3rd party to the client
4) MA is involved in a fee-splitting arrangement with entity that provides investment or other services
5) MA will be paid contingent on size of transaction
If there are no conflicts, then they must say so in writing
Must also disclose if MA is involved in legal proceedings that may impact their work
Limitations on gift giving
Cannot give gifts over $100, exceptions include:
1) occasional gifts of meals or tickets if municipal advisor accompanies client to the event
2) legitimate deductible expenses
3) promotional gifts of nominal value that bear the advisor’s logo
4) gifts that commemorate a transaction
5) gifts of negligible value, like pens and notepads
6) Personal gifts on special occasions, rep must have personal relationship with the person and the firm must not pay for the gift)
To determine value, MA must take the cost they paid or market value (whichever is higher)
Cannot seek reimbursement of gifts from proceeds of bond sale, except for reasonable travel expenses
MAs are prohibited from what conduct?
1) being compensated excessively
2) Providing an invoice with material inaccuracies
3) providing any information it knows is false or misleading to secure a client
4) Being involved in a fee-splitting arrangement with an underwriter when they are the MA
5) paying to obtain an MA relationship, except
- When payment is to an affiliate
- payment is to another MA
- payment is part of normal business dealings
6) Engaging in a principal transaction with a client (narrow exception for fixed-income transaction)
Suitability of recommendations must include
1) Explanation of risks and benefits fo the transaction
2) Reasons the MA thinks this may be suitable or unsuitable
3) Whether the MA has considered alternatives to the recommendation
Written Supervisory Procedures
1) Must designate one or more principals
2) Must establish policies to test and modify WSPs and conduct annual compliance review
What are the Securities Acts Amendments of 1975
1) Brokers-dealers are required to register with SEC. Banks that deal with municipal securities must register as muni securities dealers.
2) Transactions in munis are not exempt from anti-fraud regulations.
3) SEC has rulemaking and enforcement authority over broker-dealers and muni securities dealers.
4) Creates the MSRB
5) MSRB doesn’t have enforcement authority
What is a municipal securities dealer?
Broker-dealers or bank dealers that underwrite, trade, and sell municipal securities.
Does not include: buyers/sellers of munis for their own account, but not as part of a regular business or banks that only act as agents and not dealers.
Must register as a municipal securities dealer if you do any of the above activities.
Form A-12
1) Must designate the following: Primary regulatory contact, master account administrator, billing contact, compliance contact, primary data quality contact.
2) Primary and optional regulatory contacts must be registered principals
If withdrawal from MA business was involuntary, it must explain why.
Annual affirmation period begins on 1/1 and ends 17 business days later. Process must be undertaken by Principal regulatory contact, optional regulatory contact, or compliance contact.
If initial application is made during annual affirmation period, then you don’t need to file an additional affirmation for that year.
How often must dealers and advisors disclose political contributions? What must be disclosed?
Quarterly reports must be filed.
Should contain name and title of each official and political party receiving contributions, identity of each contributor, contribution amounts.
Describe the Underwriter exclusion
Underwriter may give advice as long as they are engaged through a contractual agreement. The agreement should agreement should contain:
1) Written approval by the governing body
2) Information relating to the underwriting services
3) Role of the Broker-Dealer in the transaction
4) Information relating to the particular issuance that they are working on (May not act as UW and MA on the same issue)
5) All disclosures that are required by underwriters
Who is exempt from registering as a Municipal Advisor?
1) Natural Persons employed by an MA
2) Municipal Employees
3) RFP (RFP must be sent to at least 3 participants, or posted on website)
4) Banks
5) Swap Dealers
6) Accountants
7) IRMA Exemption (IRMA must be registered with SEC and not affiliated with market participants, City must provide market participant with notice that they have an IRMA, Market participants must disclose that they are not an MA and has no fiduciary duty)
Exclusions from definitions of MA
1) Municipal securities broker-dealers serving as underwriters
2) Registered investment advisers
3) lawyers offering legal advice
4) Engineers
5) Commodities trading advisors providing advice relating to swaps
What are the anti-fraud regulations under the 1975 Amendments?
1) It is unlawful to use any “manipulative or deceptive” device when offering or selling a security.
2) It is unlawful to profit from untrue statements or by omitting material facts.
3) It is unlawful to engage in any transaction that would defraud or deceive the purchaser of the security.
4) It is unlawful to create a false or misleading impression of active trading in a security.
5) Fraud “in connection with” securities transactions is prohibited.
6) Insider trading is prohibited.
7) Conflicts of interest must be disclosed.
Documentation of MA relationship must include:
1) Date
2) Information about compensation
3) Conflicts of interest
4) Explanation of any legal or disciplinary information
5) Date of most recent change to legal or disciplinary information on form MA
6) Description of activities to be performed
7) Date the relationship will end or description of events that would cause it to end
