Chapter 12 Flashcards Preview

Series 7 > Chapter 12 > Flashcards

Flashcards in Chapter 12 Deck (104)
1


True or False: Term bonds are quoted on a yield basis.

False. Term bonds are quoted on a dollar basis (% of par).

2

Serial bonds are quoted on a ___________________ basis.

yield-to-maturity

3

True or False: MBIA, FGIC, and AMBAC protect customers against broker-dealer bankruptcy.

False. MBIA, FGIC, and AMBAC insure municipal bond offerings, while SIPC protects against broker-dealer bankruptcy.

4

Do S&P and AM Best insure municipal bonds?

No, they provide bond ratings

5

What type of syndicate has members responsible only for their specific allocation - Eastern or Western?

Western or Divided

6

What type of syndicate is formed when members retain a level of liability until all bonds are sold - Eastern or Western?

Eastern or Undivided

7

______________________ bonds would most likely require voter approval.

GO - General Obligation

8

Which bond would most likely require a feasibility study to be issued?

Revenue Bonds

9

How is the underwriter determined for a Negotiated Sale?

Issuer choice

10

How is the underwriter determined for a Competitive Sale?

Goes to bid

11

What advertises that municipal bonds are available and invites underwriters to bid on a new competitive issue?

Notice of Sale

12

Where can Notices of Sale be found?

The Bond Buyer

13

The document underwriters submit to issuers when bidding on a competitive issue is called the ______________________.

Official Bid Form

14

When bidding on a new issue, what will underwriters first determine?

Reoffering Yield

15

At bid submission, does Net Interest Cost (NIC) or True Interest Cost (TIC) take into account the time value of money?

True Interest Cost (TIC), also called the Canadian Method

16

True or False: The legal opinion addresses the creditworthiness of an issue.

False. Legal opinions address the legality (authority/validity) of the issue and the tax exemption of the interest.

17

If a bond counsel has no concerns related to the new offering, the counsel may render an ______________ opinion.

unqualified

18

What type of opinion will a bond counsel render if the legality of the issue is in question or a lawsuit is pending?

Qualified

19

What is the difference between what the syndicate pays the issuer for the new issue and the public offering price?

The underwriting spread

20

Name the three components of the spread for a bond offering.

1. Manager’s fee 2. Additional takedown 3. Sales concession

21

What is the spread minus the manager’s fee?

The total takedown

22

The total takedown is made up of ____________ + _____________.

Additional takedown and sales concession

23

What would a member of the syndicate (not the manager) earn for selling bonds?

The total takedown

24

A BD that is a part of the selling group (not a syndicate member) would only be entitled to the ____________________.

Sales concession

25

Why will the manager prioritize orders for the purchase of bonds sold through the syndicate?

To give the maximum benefit to the entire syndicate as a group versus any one particular member

26

List the priority of orders from first to fourth.

1. Presale orders 2. Group net orders 3. Designated orders 4. Member orders

27

What orders are placed prior to the actual awarding of the issue to the syndicate?

Presale Orders

28

_________ orders are those in which only one member earns the total takedown.

Member Orders

29

What orders benefit the entire syndicate by percentage of liability?

Group Net Orders

30

____________ orders are given to a syndicate and identify two or more members (not all) to receive credit for the sale.

Designated Orders

31

What is the disclosure document, similar to a prospectus, that is used for municipal bonds?

Official Statement

32

Is it mandatory for a municipal issuer to prepare an Official Statement?

No, but if one has been prepared, the MSRB requires BDs to distribute it.

33

True or False: MSRB rules regulate the municipal activities of BDs, banks, and the employees of these institutions.

True. Also regulates advertising

34

What is the purpose of a Tombstone Ad?

It calls attention to the new issuance of securities and members of the syndicate.

35

Who is responsible for the formulation and interpretation of rules for the municipal industry?

MSRB

36

Does the MSRB have the authority to enforce its own rules?

No

37

Who enforces MSRB rules?

BD Enforcement: SEC or FINRA

Bank Dealer Enforcement: FRB, FDIC, or the Comptroller of the Currency

38

Those qualified as municipal RRs (Series 52) may sell, trade, or underwrite municipals, but may not ____________ sales.

Supervise

39


What is the appropriate registration designation to supervise the municipal activity for a BD?

Series 53. Municipal Securities Principal

40

Before dealing with the public, municipal securities representatives must serve a ____ day apprenticeship period.

90 day

41


Series ____ or Series _____ will qualify an individual to sell municipal securities.

Series 7 or Series 52

42

What are the limitations while serving the MSRB's apprenticeship period?

No dealing with customers (only with other municipal professionals) and no commissions (only straight salary)

43

True or False: Municipal securities representatives may sell municipal bond funds.

False, may only sell individual bonds

44

What is the document that establishes the agreement between the issuer and the underwriter?

Underwriting Agreement

45

If a bid is unsuccessful, when must the manager return the syndicate member's portion of the good-faith deposit?

Within 2 business days

46

True or False: A broker's broker deals with other BDs, but does not deal with the public or underwrite new issues.

True

47


If a BD wants to sell municipal bonds and have significant exposure to different bids, who should it contact?

A Broker's broker

48

Where can Visible Supply figures and the Placement Ratio for municipals be found?

The Bond Buyer

49

Are Visible Supply figures compiled daily or weekly?

Daily

50

Is the Placement Ratio compiled daily or weekly?

Weekly

51

The Visible Supply figure indicates the number of municipals expected to reach the market within the next ____ days.

30 days

52

True or False: The Visible Supply figure will only include municipal bonds.


False. The Visible Supply figure shows municipal bonds or notes being offered on a negotiated or competitive basis.

53

What does the Placement Ratio indicate?

The number of bonds that were sold during the week compared to what was available for sale (the demand side)

54

The 20 GO Bond Index is composed of ____ GO bonds with ____-year maturities.

20 GO bonds with 20 year maturities

55

The average rating for the 20 GO Bond Index is ____________.

AA or Aa2

56

True or False: The 11 GO Bond Index is composed of 11 of the 20 bonds in the 20 GO Bond Index.

True

57

Is the average credit rating of the 11 GO Bond Index higher or lower than the 20 GO Bond Index?

Higher. AAA+ or Aa1

58

The index showing the average yield on 25 revenue bonds with 30-year maturities is called the ______________________.

Revenue Bond Index

59

Is the average credit rating of the Revenue Bond Index higher or lower than the GO Bond Indexes?

Lower. A+ or A1

60

When do municipal bond trades settle?

T + 3

61

When will a cash trade for a municipal bond settle?

Same day

62


For a municipal bond to be considered good delivery, is a Legal Opinion mandatory?

Yes

63

For municipal bearer bonds, what factors determine good delivery?

All unpaid coupons attached and the bonds denominated in $1,000 or $5,000 increments

64

For municipal registered bonds, what factors determine good delivery?

Proper assignment and the bonds denominated from $1,000 to $100,000 in $1,000 increments

65

____________ is the buyer's refusal to accept the delivery of municipal bonds.

Rejection

66

______________ is the return of municipal bonds that were originally accepted for delivery.

Reclamation

67

List some of the information to be included on a municipal customer confirmation.


Description, price and yield (lower of YTM or YTC), BD capacity (commission for agency), trade and settlement dates

68

When must customer confirmations be sent?

By the completion of the transaction

69

What yield would be disclosed for a bond purchased at a discount?

Yield to Maturity (YTM)

70

What yield would be disclosed for a bond purchased at a premium and callable at par?

Yield to Call (YTC)

71

What yield would be disclosed for a bond purchased at a premium and callable at a premium?

The lower of the YTM or YTC

72

What yield would always be disclosed for a bond that has been prerefunded?

YTC

73

What is created when a BD employee has influence over the debt service of an issuer (e.g., an employee is a mayor)?

Control Relationship

74


If a control relationship exists, how may the relationship be disclosed?

Orally, before a trade, and then in writing, at or before settlement

75


True or False: Disclosure is not needed if a control relationship exists and bonds are placed in discretionary accounts.


False, specific written customer authorization is needed

76

Who supervises a firm's municipal activities and provides account approval, transaction review, and complaint handling?

Municipal Securities Principal (Series 53)

77

$_____ is the MSRB gift rule limitation.

$100

78

Is an official statement or preliminary official statement considered advertising?

No, but a summary abstract would be.

79

What relationship is created when a BD receives a fee for giving advice to a municipality regarding a new issue?

Financial Advisory Relationship

80

What's required of BDs with a financial advisory relationship with an issuer to bid for the issuer's competitive sale?

Obtain the issuer's written permission

81

What's required of BDs with a financial advisory relationship with an issuer to engage in the issuer's negotiated sale?

1) Terminate relationship 2) Disclose conflict and anticipated comp. to issuer 3) Disclose relationship to customers

82

Does a BD acting in a financial advisory capacity need to refund advisory fees upon becoming the issuer's underwriter?

No

83

Put the following four types of orders in the correct priority: Group Net, Member, Presale, Designated

Presale, Group Net, Designated, Member

84

The ___________________ has the authority to change the priority of orders.

Syndicate Manager

85

True or False: Syndicate managers may change the priority of orders if justifiable and in the syndicate's best interest.

True

86

Who is the associated person who primarily engages in or supervises municipal securities business?

Municipal Finance Professional (MFP)

87

Political contribution rules allow MFPs who may vote for a candidate to contribute a maximum of $_____ (per election).

$250

88

Political contribution rules allow MFPs NOT able to vote for a candidate to contribute a max. of $___ (per election).

$0

89

What is the penalty for political contributions that violate the rule?

A two-year ban on obtaining negotiated underwriting business from the issuer

90


Are BDs who violate the political contribution rule banned from obtaining competitive underwriting deals from issuers?

No, since the deal is obtained on the merits of the bid.

91

True or False: The MSRB has no authority or control over municipal issuers.

True

92

What is a municipal indenture or bond resolution?

The contract between the issuer and the bondholders

93

What's stated in a municipal indenture (bond resolution)?


Issuer's responsibilities, bondholders' rights, and the different covenants (pledges) made to protect bondholders

94

When a municipal dealer gives a firm quote for a specific period (e.g., 1 hour), the bonds are considered ___________.

out firm

95

True or False: A recall provision notifies clients that the time period on an out-firm bond quote has been shortened.

True

96

What information would the manager of a municipal underwriting provide in the Syndicate Letter?

Underwriting type (negotiated/competitive), amount, allocation, priority of orders, type of account (eastern/western)

97

What will a firm establish between departments to restrict the flow of potential insider information?

Information Barriers; China Walls

98

What must be implemented to limit the flow of communication between research and investment banking departments?

Information Barriers

99

A BD is ready to issue a favorable research report. What must exist for the BD to continue regular trading operations?

Effective information barriers must be in place.

100


A BD is ready to issue a favorable research report. Information barriers must exist between what two departments?

Research and Trading

101

What is the purpose of an information barrier between trading and research departments?

To prevent the trading department from learning of an impending report about a stock in which the firm has a position

102

True or False: The Syndicate Letter is also referred to as the Agreement Among Underwriters.

True

103

A political contribution made from a joint checking account may exceed $250 if signed by ___________.

both owners

104

Is a $300 political contribution from a joint checking account a violation if the check is only signed by the MFP?

Yes