Chapter 2.3 Flashcards
(14 cards)
Accumulation account
An account set up by the sponsor of a unit investment trust to hold bonds purchased for eventual deposit into a municipal unit investment trust when the trust is formally created
Date of Sale
- Competitive Deal: The date by which bids must be submitted.
- Negotiated Deal: The date on which the purchase agreement for the bonds is signed.
Municipal Investment Trust
A unit investment trust which consists of municipal securities.
Priority Provisions
The syndicate rules setting out the allocation procedures for bonds in syndicate, noting that priority must be given to customer orders over orders from the syndicate.
Related Portfolio
A portfolio investing in municipal securities which is affiliated in some way with a municipal securities dealer. Disclosure of all related portfolio orders is required on the order tickets under MSRB rules.
Order confirmation
Orders executed for “Related portfolios” may be confirmed directly to the related portfolio or to the dealer that submitted the order. Related portfolios do not have to be entered for the benefit of the syndicate(group order).
Syndicate
A group of underwriters formed to purchase a new issue of municipal securities from the issuer and offer those securities for sale to the general public.
New issue disclosure period or underwriting Period
This period begins with the submission of the first order to the syndicate or the purchase of the bonds from the issuer by the syndicate, whichever comes first. The underwriting period ends 25 days after the issuer delivers the securities to the syndicate or when the bonds are all sold, whichever occurs last.
**Delivery of a final official statement is required.
The official notice of sale
Published by a municipality to bring in prospective bidders on a competitively bid issue. There are no bond ratings in a notice of sale. Syndicate members are not listed in the Notice of sale.
New issue municipal securities
Securities other than commercial paper sold during the initial distribution (underwriting) period.
Dated Date
The date for a new bond issue from which interest accrues.
Spread or underwriter spread
The difference between the price paid by the underwriter to the issuer for the new issue and the prices at which the securities are initially offered to the investing public. Spread is usually expressed in dollars or points per bond.
Components to the spread:
- Expenses: The costs of operating the syndicate for which the senior manager may be reimbursed.
- Management Fee: The fixed percentage of the spread that is paid to the senior manager and/or co-managers for handling the affairs of the syndicate. Such fee must be disclosed prior to syndicate members submitting a bid.
- Takedown: Normally the largest component of the spread, similar to a commission, which represents the income derived from the sale of the securities. If bonds are sold by a member of the syndicate, the seller is entitled to the full takedown. If bonds are sold by a municipal securities dealer that is not a member of the syndicate, the seller receives only the portion of the takedown known as the concession or dealer’s allowance.
Risk or Residual
The amount of profit or spread left in a syndicate account after meeting all other expenses or deductions. A portion of the residual is paid to each underwriter within a syndicate on a pro rata basis according to the number of bonds each municipal securities dealer has committed to sell without regard to the actual sales by each member.
