Chapter 5 - MSRB Rules Flashcards Preview

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Flashcards in Chapter 5 - MSRB Rules Deck (171):
1

True or False

The MSRB has rule-making and regulatory authority over municipal issuers (states, cities, towns, etc.).

False.


The MSRB is a rulemaking authority for municipal brokers and dealers. The MSRB was not given regulatory authority over municipal issuers (States, cities, counties, towns, authorities, etc., are unregulated).

2

True or False

Municipal securities are exempt from the provisions of the Securities Act of 1933.

True

3

Municipal "market participants" are exempt from the provisions of the 1934 Act with one major exception - what is the exception?

the anti-fraud provisions of the 1934 Act applies to any fraud involving any security-exempt or non-exempt.

Thus, fraudulent trading of municipal securities is a violation of the 1934 Act.

4

Which rule from the Act of 1934 is known as the "catch-all" fraud rule?

Rule 10b-5

5

True or False

The MSRB is a rule making authority over municipal brokers, dealers, and issuers.

False

The MSRB is a rulemaking authority for municipal brokers and dealers.

The MSRB was not given regulatory authority over municipal issuers (States, cities, counties, towns, authorities, etc., are unregulated).

6

In order to conduct municipal securities business, the MSRB requires that broker dealers first register with which 2 entities?

1. The SEC

2. The MSRB

7

How are the MSRB's operations financed?

Financed by fees and assessments paid by members that are required to register with the MSRB.

MSRB operations are NOT financed by tax collections.

8

True or False

The MSRB's operations are funded by tax collections.

False.

Funded by fees and assessments paid by members required to register with MSRB.

9

True or False

The MSRB is an SRO (self-regulatory organization) under the 1934 Act.

True

10

True or False

The MSRB is empowered to enact rules regarding trading of municipal issues, but not the underwriting of new municipal issues.

False.

MSRB enacts rules for trading of munis and underwriting of new munis.

11

Who gives final approval when the MSRB proposes a new rule?

The SEC

12

True or False

The MSRB is empowered to write regulations and enforce said regulations.

False.

While the MSRB is empowered to write regulations, it is specifically denied the "joy" of enforcing those rules.

Enforcement of MSRB rules is carried out by the existing SROs.

13

Which four penalties may be imposed upon firms for MSRB rule violations?

1. Censure

2. Suspension

3. Expulsion

4. Fines

14

Municipal "market participants" are exempt from the provisions of the 1934 Act with one major exception - what is the exception?

the anti-fraud provisions of the 1934 Act applies to any fraud involving any security-exempt or non-exempt.

Thus, fraudulent trading of municipal securities is a violation of the 1934 Act.

15

Which rule from the Act of 1934 is known as the "catch-all" fraud rule?

Rule 10b-5

16

True or False

The MSRB is a rule making authority over municipal brokers, dealers, and issuers.

False

The MSRB is a rulemaking authority for municipal brokers and dealers.

The MSRB was not given regulatory authority over municipal issuers (States, cities, counties, towns, authorities, etc., are unregulated).

17

In order to conduct municipal securities business, the MSRB requires that broker dealers first register with which 2 entities?

1. The SEC

2. The MSRB

18

How are the MSRB's operations financed?

Financed by fees and assessments paid by members that are required to register with the MSRB.

MSRB operations are NOT financed by tax collections.

19

True or False

The MSRB's operations are funded by tax collections.

False.

Funded by fees and assessments paid by members required to register with MSRB.

20

True or False

The MSRB is an SRO (self-regulatory organization) under the 1934 Act.

True

21

True or False

The MSRB is empowered to enact rules regarding trading of municipal issues, but not the underwriting of new municipal issues.

False.

MSRB enacts rules for trading of munis and underwriting of new munis.

22

Who gives final approval when the MSRB proposes a new rule?

The SEC

23

True or False

The MSRB is empowered to write regulations and enforce said regulations.

False.

While the MSRB is empowered to write regulations, it is specifically denied the "joy" of enforcing those rules.

Enforcement of MSRB rules is carried out by the existing SROs.

24

Which four penalties may be imposed upon firms for MSRB rule violations?

1. Censure

2. Suspension

3. Expulsion

4. Fines

25

True or False

A not-held order can be accepted without requiring written customer discretionary authorization.

True

26

How long must a firm keep an associated person's U4 form on file after their employment has been terminated?

4 years

27

Municipal "sales principals" must be supervised by Series ___ Municipal Principals.

Series 53

28

The MSRB requires that the firm must designate a municipal securities principal who is responsible for maintenance and preservation of required books and records.

This person must have passed either of which two exams?

Either

1. the Municipal Principal Series 53 examination or

2. the General Securities Principal Series 24 examination.

29

What information is required to open an institutional account?

1. Customer Name + address

2. Tax ID #

3. Suitability information (tax status not required for institutional accounts)

4. Written authorization if account being opened is a margin account.

5. Signature of registered rep who took the customer info.

6. Signature of muni principal (series 53), muni sales principal (series 9/10), or general securities principal (series 24).

30

True or False

The MSRB requires that if a member firm includes a predispute arbitration agreement, it must be highlighted and must include language that explains that:

the customer is giving up his or her right to sue;

arbitration is final and binding;

arbitrators do not have to explain the reasons for their award; and

arbitration panels include a majority of individuals who were, or are, affiliated with the securities industry.

False.

The last bullet point should read:

arbitration panels include a minority of individuals who were, or are, affiliated with the securities industry.

31

True or False

The MSRB requires that if a member firm includes a predispute arbitration agreement, it must be highlighted and must include language that explains that:

the customer is giving up his or her right to sue;

arbitration is final and binding;

arbitrators do not have to explain the reasons for their award; and

arbitration panels include a minority of individuals who were, or are, affiliated with the securities industry.

True

32

True or False

The MSRB requires that within 30 days of signing the agreement, the customer must be provided with a copy of the predispute arbitration agreement, and the customer must sign an acknowledgment of receipt of the copy of the agreement.

True.

The MSRB added the last step (to have the customer sign an acknowledgement of receipt).

33

The body that enforces the MSRB rules depends on the type of municipal securities firm involved.

What is the enforcement agency for Municipal Securities brokers and dealers?

FINRA

34

The body that enforces the MSRB rules depends on the type of municipal securities firm involved.

What is the enforcement agency for Bank Municipal Bonds dealers?

Federal Reserve ; FDIC ; Comptroller of Currency

35

The body that enforces the MSRB rules depends on the type of municipal securities firm involved.

What is the enforcement agency for other types of dealers besides Municipal Securities dealers and Bank Muni Bond dealers?

The SEC.



FINRA is the enforcement agency for Muni Securities brokers and dealers.

36

True or False

The MSRB definition of a customer is: any person other than a muni securities broker-dealer acting in its capacity as such; or an issuer in transactions involving the sale of a new issue of its securities.

True

37

True or False

The suitability requirement does not apply to general financial and investment information. This includes:

Basic concepts or risk, return and diversification;

Historical differences in the returns of asset classes based on standard market indexes;

Effects of inflation;

Estimates of future retirement income needs;

Assessment of a customer's investment profile;

and

General comparisons of tax-exempt and taxable bonds and tax-equivalent yield.

True

38

What are the three levels of suitability which must be cleared in order for an investment to be recommended to a client?

1. Reasonable basis suitability (product level suitability)

2. Customer-specific suitability

3. Quantitative suitability

39

True or False

If a customer wishes to execute transactions that are unsuitable, the associated person is under no obligation to inform the customer that the trades are not appropriate.

False.

If a customer wishes to execute transactions that are unsuitable, the MSRB states that the associated person must inform the customer that the trades are not appropriate.

40

Transactions in discretionary accounts are prohibited until what two things have been done?

1. The customer has provided written trading authorization; and

2. The broker-dealer first determines that each transaction in the account is suitable for that customer.

41

True or False

A trade is considered discretionary if the broker chooses the security to be bought and sold and the price the trade should be executed at.

False.

If the broker chooses anything besides time and price, it is a discretionary trade.

For example: if the broker chooses the stock to be purchased, it would be a discretionary trade.

42

True or False

A trade is considered to be discretionary if the broker chooses any traits of the trade except for time and price.

True

43

How long does a principal have to review and endorse all discretionary trades?

Discretionary trades must be reviewed and endorsed by a principal "promptly".

"Promptly" means by the end of that day.

Remember that all discretionary accounts must be frequently reviewed by the principal to detect any irregularities or abuses such as churning, excessive trade size, and unsuitable transactions.

44

What is the MSRB's "don't ask don't tell" doctrine regarding?

MSRB has issued an interpretation that states that since there is no requirement to ask on the new account form as to the employment of the spouse or minor children, municipal dealers do not have to inquire of customers as to whether these individuals are employed by municipal securities firms.

Thus, as long as you don't ask; and the customer doesn't tell you that his or her spouse is employed by another municipal firm, the account can be opened without further documentation.

45

True or False

Only registered representatives of a municipal securities dealer need to have duplicate statements sent to their employer if they open an account with another firm.

False.

This rule applies to all employees of a municipal securities dealer - not just registered employees.

46

Under MSRB rules, which 3 things must a principal approve in writing?

New Accounts;
Order Tickets; and
Discretionary Order Tickets.

These approvals can be performed by either the Municipal Securities Principal (Series 53) or Municipal Sales Principal (Series 9/10).

47

True or False

The MSRB also requires that one of these principals:

Approve correspondence of an individual nature to customers about municipal securities;

and

Handle each customer complaint.

True

48

True or False

The MSRB requires that advertising be approved by the Municipal Securities Principal (Series 53).or the Series 9/10 Municipal Sales Principal.

False.

The MSRB requires that advertising be approved by the Municipal Securities Principal (Series 53).

The Series 9/10 Municipal Sales Principal license is not adequate for this function.

49

True or False

This rule requires that, at or prior to settlement of a transaction for a customer, the broker-dealer must disclose all "material" information known about the
transaction.

False

This rule requires that, at or prior to effecting any transaction for a customer, the broker-dealer must disclose all "material" information known about the
transaction.

50

True or False

Information is considered to be material if there is a substantial likelihood that the information would be considered important by a reasonable investor in making an investment decision.

True

51

True or False

The disclosure obligation requires that customers be given a complete description of the security including a description of the features that would likely be considered significant by a reasonable investor.

Directing a customer to the MSRB's EMMA (Electronic Municipal Market Access) website or to a firm's advertising materials for the information satisfies the rule.

False.

Directing a customer to the MSRB's EMMA (Electronic Municipal Market Access) website or to a firm's advertising materials for the information does NOT satisfy the rule.

52

True or False

Auction Rate Securities (ARSs) may be put back to the issuer at the "reset date" while Variable Rate Demand Obligations (VRDOs) may not be.

False.

VRDOs may be put back to the issuer at the reset date.

You can not do this with ARSs. With ARSs, the interest rate is reset weekly at auction and the holder has the choice to either to renew for another week or sell them at the auction to another buyer.

53

What are the two disclosures required for VRDOs?

1. How the periodic interest rate resets

2. The role of the remarketing agent

54

What are the required disclosures for ARSs?

The required disclosures are:

1. the significant features of the auction process;

2. the length of the interest rate reset period;

3. information on how the interest rates, including the maximum default rate, are set

and

4. recent auction failures.

Note: The MSRB also says that any other features found in the official documents of the issue must be disclosed!

55

What are the required disclosures regarding credit risk and ratings?

1. Credit rating of the issue or lack thereof

2. Credit rating changes

3. Credit risk of the municipal security

56

What are the required disclosures for Insured / Credit Enhanced securities?

Required disclosures include;

1. identity of the insurance company or credit enhancer;

2. the credit rating of the insurance company or credit enhancer;

and

3. information about potential rating actions (e.g., downgrades).

57

What disclosures need to be made regarding discount bonds?

The required disclosure includes the fact that a municipal secuiity sold at a discount can affect the tax treatment of the security.

58

What disclosures need to be made when securities are sold below minimum denominations?

These bonds typically have higher than normal risk factors, making them unsuitable for small investors.

If such a bond is sold in smaller units, this fact must be disclosed to the purchaser, along with the fact that this impairs the liquidity of the bond.

59

True or False

The time of trade disclosure rule requires the disclosure of:

non-standard bond features;

any type of call provision, including extraordinary calls such as calamity calls;

whether an issuer intends to prerefund an issue (which would likely be the case for an issue selling at a substantial premium);

how the bond proceeds will be used for a new issue; and

if the issuer has failed to make any required continuing disclosure filings.

True

60

True or False

Transactions are considered "complete" on the settlement date.

True

61

True or False

For principal transactions, the am'ount of the commission and the name of the other party to the trade must be disclosed;

For agency transactions, a mark-up is included in a net price to the customer. The amount of the mark-up is not disclosed (but must be "fair and reasonable").

False.

For agency transactions, the amount of the commission and the name of the other party to the trade must be disclosed;

For principal transactions, a mark-up is included in a net price to the customer. The amount of the mark-up is not disclosed (but must be "fair and reasonable").

62

True or False

For agency transactions, the amount of the commission and the name of the other party to the trade must be disclosed;

For principal transactions, a mark-up is included in a net price to the customer. The amount of the mark-up is not disclosed (but must be "fair and reasonable").

True

63

True or False

There is no requirement to disclose the bond's rating on the trade confirmation. However, if a bond is not rated, this must be disclosed.

True

64

True or False

Premium bonds are likely to be held to maturity; while discount bonds are likely to be called prior to maturity.

False.

Discount bonds are likely to be held to maturity; while premium bonds are likely to be called prior to maturity.

65

True or False

Discount bonds are likely to be held to maturity; while premium bonds are likely to be called prior to maturity.

True

66

True or False

Discount bonds are priced to maturity (because discount bonds are least likely to be called);

Premium bonds are priced to the near term call date (because premium bonds are most likely to be called).

True

67

True or False

For non-callable bonds quoted on a yield basis, only the yield to maturity is shown;

For callable discount bonds quoted on a yield basis, only the yield to maturity is shown;

For callable premium bonds quoted on a yield basis, the yield computed to the earliest "in-whole" call is shown. (Note that if this is the case, the confirmation shows the call date and call price as the expected "maturity.")

True

68

If municipal securities are to be purchased at par, which yield disclosures are required?

None.

if the securities are to be purchased at par, only the dollar price is shown; no yield disclosure is required (which makes sense, because the yield can't be anything other than the stated coupon rate).

69

Under which two circumstances are no yield disclosures required to be given when a customer purchases a municipal bond?

1. When the securities are to be purchased at par. (makes sense, because the yield can't be anything other than the stated coupon rate).

or

2. When variable rate bonds are being purchased.
(this makes sense, because the coupon rate on such bonds is reset every 6 months to a market index. With these bonds, the interest rate changes, while the price stays at par.)

70

True or False

If a dealer quotes a bond at a dollar price ( as opposed to a yield quote), the MSRB requires that the yield shown be the higher of yield to maturity or yield to call.

False

If a dealer quotes a bond at a dollar price ( as opposed to a yield quote), the MSRB requires that the yield shown be the LOWER of yield to maturity or yield to call.

71

True or False

If a dealer quotes a bond at a dollar price ( as opposed to a yield quote), the MSRB requires that the yield shown be the lower of yield to maturity or yield to call.

True

72

The MSRB requires the following disclosures for what kind of security?

Maturity value is shown (which can be less than par);

Stated interest rate must be shown as 0%;

If the bond is callable (yes, there are callable "zero-coupon" issues!), the yield shown must be the lower of yield to maturity or yield to call;

If the bond is callable at a price below par, this must be indicated; and

The fact that the holder will not receive periodic interest payments must be stated.

Zero Coupon Bonds which mature in more than 2 years.

73

Why are put features on bonds not used to compute yields?

Because the put option is exercised at the discretion of the holder, not the issuer.

Call options work the exact opposite; they are exercised at the option of the issuer; not the holder.

74

True or False

For agency transactions, the commissions received by the broker must be disclosed on the trade confirmation.

True.

The commission must be disclosed on the confirmation as an aggregate dollar amount... not on a per-bond basis.

75

True or False

The MSRB requires the mark-up to be disclosed for principal transactions.

False.

In this case, a net price is shown on the confirmation, inclusive of any dealer mark-up or mark-down.

There is no requirement for the dealer to disclose the amount of the mark-up or mark-down (though this amount must he "fair and reasonable").

76

Which two pieces of information regarding agency trades can a client request from their broker?

1. Time of the trade

2. The other party to the trade.



This info must be provided by the broker within 5 business days of the request.

77

A. If a customer requests additional information on a trade, how long does the broker have to provide the information?


B. What if the trade is greater than 30 days old?

A. 5 business days

B. Broker has 15 business days to provide the information if the request is made more than 30 calendar days after a trade has taken place.

78

True or False

Municipal firms may not enter into repurchase agreements on any securities because a repurchase agreement is viewed as a guarantee.

False.

Muni firms can enter into repurchase agreements in exempt securities without this being viewed as a guarantee.

Firms may also recommend the purchase of put options to limit loss on equity positions without a guarantee being made.

79

A ____________ is a loan made by the customer to a municipal dealer, collateralized by an equal value of municipal securities.

Repurchase agreement.

The dealer, at a pre-agreed date, will repurchase the securities at a fixed (higher) price. The difference is the interest earned by the customer on the loan.

80

True or False

A broker dealer may structure a conditional repurchase agreement.

False.

A dealer may not structure a conditional put option or repurchase agreement.

81

What are the two reasons that the MSRB does not view a bank's issuance of Letters of Credit to be guarantees?

1. The letter of credit does not protect against market risk; and

2. The bondholders who might benefit from the letter of credit (if the issuer defaults) would not necessarily have a customer relationship with the bank dealer issuing the letter.

82

True or False

Regarding insured bonds, if a bond is insured (say by MBIA or AMBAC), the insurer is considered to be a guarantor.

False.

If a bond is insured (say by MBIA or AMBAC), the insurer is not considered to be a guarantor.

However, the name of the insurer must be disclosed on the confirmation.

83

Municipal broker-dealers may not participate in the gains/losses in a client's account with one exception. What is the exception?

If an associated person of the broker-dealer opens a joint account with a customer and shares only in proportion to capital contributed.

This arrangement must be approved by a municipal principal (S53) or a municipal sales principal (S9/10).

84

True or False

If an associated person of a broker-dealer opens an account with an immediate family member, they may only share in the gains and losses in the account in proportion to the amount of capital contributed.

False.

If the account is opened with an immediate family member, the proportionality test is not required.

85

Under MSRB rules what are the only reasons a carrying firm may take exception to a customer's transfer of account request?

3 reasons

The carrying firm may take exception to the transfer instructions only if

1. it has no record of the account;

2. the transfer instruction is incomplete; or

3. the customer signature is improper.

86

How do the MSRB rules differ from FINRA rules in terms of how long firms have to validate and transfer securities in a transfer of account process?

FINRA rule requires validation in 1 business day and transfer within another 3 business days.

MSRB rule requires validation in 3 business days and transfer within another 4 business days.

87

True or False

Under MSRB rules, a customer "complaint" is defined as any written statement alleging a grievance about the activities of a municipal securities broker, dealer, or associated person with respect to any matter involving a customer's account.

True

88

Under MSRB rules, who may resolve customer complaints?

Series 53

Or

Series 9/10

89

Under MSRB rules, how long must a firm keep records of customer complaints on file?

A written record of the complaint, and what action, if any, that has been taken, must be kept on file for 6 years by the firm.

Also note that the principal's signature is required on this record, since all customer complaints must be handled under the supervision of a principal under MSRB rules

90

What four pieces of information can be found on EMMA (Electronic Municipal Market Access) system?

1. Official statements for new issues

2. Pre-refunding details

3. Ongoing municipal financial information

4. Real-time trade reports

91

Real-time prices and yields for municipal bond trades, are reported through which two systems?

Reported through RTRS (Real Time Reporting System)

and

SHORT (Short-Term Obligation Rate Transparency System).

92

The EMMA database is searchable using what two pieces of information on a security?

The EMMA database is searchable by either issue name or CUSIP number.

93

What does it mean for a quote to be "bona fide"?

It means the quote is firm unless otherwise indicated.

94

True or False

MSRB rule G-13 requires that when a dealer provides a quote on a security, that the quote represent the fair market value of a security.

False.

All quotes must represent prices that are determined using the dealer's best judgment of the fair market value at the time of the quote.

The rule does not require that the quotation represent the fair market value (this is an impossible determination in the illiquid municipal marketplace).

Instead, the quote must have a "reasonable relationship" to the fair market value.

95

As a general rule, trades in municipal securities must be reported to RTRS (Real-time Transaction Reporting System) within ___ minutes of execution.

10 minutes

This is much more time than the 10 second equity trade reporting requirement, because the trade information is input manually.

96

New issues of municipal bonds are underwritten in either of which two ways?

1. Negotiated Underwriting: Used for almost every Revenue bond offering; and often used for General Obligation bond offerings;

or

2. Competitive Bid Underwriting: Mainly used for General Obligation bond offerings.

97

New issues of almost every revenue bond are underwritten in which way?

(Negotiated underwriting or competitive bid underwriting?)

Negotiated underwriting

98

Which type of underwriting is mainly used for general obligation bond offerings?

Competitive bid underwriting

99

In a _________ underwriting, the issuer selects an underwriter based on factors such as the underwriter's track record, the underwriter's previous work relationship with the issuer, and, until recent rule changes were enacted due to abuses, the political contributions made by the underwriter to the elected officials of the issuer who selected the underwriter to be used (though no one will admit this).

Negotiated

100

In which type of bond underwriting will the issuer use a "municipal financial advisor"?

Competitive Bid underwriting

101

True or False

The MSRB considers the folllowing to be a "no-no"

"Accepting payment for when issued municipal securities before final settlement and treating the advance payment as a "free credit balance" upon which interest is paid;

False.

It is a no-no if the firm does NOT treat the advance payment as a free credit balance upon which interest is paid.

102

True or False

If an issuer gives consent, a broker, while acting as a paying agent may use the list of all owners of
the issuer's bonds (which is used by the broker to pay interest payments), to solicit the individuals to buy securities or sell the bonds they hold.

True.

However, if the issuer does not give consent, this is PROHIBITED.

It is highly unlikely that an issuer would give this consent.


103

Under MSRB rules, a fund company (investment company) is permitted to select a broker-dealer to effect its portfolio transactions based
upon which three factors?

1. Execution capability
2. Research capability
3. Other financial services capability

104

Under MSRB rules for When, As and If issued securities (WAIIs), what is the difference in settlement dates between trades eligible for automated comparison and those which are ineligible?

For trades compared through an automated system, a date agreed upon by both parties. Which can be no earlier than 2 business days after notification of settlement date is provided to the registered
clearing agency by the managing underwriter.

For those rare trades that are ineligible for automated comparison, a date agreed upon by both parties which can be no earlier than 3 business days following the date that confirmation indicating final
settlement is sent.

105

Under MSRB rules, what are the three ways a selling firm may demand payment from a buyer of securities?

The firm making delivery can demand payment in certified check, cashier's check or bank draft.

106

True or False

Most new issues of municipal bonds are now coming out in book-entry form, which means that no physical delivery of certificates is required.

True

Ownership transfer is accomplished by bookkeeping entry.

107

True or False

A security is considered to be mutilated if the following cannot be ascertained:

Name of issuer;
Par value;
Signature;
Coupon rate;
Maturity date;
Certificate number;
Seal of issuer.

True

Securities with mutilated coupons are also not a good delivery - unless validated by either the issuer or a commercial bank.

108

True or False

If a bond trade settles on the interest payment date (or after), the interest payment for that date is not attached.

True

109

True or False

If a bond trade settles on the interest payment date (or before), the interest payment for that date is not attached.

False.

If a bond trade settles on the interest payment date (or AFTER), the interest payment for that date is not attached.

110

True or False

If a signature that has been guaranteed turns out
to be counterfeit, any loss is the guarantor's problem.

True

111

True or False

Defaulted bonds, as well as zero-coupon bonds trade "flat".

True.

Meaning they don't pay out interest payments.

112

True or False

When the underwriter in a competitive bid offering sells the bond issue, the yields will be higher than the coupon rate specified in the bid.

False

When the underwriter in a competitive bid offering sells the bond issue, the yields will be LOWER than the coupon rate specified in the bid.

113

True or False

When the underwriter in a competitive bid offering sells the bond issue, the yields will be lower than the coupon rate specified in the bid.

True

114

What is the municipal new issue newspaper called?

The Bond Buyer

115

What is the subscription service of the Bond Buyer called which offers more detailed information about new issues?

Munifacts

116

Two computation methods may be used for determining which bid an issuer will choose, what are they?

1. Net interest cost

2. True Interest cost

117

Under which bid computation method does the issuer discount the value of all interest payments to be made to their present value, essentially determining the Internal Rate of Return (IRR) that must be paid.

True interest cost

118

True or False

Municipal securities are exempt from the provisions of the Securities Exchange Act of 1933.

True.

While municipal securities are exempt from the provisions of the Securities Act of 1933 (registration of new issues), the anti-fraud provisions of the Securities Exchange Act of 1934 are applicable.

119

True or False

The disclosure document given to the underwriter from the issuer, called the "Official Statement," is similar to, but more detailed than prospectuses used for non-exempt securities offerings.

False.

The Official Statement is similar to, but LESS detailed than prospectuses used in non-exempt securities.

120

True or False

Any omissions or misstatements of material fact made by the underwriters in connection with the offering can be fraud under the Act.

The liability for fraud extends to the following:

1. The issuer,
2. the bond counsel preparing the Official Statement,
3. the accountants preparing any financial information presented in the Official Statement
and
4. the underwriters selling the issue

True

121

MSRB Rule 15c2-12: Requires underwriters participating in the primary offerings of municipal securities, in the amount of $l,000,000 or more, to do what two things?

1. Review the Official Statement (that is, perform "due diligence"); and

2. Distribute the Official Statement to customers.

122

In competitive bid underwritings, the rule requires that underwriters obtain and review the final Official Statement prior to what?

Submitting a bid

the Final Official Statement must be prepared by the issuer before the bid is awarded.

123

In negotiated offerings, the MSRB rule requires underwriters to obtain and review the final Official Statement before when?

Before purchasing the securities from the issuer.

124

The MSRB rule requiring underwriters to perform due diligence(review the official statement) and distribute the official statement to customers does not apply to transactions of offerings of any size sold in denominations of $100,000 or more, where at least one of which 3 conditions is met?

The securities are sold to no more than 35 sophisticated investors; or

The securities have a maturity of 9 months or less; or

The securities have a put option allowing tender to the issuer at least every 9 months.

125

True or False

The MSRB requires syndicate managers, prior to purchasing securities from an issuer, to have assurance that the issuer has in place a verbal agreement for the benefit of the bondholders, to provide certain annual financial information and to provide event notices to EMMA (Electronic Municipal Market Access.

False.

It must be a written agreement, not verbal.

126

True or False

The MSRB requires syndicate managers, prior to purchasing securities from an issuer, to have assurance that the issuer has in place a written agreement for the benefit of the bondholders, to provide certain annual financial information and to provide event notices to EMMA (Electronic Municipal Market Access.

True

127

True or False

The MSRB also prohibits municipal dealers from recommending the securities of municipal issuers without the dealer having a system in place to receive "material event" notices.

True

128

What are the two reasons that syndicates are formed for most municipal underwritings?

1. To bid on an issue

or

2. to underwrite a negotiated offering.

129

The agreement between the manager and the syndicate member is documented in the "Agreement Among Underwriters," also called __________?

The syndicate letter

The Agreement Among Underwriters details the obligations and responsibilities of the manager and the syndicate member, as well as the rules governing the operation of the syndicate.

130

The Agreement Among Underwriters details what?

1. The obligations and responsibilities of the manager and the syndicate member, and

2. The rules governing the operation of the syndicate.

131

The following information regarding bond underwriting syndicates can be found on what?

Participation amount of each member;
Liability amount for each member for unsold bonds;
Amount of Good Faith Deposit to be posted by each member;
Takedown granted to the syndicate member (the syndicate member's
gross profit on each bond sold);
Concessions granted to non-syndicate members (i.e., selling group
members) for placing order. This amount is "given up" by the
syndicate member out of its takedown;
Priority provisions to be used by the manager when filling orders;
Manager's fee.

The syndicate letter, also known as the Agreement Among Underwriters

132

The gross compensation to the syndicate in an underwriting is the ___________ - this is the difference behveen the price at which the syndicate buys the bonds; and the price at which the syndicate reoffers the bonds to the public.

Spread

133

What is the portion of the takedown that is conceded by a syndicate member to a selling group member (who simply places orders with the syndicate for its customers, helping sell the
issue) called?

Selling concession

134

The "takedown" is divided into which two components?

Selling concession

and

Additional takedown (the amount earned by the syndicate member that is not paid to the selling group member).

135

True or False

An Eastern syndicate is known as a "divided account".

False.

Eastern syndicate is known as an "undivided account". In such an account, each syndicate member takes an equal participation based on the number of members.

136

True or False

In a western syndicate, both selling responsibility and liability are "divided."

True

137

For municipal underwritings, are most syndicates Western or Eastern?

Eastern.

138

The syndicate release letter gives this information:
Prices at which bonds were purchased;
Reoffering terms;
If, and when, the issue will be advertised.

What information is NOT included on the release letter?

the actual delivery date of the bonds, since this is not known at that time...

(nor is it needed to confirm sale on a "WAH" basis).

139

When is the date of sale in a competitive bid?

A negotiated offering?

In competitive bid, the date that the bid is submitted to the issuer (the bid is awarded on this same date); in a negotiated offering, the date on which the final contract to buy the securities is signed by the
underwriters.

140

True or False

Normal priority provisions established by
municipal syndicate managers indicate that orders should be filled in the following order:

Group Net Orders;
Pre-Sale Orders;
Designated Orders; and
Member Takedown Orders.

False

The order should be:

Pre-Sale Orders;
Group Net Orders;
Designated Orders; and
Member Takedown Orders.

141

True or False

In Eastern accounts (the vast majority of municipal underwritings), syndicate members entering Pre-Sale orders are not credited with the takedown.

True

142

True or False


In Eastern accounts (the vast majority of municipal underwritings), syndicate members entering Pre-Sale orders are credited with the takedown

False.

They are NOT credited with the takedown.

Rather, the profit is credited to the syndicate account as a whole, where all members share at the same rate as their participation percentage.

143

True or False

The syndicate manager fills Group Net Orders on a "first in" basis.

False.

The manager does not fill Group Net Orders on a "first in" basis. Rather, all Group Net Orders are filled as if they arrived at the end of the Order Period.

144

_________ orders are typically placed by large banks that wish to reward specific syndicate members.

Designated

145

True or False

When allocating group orders, there is no requirement that each order allocated be filled in its entirety.

True

The manager may decide, at its discretion, to give "half a loaf' to everyone, and only partially fill each Group Net order in an effort to give each order a portion of the issue. Conversely, the manager is also free to allocate the filling of the Group Net orders on the basis of largest order to smallest order, or any other method that is reasonable.

146

True or False

The MSRB requires customer name to be provided for Pre-sale orders, but not for group orders.

False.

Identity is required for group orders, not for pre sale orders.

There is no requirement for customer name on member orders or designated orders either.

147

Which order type requires the identity of the customer to be provided?

(Between group orders, designated orders, member orders, and pre-sale orders)

Only group orders require customer name.

148

True or False

A final official statement (disclosure document) must be sent to customers no later than settlement of the transaction, if one has been prepared. If one is not being prepared, there is no further requirement under MSRB rules.

False.

If one is not being prepared, a written notice to this effect must be sent to the customer, along with a copy of the preliminary official statement if one has been prepared.

149

Since EMMA now contains electronic copies of the Official Statement that anyone can access and download, the MSRB has revised the wording of the OS delivery rule, stating that delivery to a customer is satisfied if which of two conditions is satisfied?

1. the customer is delivered a copy of the OS by trade settlement; or;

2. the customer is delivered a written notice advising how to obtain a copy of the OS from the EMMA web portal and that a copy of the OS will be provided upon request.

150

Under MSRB rules, if a customer requests a written copy of the official statement, it must be sent within how many business day(s) of request by first class mail, or other similar delivery means?

1 business day

151

Under MSRB rules, which fees need to be disclosed for negotiated offerings?

Lookin' for 3 answers here...

1. the underwriting spread,

2. the amount of any fees received in connection with the underwriting, and

3. the initial offering price of each maturity must be disclosed.

152

True or False

Most revenue bond underwritings and all industrial revenue bond underwritings are negotiated.

True

153

True or false

Any breakout of the spread into the takedown, concession, manager's fee, etc., is required to be disclosed to customers.

False

Any breakdown is not required to be disclosed to customers. Just the gross spread is.

154

True or False

Any breakout of the spread into the takedown, concession, manager's fee, etc., is not required to be disclosed to customers.

True

155

True or False

For which style of underwriting (competitive bid or negotiated) is disclosure of the spread not required?

Competitive bid.

competitive bid underwritings do not require disclosure of the spread to customers. This makes sense, since spreads are very narrow in these offerings.

156

True or False

On negotiated bond issues, only the aggregate dollar amount of each maturity with the reoffering yield is shown.

False

On competitive bond issues, only the aggregate dollar amount of each maturity with the reoffering yield is shown.

157

MSRB Rule G-37 prohibits municipal dealers from engaging in municipal securities business with an issuer within _____ year(s) after any contribution is made to an elected official of that issuer by the:

Municipal dealer;

Municipal finance professional ("MFP") associated with the dealer;

Political Action Committee ("PAC") controlled by the municipal . dealer or MFP associated with the dealer.

2 years

158

True or False

Registered representatives who deal with individual customers are "municipal finance professionals".

False.

registered representatives who deal with individual customers are not MFPs.

159

A _____________ is an associated person who solicits business from municipal issuers, renders financial advisory services to municipal issuers, or who performs research or writes reports on municipal issues.

A municipal finance professional.

Executive officers of municipal firms are generally excluded from this definition.

160

True or False

The term "municipal securities business" only applies to negotiated underwritings (as syndicate manager or member), financial advisory services, and private placements. It does not apply to competitive bid underwritings,

True

161

True or False

The term "municipal securities business" only applies to competitive bid underwritings (as syndicate manager or member), financial advisory services, and private placements. It does not apply to negotiated underwritings,

False.

The term "municipal securities business" only applies to negotiated underwritings (as syndicate manager or member), financial advisory services, and private placements. It does not apply to competitive bid underwritings,

162

True or False

If an MFP makes a contribution:

of any size to an issuer official for whom the MFP is not entitled to vote: or

of more than $250 to an issuer official for whom the MFP is entitled to vote;

then the firm would be prohibited from engaging in municipal securities business with that issuer for 2 years from the contribution date.

True

163

If an individual is an MFP at a broker-dealer and then moves to another firm in a non-MFP capacity, he or she retains "MFP" status at the new firm for ___ year(s).

1 year

164

Reports must be filed with the MSRB on Form G-37, detailing all "reportable" political contributions and all municipal securities business how frequently?

Quarterly

165

Copies of Form G-37 must be kept on file for ___ year(s).

6 years

166

True or False

Dealers are permitted to advertise bonds that they do not have in inventory (strange, but true), as long as:

The securities advertised are described as "subject to availability'"

The dealer is not aware that the bonds are no longer available in the secondary market;

The dealer would attempt to acquire the bonds if contacted by a customer; and

The advertisement states that the bonds are subject to change in yield or price.

True

167

True or False

Every municipal advertisement must be approved in advance of first use by a Municipal Securities Principal (Series 53 license), a General Securities Principal (Series 24 license), or a Municipal Sales Supervisor (Series 9/10).

False!

Every municipal advertisement must be approved in advance of first use by a Municipal Securities Principal (Series 53 license) or a General Securities Principal (Series 24 license).

Please note that a Municipal Sales Supervisor (Series 9/10) cannot approve advertising.

168

Copies of approved advertising for municipal issues must be kept on file for __ year(s) under MSRB rules.

4.

Copies of approved advertising must be kept on file for 4 years. Note that while FINRA has a general record retention requirement of 3 years for "all other records," the MSRB's requirement is 4 years for these records.

169

The MSRB requires firms to keep the following documents on file for how long?

Customer new account forms - retained continuously until __ year(s) after account closing.

Customer account statements.

Customer complaints.

Records of gifts and gratuities.

Records of political contributions.

6 years

170

The MSRB requires the following to be kept on file for how long?

Records of agency and principal transactions (order tickets).

Customer trade confirmations.

Advertising and sales literature.

U-4 Forms - retained continuously until __ year(s) after a representative is terminated.

4 years

171

True or False

For negotiated offerings, the underwriting spread, the amount of any fees received in connection with the underwriting, and the initial offering price of each maturity must be disclosed.

There is no requirement to disclose the participation percentage of each syndicate member, nor the names of the syndicate members

True