MSRB Rules
All of the following would be considered a "control" relationship to be disclosed to customers EXCEPT the: A. municipal broker-dealer always makes a market in the municipality's securities that are being recommended B. Treasurer of the township, whose bonds the firm is offering on an agency basis, is on the Board of Directors of the municipal firm C. Municipal principal in a municipal securities firm is the supervisor of the school board whose bonds the firm is trading D. Treasurer of the township, whose bonds the firm is offering on a principal basis, is on the Board of Directors of the municipal firm
The best answer is A. Any control relationship, wherein a person at the municipal securities firm is in a position to influence a municipal issuer whose securities are being traded by that firm, must be disclosed. Choice A would not be considered to be a control relationship because the broker-dealer is not involved in a relationship with the issuer - rather the firm is simply trading the bonds in the secondary market.
If a municipal securities firm wishes to advertise a given percentage yield on a security, the advertisement: A. must disclose whether the yield is the coupon rate or yield to maturity B. must disclose whether the yield is the coupon rate or current yield C. must show the dealer's inventory position for that bond D. must show how the yield was computed
The best answer is A. Any yield quoted must state whether the yield is the coupon rate, yield to maturity, or yield to call date. Current yield is thought by the MSRB to be somewhat misleading and may not be shown unless the yield to maturity is also shown. There is no requirement to show how the yield was computed; nor is there a requirement to disclose the dealer's inventory position in the advertised security.
Which statements are TRUE? I SHORT information is found within EMMA II EMMA information is found within SHORT III RTRS information is found within EMMA IV EMMA information is found within RTRS A. I and III B. I and IV C. II and III D. II and IV
The best answer is A. EMMA stands for Electronic Municipal Market Access. The EMMA web portal, run by the MSRB, makes available to the investing public: •Official Statements, Preliminary Official Statements, Advance Refunding Documents, and Event Notices; •Real time reporting of municipal bond trades through RTRS (Real Time Reporting System); and •Real time reporting of municipal note trades through SHORT (Short-Term Obligation Rate Transparency System).
Which of the following must be disclosed in negotiated municipal underwritings? I Spread II Initial offering price of each maturity III Participation amount of each underwriter IV Names of the underwriters A. I and II only B. III and IV only C. I, II, IV D. I, II, III, IV
The best answer is A. In negotiated municipal underwritings, the spread and offering price of each maturity must be disclosed. There is no requirement to disclose the names of the underwriters (though this information is readily available) nor their participation amounts (since this in no way affects the customer).
Under MSRB rules, during the apprenticeship period of a new registered representative, all of the following activities are permitted EXCEPT: A. soliciting customers for new issues offered by the firm B. submitting bids and offers to other municipal dealers C. sending bids for bonds to issuers D. submitting quotes for inclusion in Bloomberg
The best answer is A. MSRB rules do not allow new representatives to solicit customers or deal with customers during the 90-day apprenticeship period. The representative can trade with other dealers and can perform clerical functions during this period. Thus, the new hire could submit bids and offers to other municipal dealers; send bids for new issue bonds to issuers; and submit quotes for inclusion in Bloomberg.
MSRB rules allow all of the following when selling a new issue of municipal bonds EXCEPT: A. orally agreeing to repurchase the bonds at an agreed price B. not disclosing the spread on reofferings of competitively bid issues C. providing a customer with a Preliminary Official Statement if the Final Official Statement is not yet available at settlement D. disclosing order priority provisions upon the request of customers
The best answer is A. Oral agreements to repurchase securities at a fixed price are prohibited - any repurchase agreement must be detailed in writing. MSRB rules on new issue disclosure require that the spread be disclosed on "negotiated" offerings. There is no spread disclosure on competitive bid offerings. MSRB rules also allow a Preliminary Official Statement to be sent at settlement if a Final Official Statement is not yet prepared; and require that order priority provisions be disclosed at customer request.
Which of the following are NOT considered to be advertising by the MSRB? I Official Statements II Prospectuses III Circulars IV Form letters A. I and II only B. III and IV only C. I, II, and III D. I, II, III, IV
The best answer is A. The MSRB defines as "advertising" any form letters, circulars, sales literature, and abstracts of official statements (since these would be written by the firm). Excluded from the definition are Official Statements or prospectuses, since their content is subject to legal oversight.
Which of the following statements are TRUE regarding MSRB rules on gifts and gratuities? I The maximum business related gift that may be given by a municipal securities employee is $100 per person per year II The maximum business related gift that may be given by a municipal securities employee is $200 per person per year III Business related entertainment is permitted under the rules, as long as it is not too excessive or frequent IV Business related entertainment is prohibited under the rules A. I and III B. I and IV C. II and III D. II and IV
The best answer is A. The MSRB limits gifts related to your activities as a registered representative to $100 value per person per year. The rules permit business related entertainment, as long as such entertainment would qualify for an IRS deduction; and as long as the entertainment is not too excessive or frequent.
Which of the following enforce MSRB rules for broker-dealers? I Securities and Exchange Commission II Municipal Bond Insurance Association Corporation III Office of the Comptroller of Currency IV FINRA A. I and IV only B. II and III only C. I, III, and IV D. I, II, III, IV
The best answer is A. The enforcement agencies for the MSRB are: Office of the Comptroller of Currency, Federal Deposit Insurance Corporation, and the Federal Reserve Board for bank dealers that are not registered with FINRA and the SEC and thus are only subject to inspection by the bank regulators; and the SEC and FINRA for broker-dealers. MBIA insures municipal issues for risk of default, and is not a regulator.
A broker-dealer who acted as financial advisor to a municipality in structuring a new issue now wishes to act as underwriter in a negotiated offering. Which statement is TRUE? A. This is only permitted in competitive bid underwritings B. The financial advisor is prohibited from acting as the underwriter C. The broker-dealer must disclose to the issuer in writing all compensation received from the issuer D. The broker-dealer must inform the issuer in writing that a potential conflict of interest exists
The best answer is B. A financial advisor to a municipality receives an advisory fee for helping a municipality structure a new bond issue, with the goal of getting the lowest interest cost for the issuer. An underwriter for a new municipal issue wants to get the highest interest rates possible on the bonds, because it makes them easier to sell. Thus, there is an inherent conflict of interest between the two. The MSRB rule on this is simple - the financial advisor cannot be the underwriter. It makes no difference if the underwriting is competitive bid or negotiated.
A municipal dealer places an order for $100,000 of new issue G.O. bonds, M '32 with the syndicate manager. The bonds will be placed in an "accumulation account" for a unit investment trust being established by the syndicate member. Which statement(s) is (are) TRUE? I The syndicate member must disclose to the manager that the bonds are being purchased for an accumulation account II The manager will disclose the order to the other syndicate members when the syndicate account is closed III The order will be treated as a "syndicate" order by the manager A. I only B. I and II C. II and III D. I, II, III
The best answer is B. An order placed with the syndicate by a member for an "accumulation account" being managed by that member is unusual in that the bonds are not being sold to the general public. They really are being retained by a syndicate member for his own use. The syndicate member must disclose this to the manager when the order is placed; the manager will disclose any of these orders that have been filled to the other syndicate members when the account is closed; and the manager will fill these orders last- meaning they get priority after pre-sale, group (syndicate), and designated orders. They are treated as member takedown orders, and if there is sufficient interest in the issue, would not be filled because of the other orders with higher priority.
A municipal broker-dealer hires a new associated person. During the first 90 days, this person may do all of the following EXCEPT: A. solicit orders from other municipal broker-dealers B. earn commissions C. earn salary D. record transactions on the books and records of the firm
The best answer is B. During the 90-day apprenticeship period mandated for new hires by the MSRB, associated persons can deal with other municipal securities professionals, but not with the public; associated persons can be paid a salary, but not commissions; and associated persons can take their licensing exams and can perform clerical duties.
Enforcement of MSRB rules for bank dealers is performed by all of the following EXCEPT the: A. Office of Comptroller of Currency B. Municipal Securities Rulemaking Board C. Federal Reserve Board D. Federal Deposit Insurance Corporation
The best answer is B. Enforcement of MSRB rules for bank dealers that are not registered as broker-dealers with FINRA is performed by the bank regulatory bodies - the Office of Comptroller of Currency; the Federal Reserve; and the Federal Deposit Insurance Corporation. Note that the MSRB writes rules for municipal market participants; but cannot enforce its own rules. It relies on the existing enforcement network for this.
Upon customer request, a dealer in a competitive municipal syndicate must disclose: A. the spread taken by the underwriters B. order priority provisions C. names of syndicate members D. name(s) of the person(s) from whom orders have already been received
The best answer is B. MSRB rules require that if a customer requests, the dealer must disclose the order priority provisions on a new issue (the usual priority is Pre-Sale; Group Net; Designated; Member Takedown). There is no requirement to disclose to a customer the underwriter's spread in a competitive bid issue (that is true for negotiated issues only). There is no required spread disclosure for competitive bid issues because the spread is very thin on such offerings. The names of the syndicate members do not have to be disclosed to customers (though this information is readily available), nor the names of persons from whom orders are received. The MSRB does require that syndicate members disclose the identity of the person for whom an order is placed, to the managing underwriter.
Municipal securities advertising must be approved prior to use by: A. the Municipal Securities Rulemaking Board B. either the General Principal or Municipal Securities Principal C. the Supervisory Analyst D. the Financial and Operations Principal
The best answer is B. Municipal securities advertising must be approved prior to use by either a municipal or general principal. There is no requirement to file municipal advertising with the MSRB for their approval - they wouldn't know what to do with it since they can't enforce their own rules (remember, FINRA does this for the MSRB).
A municipal dealer is reoffering 7% bonds which he bought at par. Which of the following quotes would be considered "fair and reasonable"? I 108 II 6.00 III 6.90 IV 100 1/2 A. I and II B. III and IV C. I and III D. II and IV
The best answer is B. The MSRB does not impose a fixed percentage mark-up that it considers to be "fair and reasonable." The dealer is supposed to use his judgment about the size of the trade; dollar amount involved; the difficulty of the trade; etc., to determine a fair and reasonable mark-up. In this example, the bond has a 7% coupon rate and was purchased by the dealer at par. If the bond is reoffered at 100 1/2, the dealer is taking a 1/2% mark-up. If the bond is reoffered at 108, the dealer is taking an 8% mark-up. If the bond is reoffered at 6.90%, the dealer is reducing the yield by .10 from the stated 7.00 yield. .10/7.00 = 1.4% reduction in yield, which approximates the percentage mark- up. If the bond is reoffered at 6.00%, the dealer is reducing the yield by 1.00 from the stated 7.00 yield. 1/7.00 = 14% reduction in yield, which approximates the percentage mark-up. Of the quotes given, it appears that 100 1/2 and 6.90 are reasonable; 108 and 6.00 appear to be most unreasonable.
The MSRB regulates all of the following EXCEPT: A. municipal brokers B. municipal issuers C. municipal dealers D. municipal bank dealers
The best answer is B. The MSRB has no authority over municipal issuers. It regulates municipal brokers and dealers, including bank dealers in the municipal market.
The Official Statement published for a new municipal issue: A. solicits bids from interested underwriters B. is a disclosure document for use by potential investors C. is an advertisement for the issue by the municipality D. establishes the procedures for calculating reoffering scales
The best answer is B. The Official Statement provides disclosure about a new municipal issue to investors. It is requested by underwriters in order to perform due diligence on the issue, and to help sell the issue by having a disclosure document available for potential customers. It is not required under the Securities Act of 1933 since municipals are exempt.
Which of statement is TRUE regarding the enforcement of MSRB rules for broker-dealers? A. Enforcement of MSRB rules for registered broker-dealers is performed by the MSRB B. Enforcement of MSRB rules for registered broker-dealers is performed by FINRA C. Enforcement of MSRB rules for registered broker-dealers is performed by the FDIC D. Enforcement of MSRB rules for registered broker-dealers is performed by the FRB
The best answer is B. The enforcement agencies for the MSRB are: Office of the Comptroller of Currency, Federal Deposit Insurance Corporation, and the Federal Reserve Board for bank dealers that are not registered with FINRA and the SEC and thus are only subject to inspection by the bank regulators; and the SEC and FINRA for registered broker-dealers.
When recommending municipal securities, disclosure must be made to customers of: I Control relationships II Existence of financial advisory relationships III Fiduciary information A. I only B. I and II C. II and III D. I, II, III
The best answer is B. The existence of control relationships and financial advisory relationships must be disclosed to customers when your firm recommends a security of an issuer where the relationship exists. Fiduciary information is "confidential" and cannot be disclosed without the express consent of the issuer.
All of the following statements are true regarding municipal advertising EXCEPT: A. all municipal advertising must be approved by either the Municipal Principal or General Principal prior to use B. copies of municipal advertising must be filed in advance of first use with the Municipal Securities Rulemaking Board C. copies of municipal advertising must be retained by the member for 3 years D. Official Statements are exempted from the advertising rules
The best answer is B. There is no requirement to file municipal advertising with the MSRB - they wouldn't know what to do with it since they can't enforce their own rules (remember, FINRA does this for the MSRB). The other statements are true. All advertising must be approved in advance of use by a municipal principal or general securities principal; copies must be retained for 3 years; and Official Statements, prospectuses, and other similar "lawyer prepared" documents are exempted from the advertising rules. Such documents are exempted because their content is legally dictated and is not promotional in nature.
A municipal securities firm based in California places the following advertisement in the local newspaper: "State of California bonds are a great investment for your IRA or 401(k) plan" Which statement is TRUE regarding this advertising claim? A. This is prohibited under MSRB rules because claims about retirement plans are prohibited B. This is prohibited under MSRB rules because the statement is materially untrue C. This is prohibited under MSRB rules because the advertisement must be approved by the MSRB prior to use D. This is permitted under MSRB rules without restriction
The best answer is B. This advertisement is misleading because, tax free municipal bonds are not good investment choices for tax deferred retirement accounts. Because municipal interest is free from federal income tax, the bonds have a lower yield than similar quality taxable investments. Since there is no tax in a tax deferred account, why would a retirement plan investor want these? The MSRB does not require any filing of advertising, and advertisements can be placed in any medium. However, statements made in advertising cannot be fraudulent.
A municipal securities dealer is participating in a joint underwriting account for a new issue of general obligation bonds. During the order period, the dealer places a net order with the manager for 200M of the bonds of 2039. The bonds are to be placed in an accumulation account for a municipal unit investment trust that the dealer is sponsoring. Which statement is TRUE? A. The dealer must disclose that the order is being placed for a related portfolio and the order will be accorded pre-sale status B. The dealer must disclose that the order is being placed for a related portfolio and the order will be accorded member status C. No disclosure is required from the dealer placing the order and the order will be accorded group status D. No disclosure is required from the dealer placing the order and the order will be accorded designated status
The best answer is B. When an order for a new municipal issue is for an "accumulation account," those bonds are not being sold to the general public. Instead, they are being placed into a municipal unit investment trust run by the member placing the order. This must be disclosed to the manager at the time the order is placed and this order is filled last by the manager (receiving member status), since the bonds are not going to the general public.
A registered representative at a municipal securities firm receives a written complaint from a customer regarding a purchase of municipal bonds. The registered representative should: A. attempt to resolve the complaint prior to taking any other action B. notify the municipal securities principal prior to taking any action to resolve the complaint C. notify the Municipal Securities Rulemaking Board prior to taking any action to resolve the complaint D. notify the Securities and Exchange Commission prior to taking any action to resolve the complaint
The best answer is B. Written customer complaints should be resolved. The MSRB requires that every customer complaint be given to the principal for review and resolution
Under MSRB rules, all of the following may be changed by mutual agreement between municipal dealers EXCEPT: A. place of delivery B. settlement date on a "When, As, and If Issued" ("WAII") transaction C. confirmation contents D. time of delivery
The best answer is C. Confirmation contents are explicitly "spelled out" by the MSRB and cannot be changed. By mutual consent, municipal firms are free to change the place or time of a securities delivery; and can set the settlement date of a "When, As, and If Issued" securities transaction. (In a "WAII" trade, the actual settlement date is not known until the new issue of municipal securities is printed and the offering has been closed between the syndicate and the issuer).
Which of the following enforce MSRB rules for bank dealers that are NOT registered with FINRA? I Securities and Exchange Commission II Office of the Comptroller of Currency III Federal Deposit Insurance Corporation IV Federal Reserve Board A. I and IV B. II and III C. II, III, IV D. I, II, III, IV
The best answer is C. Enforcement of MSRB rules for bank dealers that are not registered as broker-dealers with FINRA is performed by the bank regulatory bodies - the Office of Comptroller of Currency; the Federal Reserve; and the Federal Deposit Insurance Corporation. Note that the SEC has no authority over banks unless the bank has a separate FINRA registered broker-dealer unit.
Under MSRB rules, confirmation disclosure for bonds sold at par must include which of the following? I Whether the securities are callable II Capacity in which the broker-dealer acted III Total dollar amount of the transaction IV The yield at which the transaction was effected and the resulting dollar price A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
The best answer is C. For municipal bonds that are traded at par, there is no requirement to show the yield at which the transaction was effected, because it will not differ from the stated rate of interest since the bonds were traded at par. All of the other items must be disclosed; whether the securities are callable, with disclosure of "in-whole" call dates; the capacity in which the broker-dealer acted (either as "agent" or "principal"); and the total dollar amount of the transaction.
A registered representative has written discretionary authorization from a customer. Specific customer approval is needed for the registered representative to effect which of the following transactions in the customer's account? A. Sell naked calls B. Sell covered calls C. Purchase a municipal bond where the broker-dealer has a control relationship with the issuer D. Purchase a municipal bond where the broker-dealer is a market maker in the security
The best answer is C. If a control relationship exists between a brokerage firm and the municipal security being recommended, this security cannot be purchased in discretionary accounts unless the specific authorization of the customer is obtained first. The issue here is that there can be an inherent conflict of interest when such a relationship exists. For example, a municipal control relationship might exist if the president of the broker-dealer is also a political official of the town whose bonds are being recommended. Such a broker-dealer, if it were unscrupulous, would have an incentive to "support" the price of the issue in the aftermarket, making it more likely that the municipality would use that firm for future underwritings. It could do this by making purchases of that issue in its discretionary accounts. No specific authorization is required to sell naked or covered calls in discretionary accounts. The only requirement is that discretionary trades executed be consistent with the customer's investment objective; must not be too frequent; and must not be excessively large in size. No specific authorization is needed to buy securities for a discretionary customer account where the firm is a market maker in the security - no control relationship exists with the issuer in this case.
All of the following statements are true regarding negotiated municipal underwritings EXCEPT the: A. initial offering price of each maturity must be disclosed B. spread must be disclosed C. participation amount of each underwriter must be disclosed D. customer must be sent a copy of the Official Statement, if available
The best answer is C. In negotiated municipal underwritings, the spread and offering price of each maturity must be disclosed. There is no requirement to disclose the names of the underwriters nor their participation amounts. For all municipal new issues, if the Official Statement is prepared, it must be given to customers no later than settlement.
Under MSRB rules, any claim, dispute, or controversy shall be submitted to arbitration at the instance of all of the following EXCEPT a: A. customer against a broker-dealer B. broker-dealer against a customer who has previously signed an arbitration agreement C. broker-dealer against a customer who has not previously signed an arbitration agreement D. broker-dealer against another broker-dealer
The best answer is C. MSRB rules require that arbitration be used to settle disputes where a claim is initiated from broker-dealer to another broker-dealer (Choice D). If a customer initiates a claim against a broker-dealer via the MSRB's arbitration procedure, then the matter must be resolved by arbitration (Choice A). Please note that instead of choosing arbitration, the customer could bring action in court, as long as the customer did not sign an arbitration agreement when the account was opened. If a dispute exists where a broker-dealer has a claim against a customer and that customer has signed an arbitration agreement, then the matter must be resolved by arbitration (Choice B). On the other hand, if a broker-dealer initiates a claim against a customer and the customer has not signed an arbitration agreement, then the customer cannot be forced to arbitration (Choice C).
Under MSRB rules, which of the following statements are TRUE about a registered representative sharing in a customer account? I Sharing in a customer account is prohibited unless the registered representative receives approval to do so from the principal II Sharing in a customer account is prohibited unless the registered representative shares only in proportion to the capital contributed III Sharing in a customer account is prohibited unless the registered representative shares in both gain and loss IV Sharing in a customer account is prohibited unless the MSRB is notified in advance of the sharing arrangement A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
The best answer is C. Sharing in a customer account is prohibited unless the registered representative gets written approval for the account from the principal; opens a joint account with the customer; and shares in gain and loss in proportion to the capital contributed. There is no requirement to give notice of such an arrangement to the MSRB - if this were the case, the MSRB couldn't do anything about it anyway since they do not enforce their rules (enforcement for broker-dealers is performed by FINRA).
MSRB rules prohibit municipal firms from entering into which of the following transactions with an investment company? A. Accepting a pre-sale order from an investment company for a new municipal issue B. Acting as a broker's broker for a large block of bonds that the investment company wishes to sell C. Accepting portfolio trades for the investment company as compensation for sales of the investment company's securities D. Buying the securities issued by an investment company to fill existing customer orders
The best answer is C. The "anti-reciprocal" rule prohibits mutual funds from compensating brokerage firms for their sales of mutual fund shares by sending their portfolio trades through that firm. The choice of a firm to handle portfolio trades should be based on price and performance - not sales of the mutual fund's securities by that brokerage firm. Accepting pre-sale orders for new issues from an investment company is allowed; acting as a broker's broker for a large trade is allowed; and placing orders with mutual fund companies to fill customer orders for fund shares is allowed.
The MSRB regulates which of the following? I Municipal bank dealers II Municipal brokers III Municipal issuers IV Municipal dealers A. I and IV only B. II and III only C. I, II, IV D. I, II, III, IV
The best answer is C. The MSRB has no authority over municipal issuers. It regulates municipal brokers and dealers, including bank dealers in the municipal market.
The Securities Acts Amendments of 1975 which established the Municipal Securities Rulemaking Board allow the MSRB to do all of the following EXCEPT create regulations: A. covering municipal related recordkeeping B. covering delivery of disclosure documents on new issues (Official Statements) C. setting maximum mark-ups and commissions D. regarding permitted gifts to persons where the gift is related to the municipal securities business
The best answer is C. The MSRB is empowered to create regulations for participants in the municipals market, but has no enforcement power. Enforcement is performed by the banking and securities regulators. The MSRB has set rules related to municipal recordkeeping and disclosure. It also sets rules for the conduct of municipal securities representatives - including imposing a $100 gift limit similar to that of FINRA. There are no rules setting maximum mark-ups, since this would be anti-competitive; but there are rules for determining "fair" mark-ups and commissions.
All of the following statements are true regarding the Official Statement EXCEPT that the Official Statement is: A. not required by the Securities Act of 1933 because municipal issues are exempt securities B. required to be delivered to all purchasers of a new municipal issue at or prior to settlement, if available C. required to be prepared by issuers by the Municipal Securities Rulemaking Board for all new issue municipal bonds D. requested by underwriters to satisfy the disclosure requirements of new issue purchasers
The best answer is C. The Official Statement for a new municipal issue is not required under the Securities Act of 1933 since municipal issues are exempt, nor is it required to be prepared by issuers by the MSRB, since the MSRB has no authority over municipal issuers. It is requested by underwriters to help sell the new issue and the MSRB states that if one is available, it must be given to purchasers at or prior to settlement of the transaction.
Which of the following entities enforce MSRB rules for bank dealers? I Office of Thrift Supervision II Federal Deposit Insurance Corporation III Office of the Comptroller of Currency IV Federal Reserve Board A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV
The best answer is C. The enforcement agencies for the MSRB are: Office of the Comptroller of Currency, Federal Deposit Insurance Corporation, and the Federal Reserve Board for bank dealers that are not registered with FINRA and the SEC and thus are only subject to inspection by the bank regulators; and the SEC and FINRA for registered broker-dealers. The OTS - Office of Thrift Supervision, supervised Savings and Loans - and savings and loans do not deal in the municipal marketplace. It was created to deal with a savings and loans crisis that erupted in the 1980's and since has been folded into the Office of Comptroller of Currency.
Under MSRB rules, which of the following records must be kept for specified time periods? I Official Statements II Trade comparisons III Customer account statements IV Customer complaints A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV
The best answer is C. There is no requirement to keep Official Statements filed at the firm. The underwriter for the issuer files a copy of the Official Statement with the MSRB, which puts it up on its EMMA website for public access.
Under MSRB rules, which of the following records must be kept for specified time periods? I Trade comparisons II Official Statements III Customer account statements IV Customer complaints A. III and IV only B. I and II only C. I, III and IV D. I, II, III, IV
The best answer is C. There is no requirement to keep Official Statements filed at the firm. The underwriter for the issuer files a copy of the Official Statement with the MSRB, which puts it up on its EMMA website for public access.
When advertising the availability of a municipal security at a "yield," a municipal firm: I must own the security II does not have to own the security III must disclose whether the yield is the coupon rate or yield to maturity IV must disclose whether the yield is the coupon rate or current yield A. I and III B. I and IV C. II and III D. II and IV
The best answer is C. Under MSRB rules, a municipal firm is permitted to offer a security that it does not own as long as the firm is prepared to sell that security at the quoted price (the MSRB states that the dealer must know that the bond can be acquired - this is the equivalent of a car dealer selling you a new car that the dealer does not have on the lot. As long as the car dealer knows where the car can be purchased, say from another dealer, then it can be sold to you). Any yield quoted must state whether the yield is the coupon rate, yield to maturity, or yield to call date. Current yield is thought by the MSRB to be somewhat misleading and may not be shown unless the yield to maturity is also shown.
Under MSRB rules, if a Final Official Statement is not yet ready, at the time of settlement of a new municipal securities purchase: A. the transaction becomes void B. settlement is delayed until the Final Official Statement is prepared C. the customer will be sent a copy of the Preliminary Official Statement D. the customer will be sent an abstract of the Official Statement
The best answer is C. Under MSRB rules, if a Final Official Statement is being prepared but is not yet ready at the time of settlement, the customer would receive a copy of the Preliminary Official Statement. An abstract of the Official Statement is a broker-prepared summary - this is not permitted. The transaction does not become void, nor is settlement delayed, if the Final Official Statement is not ready at settlement date.
Under MSRB rules, if a Final Official Statement is not yet ready at the time of settlement of the purchase of a new municipal securities issue, the customer would receive a(n): A. apology letter B. copy of the Prospectus C. copy of the Preliminary Official Statement D. abstract of the Official Statement
The best answer is C. Under MSRB rules, if a Final Official Statement is being prepared but is not yet ready at the time of settlement, the customer would receive a copy of the Preliminary Official Statement. An abstract of the Official Statement is a broker-prepared summary - this is not permitted. There is no prospectus because municipals are exempt securities under the Securities Act of 1933.
A customer wishes to purchase $100,000 face amount of municipal bonds that the broker-dealer does not have in inventory. Under MSRB rules, the firm should: A. refer the customer to a municipal firm that has the bonds in inventory B. contact at least 5 dealers and obtain quotes for the customer C. contact enough dealers so that a reasonable market quote is obtained D. recommend the purchase of a similar security that the dealer has in inventory
The best answer is C. Under MSRB rules, when a municipal dealer acts in an agency capacity, the price charged must be representative of the market for that type of security. There is no requirement to obtain a pre-set number of quotes (as a contrast, FINRA requires that a minimum of 3 quotes be obtained for non-NASDAQ OTC issues, meaning OTCBB or Pink Sheet issues), nor is there a requirement to direct the customer to a dealer that physically has those bonds.
Which of the following statements are TRUE regarding the requirements of the MSRB for handling written customer complaints? I All customer complaints must be resolved II If the customer alleges in a complaint that there has been a monetary loss, the MSRB must be notified III The municipal principal must handle the resolution of each written customer complaint IV The municipal principal must retain a file of all customer complaints with their resolution A. I and III B. II and IV C. I, III, and IV D. I, II, III, IV
The best answer is C. Written customer complaints should be resolved. The MSRB requires that such complaints be handled under the supervision and review of the municipal securities principal; and that records of complaints with their resolution (if any) be retained for 6 years (FINRA only requires a 4 year retention period for complaint records). There is no requirement to notify the MSRB about the complaint. If the MSRB received a copy, they couldn't do anything anyway, since they don't enforce their rules. They would simply hand the complaint to FINRA, who enforces MSRB rules for broker-dealers.
Under MSRB rules, inquiry should be made about which of the following in order to make suitable recommendations to customers? I Investment objective II Tax bracket III Financial situation IV State of residence A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
The best answer is D. All of the choices are relevant when recommending municipal bonds - investment objective; tax bracket; financial situation; and state of residence (since municipal bonds purchased by state residents are exempt from taxation in that state; but are not exempt from taxation when purchased by non-residents).
Under MSRB rules, confirmation disclosure for bonds sold at par must include all of the following EXCEPT: A. whether the securities are callable B. capacity in which the broker-dealer acted C. total dollar amount of the transaction D. the yield at which the transaction was effected and the resulting dollar price
The best answer is D. For municipal bonds that are traded at par, there is no requirement to show the yield at which the transaction was effected, because it will not differ from the stated rate of interest since the bonds were traded at par. All of the other items must be disclosed; whether the securities are callable, with disclosure of "in-whole" call dates; the capacity in which the broker-dealer acted (either as "agent" or "principal"); and the total dollar amount of the transaction.
A control relationship is deemed to exist between a municipal broker-dealer and an issuer. Under MSRB rules, this must be disclosed to customers if the dealer is effecting which of the following transactions? I Primary Market transactions as an underwriter II Primary Market transactions as an agent (selling group member) III Secondary Market transactions as an agent IV Secondary Market transactions as a dealer A. I and II only B. III and IV only C. II and III only D. I, II, III, IV
The best answer is D. If a municipal control relationship exists between an issuer and a municipal broker-dealer, this must be disclosed to the customer at, or prior, to confirmation of sale. This is required for all transactions where a control relationship exists
Which of the following statements are TRUE regarding negotiated municipal underwritings? I The spread must be disclosed II The initial offering price of each maturity must be disclosed III The participation amount of each underwriter does not have to be disclosed IV The names of the underwriters do not have to be disclosed A. I and II only B. III and IV only C. I, II, IV D. I, II, III, IV
The best answer is D. In negotiated municipal underwritings, the spread and offering price of each maturity must be disclosed. There is no requirement to disclose the names of the underwriters (though this information is readily available) nor their participation amounts (since this in no way affects the customer).
Under MSRB rules, all of the following are prohibited activities EXCEPT: A. agreeing to repurchase bonds from a customer personally at a preset price B. sharing in the gain or loss in a customer's account that is not proportionate to the amount of capital contributed C. guaranteeing a customer account against loss D. recommending the purchase of a put option to the customer as protection against loss
The best answer is D. It is prohibited to agree to repurchase bonds from a customer personally at a preset price since this is a guarantee against loss to the customer that is prohibited. Sharing in the gain or loss of a customer's account is prohibited unless the principal approves and the sharing is proportionate to the capital amount contributed. Guaranteeing a customer's account against loss is prohibited. Recommending the use of put options or repurchase agreements to protect against loss are both valid strategies and are permitted under MSRB rules.
A municipal bond dealer typically engages in which of the following activities? I Distributing bona-fide quotes to interested parties II Participating in syndicates bidding on new issues III Acting as a market maker by taking long positions IV Acting as an agent, buying and selling positions for customers A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
The best answer is D. Municipal dealers participate in bidding for new issues, distribute quotes; take inventory positions (long positions) in municipal issues; and handle transactions for customers on an agency basis.
All of the following are considered to be advertising by the MSRB EXCEPT: A. seminar texts B. market letters C. form letters D. Official Statements
The best answer is D. Official Statements are not considered to be advertising by the MSRB, requiring principal approval. This makes sense because they are generally prepared by the Bond Counsel, who has liability along with the issuer for intentional material misstatements under common law. Any material prepared by individuals in a firm, such as market letters, form letters, circulars, seminars, etc. are considered to be advertising requiring principal approval before use.
Under MSRB rules, a registered representative can perform all of the following functions EXCEPT: A. offering new municipal issues to retail customers B. trading municipal issues in the secondary market C. offering call and put options on municipal securities to customers D. overseeing the activities of other municipal registered representatives
The best answer is D. Registered representatives are not permitted to supervise other representatives. To do so, the individual must pass the principal's exam. Municipal representatives are permitted to sell new municipal issues to customers; trade municipal issues in the secondary market; and offer call and put options on municipal issues (though this is rarely done because such contracts are customized and are not exchange traded).
Under MSRB rules, all of the following statements are true about a registered representative sharing in a customer account EXCEPT the: A. registered representative must receive approval to do so from the principal B. registered representative must share only in proportion to the capital contributed C. registered representative must share in both gain and loss D. MSRB must be notified in advance of the sharing arrangement
The best answer is D. Sharing in a customer account is prohibited unless the registered representative gets written approval for the account from the principal; opens a joint account with the customer; and shares in gain and loss in proportion to the capital contributed. There is no requirement to give notice of such an arrangement to the MSRB - if this were the case, the MSRB couldn't do anything about it anyway since they do not enforce their rules (enforcement for broker-dealers is performed by FINRA).
Under MSRB rules, a registered representative is prohibited from sharing in the gains and losses of a customer's account unless the: A. registered representative has made a written guarantee of performance to the customer B. registered representative agrees to reduce the commission rate to be charged C. customer agrees to the arrangement in writing D. registered representative contributes capital proportionate to his sharing percentage and receives written approval of the principal
The best answer is D. Sharing in a customer account is prohibited unless the registered representative opens a joint account with the customer; shares in gain and loss in proportion to the capital contributed; and gets written approval for the account from the principal.
Which of the following must be approved or reviewed by the municipal principal? I Each New Account II Each Municipal Transaction III Each Customer Complaint IV Each Mailing Piece That Solicits Business A. I only B. I and II C. II and III D. I, II, III, IV
The best answer is D. Under MSRB rules, the principal must approve each new account; approve each municipal trade (this need not occur prior to the trade); handle the resolution of each customer complaint; and approve each mailing piece used to solicit business.
A registered representative receives a written complaint from a customer regarding a purchase of G.O. bonds. The registered representative should: A. send a copy of the complaint to the MSRB B. send a copy of the complaint to the SEC C. submit the complaint for arbitration D. attempt to resolve the complaint with the approval of the municipal principal
The best answer is D. Written customer complaints should be resolved. The MSRB requires that every customer complaint be given to the principal for review and resolution.
Under MSRB rules, municipal securities traders that participate in secondary market joint accounts: A. can only act as agent in the transactions and cannot carry positions overnight B. cannot disseminate quotes severally for the securities held by the account; any quote can only indicate that one market exists C. cannot place orders to buy bonds for an accumulation account sponsored by a dealer participating in the joint account D. cannot effect customer transactions and can only deal with other municipal broker-dealers
Under MSRB rules, municipal securities traders that participate in secondary market joint accounts: A. can only act as agent in the transactions and cannot carry positions overnight B. cannot disseminate quotes severally for the securities held by the account; any quote can only indicate that one market exists C. cannot place orders to buy bonds for an accumulation account sponsored by a dealer participating in the joint account D. cannot effect customer transactions and can only deal with other municipal broker-dealers