practice questions
Under G-15, each of the following must be disclosed on a customer confirmation EXCEPT: A) markup on principal transaction. B) CUSIP number. C) if the issuer is in default. D) the source of revenue backing a revenue bond
A)
Under the closeout rules of G-12, if a seller makes good delivery and it is rejected by the purchaser, the seller can give telephone notice no earlier than: A) SD+5. B) SD+1. C) SD+2. D) SD.
A) If a good delivery is rejected, the seller can give telephone notice of intent to close out (sell out) no earlier than five business days after settlement date (SD). The intended date of the sellout specified in the phone call can be no earlier than the business day following the call.
If securities purchased in a negotiated municipal offering are sold, each of the following must be disclosed on customer confirmations EXCEPT: A) the name of the lead underwriter. B) the underwriting spread. C) the initial offering price of each serial maturity. D) the fees earned by syndicate members.
A) All of the information except the membership of the syndicate is considered material to the client's decision.
A broker/dealer must notify another broker/dealer of receipt of account transfer notice within how many days? A)3 days. B)90 days. C)4 days. D)30 days.
A) Upon receipt of notice of account transfer, the carrying firm must validate and return the account transfer notice to the receiving firm within three business days.
If all of the following bonds mature on September 1, 2020, which would have the highest price? A)6-1/4% coupon at 6.10 B)6-¾% coupon at 6.80 C)5-½% coupon at 5.50 D)5-¾% coupon at 5.85
A) A bond that is trading at a premium has a yield to maturity that is lower than its coupon rate. Of the choices given, only the 6-1/4% coupon with a 6.10 yield to maturity is trading at a premium. The other bonds shown are either trading at a discount (their yield to maturity is higher than the coupon rate) or at par (their yield to maturity is equal to the coupon rate).
The confirmation of a customer transaction must indicate whether the municipal securities dealer acted in which of the following capacities in effecting the transaction? As principal for its own account. As agent for the customer. As agent for a person other than the customer. As agent for both the customer and another person. A) I, II, III and IV. B) I and II. C) I and IV. D) II and III.
A) A customer confirmation must indicate the capacity in which the municipal securities firm acted when it executed the customer's order. If the firm acted as agent, the confirmation must specify whether the firm acted as agent for the customer, for the other party, or for both the customer and the other party.
According to MSRB rules, which of the following are considered associated persons? A) All persons engaged directly in underwriting activities of municipal dealers. B) All representatives of issuers. C) All persons involved in gathering pricing information on municipal securities. D) All senior bank officers connected with trust activities.
A) According to MSRB rules, which of the following are considered associated persons?
In disclosing expenses to syndicate members, the manager must furnish each of the following EXCEPT: A) each miscellaneous expense. B) management fees. C) printing and legal fees. D) clearance fees.
A) At or before settlement of the syndicate account, the manager must furnish to syndicate members an itemized statement showing the nature and amount of all expenses incurred, including discretionary fees for clearance costs and management fees. A miscellaneous expense category without itemization is permitted provided the amount is not disproportionately large in relationship to total expenses.
Under MSRB rules regarding a transaction that has not been completed by the seller according to its terms, when is the soonest that the purchaser may close out the transaction? A) Not sooner than the close of business on the tenth business day after the purchaser warns the seller by telephone-telephone call may not be made earlier than the fifth business day after settlement. B) One day after settlement. C) Three days after the purchaser warns the seller by telephone-telephone call may not be made earlier than the fifth day after settlement. D) Three days after settlement.
A) Close-out by the buyer cannot be effected earlier than 10 business days after it gives notice to the seller. The first time notice can be given to the seller is five business days after settlement.
All of the following characteristics regarding industrial development bonds (IDBs) are true EXCEPT: A) the bonds are normally backed by the full faith and credit of the municipality. B) funds from the lease are used to pay the principal and interest on the bonds. C) the funds are used to construct a facility for a private corporation. D) the bonds are issued by municipalities or other governmental units.
A) IDBs are issued by a municipality, and the proceeds are used to construct facilities or purchase equipment for a private corporation. The corporation leases the facilities or equipment; funds from the lease are used to repay investors. In addition to a first mortgage on the property, IDBs are backed by the full faith and credit of the corporation (not the municipality).
If a municipal bond has a catastrophe call feature but otherwise is not callable, which of the following statements regarding the features of this bond that must be described on a transaction's confirmation is TRUE? A) It need not be designated as callable. B) It must be designated as callable in the event of an act of God. C) It must be designated as callable. D) It must be designated as subject to eminent domain.
A) If a bond is only callable in the case of catastrophe (e.g., the facility is damaged by a flood), the bond need not be identified as callable on the confirmation. Eminent domain refers to the right of the government to take private property for public use. Acts of God and eminent domain are not under the issuer's control, and call provisions relating to these events need not be disclosed.
A city waterworks publishes a tombstone offering a $20 million new issue of bonds priced at 100.65%. The bonds are priced above par because the: A) municipality has applied the standard municipal bond servicing charge to the issue price. B) amount exceeding par includes accrued interest. C) price reflects the fact that the coupon rate for the bonds at issuance is more than the rates of similar newly issued bonds available in the market. D) amount exceeding par represents the underwriter's spread.
A) If a bond issue is priced above par, it is usually because the coupon rate at which the bonds were issued is more than the prevailing rate for other newly issued bonds.
Under the closeout rules of G-12, if a seller makes good delivery and it is rejected by the purchaser, the seller can give telephone notice no earlier than: A) SD+5. B) SD+1. C) SD+2. D) SD.
A) If a good delivery is rejected, the seller can give telephone notice of intent to close out (sell out) no earlier than five business days after settlement date (SD). The intended date of the sellout specified in the phone call can be no earlier than the business day following the call.
When opening a new account for a customer, a municipal securities broker/dealer: I. must inquire whether the customer's spouse is employed by another broker/dealer. II. must conform to MSRB rules if it knows the customer's spouse is employed by another member firm. III. is not required by the MSRB rules to inquire whether the customer's spouse is employed by another broker/dealer. A) II only. B) Both II and III. C) III only. D) I only.
A) MSRB Rule G-28 clearly states that, when opening an account for a customer, there is no specific requirement for a broker/dealer to inquire whether the customer's spouse is employed by another municipal securities firm. However, if the broker/dealer opening the account knows that the spouse is employed by a member firm, the firm opening the account must comply with Rule G-28.
A municipal dealer receives a confirmation for a transaction it does not recognize. After investigation, the dealer concludes that the trade did not occur. Under MSRB rules, the dealer must: A) immediately notify the confirming dealer by telephone and send written notice with return receipt requested within one business day, indicating nonrecognition. B) immediately send written notice to the confirming dealer, return receipt requested, indicating nonrecognition. C) within one business day, send written notice to the confirming dealer, return receipt requested, indicating nonrecognition. D) within one business day, send a DK notice to the confirming dealer.
A) MSRB requires immediate telephonic notice of nonrecognition of a trade. Written notice must be sent the next business day.
A customer purchases a municipal bond on the secondary market and settles the trade in cash on August 1. If the next interest payment is September 1, which of the following statements regarding interest on this bond are TRUE? I. The bond pays interest on March 1 and September 1 each year. II. The seller must pay accrued interest no later than settlement day. III. Accrued interest on this bond is computed using actual days elapsed. IV. On September 1, the buyer will receive from the issuer interest for the period March 1 through August 31. A) I and IV. B) II and IV. C) I and III. D) II and III.
A) Municipal bond accrued interest is calculated using a 30-day month and a 360-day year, with interest paid every 6 months. On settlement day, August 1, the buyer will pay the seller accrued interest from March 1 through July 31. Then on September 1, the next interest payment date, the buyer will receive 6 months' interest from the issuer.
Which of the following statements regarding automated clearing systems is TRUE? A) Firms are required to submit all eligible transactions for automated clearing through an organization registered with the SEC. B) Firms are required to submit all eligible transactions for automated clearing through agencies registered with the MSRB. C) MSRB recommends minimum amounts that must be cleared through automated clearing agencies registered with the SEC. D) Municipal securities dealers are not under obligation to use automated clearing agencies, whether the securities are eligible or not.
A) Municipal securities dealers are required to submit all eligible transactions for automated clearing through organizations registered with the SEC. The MSRB does not recommend minimum amounts that must be cleared automatically with agencies registered with the SEC; clearing agencies are registered with the SEC, not the MSRB.
Broker/Dealer A is attempting to transfer municipal securities to the name of Broker/Dealer B. Which of the following would prevent this transfer from being completed? A) Improper signature. B) Wrong CUSIP numbers. C) The broker/dealer is a FINRA member. D) The broker/dealer is not a clearing broker/dealer.
A) Only an improper signature would prevent transfer in the examples given.
In which of the following will a change in interest rates cause the greatest price fluctuation? A) 7% 30-year U.S. Treasury bond. B) 7% AAA rated corporate bond with 8 years until maturity. C) Series EE bond. D) 7% AA rated 1-year municipal note.
A) Price fluctuations are the greatest in bonds with the longest terms to maturity. The more risky the instrument, the more price volatility. Long-term bonds have greater risk than short-term bonds.
According to MSRB rules, under which of the following circumstances would reclamation procedures be available? I. A transfer agent refuses to accept the transfer securities. II. Certificates are reported as stolen. III. A notice of an in-whole call is published within 5 business days after settlement. A)I and II. B)II only. C)I, II and III. D)I only.
A) Reclamation is permitted if a transfer agent refuses to transfer a security or if certificates are found to be stolen. For a broker/dealer to reclaim a bond subject to an in-whole call, the call must be published on or before trade date.
Under MSRB rules, which of the following reclamation must be made within one business day? I. Missing interest coupons. II. Missing legal opinion. III. Mutilated security. IV. Stolen certificate. A) I, II, III and IV. B) I, II and III. C) III and IV. D) I and II.
B) MSRB reclamation time limits include one day for missing coupons, legal opinions, and mutilated certificates, and no time limit for stolen or counterfeit securities.
A customer has an individual account with a broker/dealer, and his wife also has an account with the same broker/dealer. If they open a new joint account with this broker/dealer, the couple's total SIPC coverage is: A) $1.5 million. B) $600,000. C) $300,000. D) $1 million.
A) SIPC insurance is figured by account ownership. The customer is covered for his securities and his wife is covered separately for her securities. The joint account is treated separately. The maximum SIPC coverage is $500,000 per customer.
A broker/dealer reported that some ABC securities that it was holding were missing and presumed stolen. Two days later, the certificates were found to be in the broker/dealer's possession. The broker/dealer must report this fact within how many days of the discovery? A) 1 business day. B) Same day. C) 1 calendar day. D) 2 business days.
A) Securities reported as lost that are then recovered must be reported as such within one business day of recovery.
Each of the following are generally used to service state GO bond issues EXCEPT: A) real estate taxes. B) sales taxes. C) income taxes. D) motor vehicle license fees.
A) State-issued municipals are backed by state revenues, including sales and income taxes. States do not normally levy property taxes. Real estate taxes (ad valorem taxes) are typically levied by cities and counties.
The MSRB regulations apply to all of the following EXCEPT: A) municipal issuers of debt securities. B) banks involved in municipal securities transactions. C) employee of a broker/dealer giving advice only about timing and structure of municipal securities offerings. D) broker/dealers involved in municipal short-term debt transactions.
A) The MSRB and other regulatory bodies such as the SEC have no authority over a municipality.
If a municipal securities dealer accepts a put bond for tender from a customer but does NOT send a confirmation, which of the following statements regarding this omission is TRUE? A) It violates the rules because the dealer's acceptance of put bonds for tender from the customer is a transaction that must be confirmed. B) It does not violate the rules because a customer tendering put bonds at the put price must request a confirmation in writing. C) It violates the rules because a confirmation of the transaction is required for the dealer's transactional records. D) It does not violate any rules because the customer tendered the bonds and the dealer redeeming them is not engaging in a transaction.
A) The MSRB considers the act of tendering a bond to be a transaction. Therefore, a dealer that accepts a put bond from a customer must send the customer a confirmation of the transaction.
An underwriter in fulfilling its responsibility to deal fairly at all times with both municipal issuers and investors must disclose to the issuer each of the following EXCEPT A) that the underwriter acts as a prima facie municipal advisor and it would be a conflict of interest for the issuer to retain a municipal advisor apart from that of the underwriter's registered advisory services B) that the underwriter will review the official statement for the issuer's securities in accordance with, and as part of, its responsibilities to investors under the federal securities laws, as applied to the facts and circumstances of the transaction C) that unlike a municipal adviser, the underwriter does not have a fiduciary duty to the issuer under the federal securities laws and is, therefore, not required by federal law to act in the best interests of the issuer without regard to its own financial or other interests D) that the underwriter's primary role is to purchase securities with a view to distribution in an arm's-length commercial transaction with the issuer and it has financial and other interests that differ from those of the issuer
A) The underwriter must not recommend that the issuer not retain a municipal advisor.
An underwriter in fulfilling its responsibility to deal fairly at all times with both municipal issuers and investors must disclose to the issuer each of the following EXCEPT A) that the underwriter acts as a prima facie municipal advisor and it would be a conflict of interest for the issuer to retain a municipal advisor apart from that of the underwriter's registered advisory services B) that unlike a municipal advisor, the underwriter does not have a fiduciary duty to the issuer under the federal securities laws and is, therefore, not required by federal law to act in the best interests of the issuer without regard to its own financial or other interests C) that the underwriter will review the official statement for the issuer's securities in accordance with, and as part of, its responsibilities to investors under the federal securities laws, as applied to the facts and circumstances of the transaction D) that the underwriter's primary role is to purchase securities with a view to distribution in an arm's-length commercial transaction with the issuer and it has financial and other interests that differ from those of the issuer
A) The underwriter must not recommend that the issuer not retain a municipal advisor.
A bond attorney is working at his office in Los Angeles, California at 10:00 pm and receives a call from his municipal securities broker in New York City. This is: A) acceptable because the attorney is a customer of the firm and time does not matter. B) a violation due to potential conflicts of interest. C) a violation of MSRB telemarketing rules because the broker may not call past midnight. D) a violation of Rule G-39 (the telemarketing rule) because the call was made after 9:00 pm.
A) There is no MSRB rule violation because the attorney is a client of the firm and is being serviced by the broker.
If a broker/dealer wants to effect a reclamation on municipal securities, all of the following are true EXCEPT: A) the broker/dealer must send a uniform reclamation form to the contra-dealer. B) the broker/dealer must state the date of the reclamation. C) the broker/dealer must send a copy of the original delivery ticket to the contra-dealer. D) the broker/dealer must provide a reason for the reclamation.
A) To effect a reclamation, a broker/dealer must send written notice to the originating broker/dealer along with a copy of the delivery ticket. The notice includes the reason for and date of the rejection. Uniform reclamation forms are used only under FINRA's Uniform Practice Code and municipal securities are exempt from this code.
Under MSRB rules, the first retransmittal extends the dates for closeout by: A) 5 business days. B) 7 business days. C) 10 business days. D) 15 business days.
A) Under G-12, the first retransmittal extends the buy-in date by five business days. Subsequent retransmittals do not extend the new buy-in date.
A municipal syndicate member has been designated to receive a credit by the customer submitting the order. Within how many days of the delivery of the securities to the syndicate must the credit be distributed to that member? A) 10 days B)21 business days C) 35 days D) 15 business days
A) Under MSRB rules, designated credits must be distributed to the appropriate syndicate member within 10 days after the securities are delivered to the syndicate. A designated credit is an amount the purchaser of a new issue security wants credited to a particular syndicate member.
Under MSRB Rule G-34, who is responsible for obtaining a CUSIP number for a new issue of municipal bonds? A)Underwriter. B)SIC. C)MSRB. D)Issuer.
A. MSRB rules require an underwriter (syndicate manager) to obtain CUSIP numbers for a new issue of municipal securities.
When acting as an agent in a municipal transaction, all of the following would be relevant considerations when determining a fair price to customers EXCEPT: A) the availability of the security. B) the dollar value of the transaction. C) the execution expenses. D) the value of services rendered.
B) In an agency trade, the MSRB (under Rule G-30) states that availability of the security, execution expenses, value of services rendered by the firm, and the amount of any other compensation received in connection with the transaction should all be considered in determining a fair price. Dollar value of the trade is relevant in determining a fair markup in a principal transaction.
Which of the following organizations investigates and resolves grievances between the public and members and between members? A) SIPC B) FINRA C) MSRB D)SEC
B) In matters of dispute resolution, to investigate and resolve grievances between the public and members and between members, the Board relies upon FINRA.
One of your customers buys a new issue municipal revenue bond on March 19. The trade settles on March 24, and the bond pays interest on February 1 and August 1. If the dated date of the bond is March 1, how many days of accrued interest are due? A) 19. B) 23. C) 24. D) 55.
B) Interest started accruing from the dated date of the bond (March 1). Interest accrues up to, but not including, settlement. Therefore, 23 days of accrued interest are due. The customer's first interest payment, the following August, will represent interest that has accrued from the dated date.
Which of the following statements regarding the final settlement of a municipal syndicate account is TRUE? A) It must occur within one day of the final sale. B) It must occur within 30 days of delivery of the bonds to the syndicate members. C) It must occur immediately after all group net orders have been filled and before any member orders have been filled. D) It may be extended indefinitely if the syndicate is a Western account.
B) It must occur within 30 days of delivery of the bonds to the syndicate members.
A customer buys an 8% bond on an 8.20 basis. If the bond is callable in 5 years at par and matures in 10 years, which of the following statements is TRUE? A) Nominal yield is higher than YTC. B) YTC is higher than YTM. C) YTC is lower than YTM. D) Nominal yield is higher than YTM.
B) A bond with a YTM (basis) greater than its coupon is trading at a discount. When a bond is trading at a discount, the YTC is greater than the YTM. Nominal yield is lower than both YTM and YTC.
All of the following are violations of MSRB rules on advertising EXCEPT: A) placing an advertisement that includes only current yield. B) placing an advertisement for bonds that the dealer does not have in inventory. C) placing an advertisement for tax-exempt bonds subject to the AMT without disclosing the tax implications. D) placing an advertisement that shows a percentage rate without indicating whether this represents the coupon or the yield.
B) A dealer may advertise bonds it does not own provided the advertisement indicates the bonds are subject to availability, the dealer is not aware that the bonds are no longer available in the secondary market, and the dealer would attempt to acquire the bonds if contacted by a potential customer. Specifying only a percentage rate without further definition is a rule violation, as is placing an advertisement that includes only current yield. Furthermore, advertising a bond as tax exempt, when in fact the interest income may be subject to the AMT, is materially misleading and a rules violation.
If a lobbyist is hired by a municipal dealer to influence state legislators on prospective changes in the tax law affecting new municipal issues, under MSRB rules, he is which of the following? I. Considered a consultant. II. Not considered a consultant. III. Subject to reporting on Form G-37. IV. Not subject to reporting on Form G-37. A) I and III. B) II and IV. C) II and III. D) I and IV.
B) A lobbyist is not considered a consultant. There is no requirement to include this individual in any disclosures.
A municipal securities dealer must notify the MSRB of any change in status. This requirement includes changes in which of the following? I. Name. II. Address. III. Number of full-time employees. IV. Corporate charter or partnership agreement. A) III and IV. B) I and II. C) II and III. D) I and III.
B) A municipal securities firm that has paid its initial fee is obligated to inform the MSRB of a change in its name or address promptly. The firm need not file with the MSRB any changes in its staff or company organization.
Which of the following has primary oversight responsibility for municipal securities activities of banks relative to the MSRB biannual examination requirement? A) SIPC. B) Office of the Comptroller of Currency. C) MSRB. D) FINRA.
B) Although there are other bank regulators, the only one mentioned in this question is the comptroller of the currency.
A municipal securities broker/dealer charges a commission plus a flat fee of $10 for agency trades executed through its automated trading system. Under Rule G-15, which of the following statements are TRUE? I. The commission is included when computing yield. II. The commission is not included when computing yield. III. The miscellaneous fee of $10 is included when computing yield.. IV. The miscellaneous fee of $10 is not included when computing yield. A) II and III. B) I and IV. C) I and III. D) II and IV.
B) Commission charged is always included when making the appropriate yield computation. However, miscellaneous fees, while not part of the yield computation, must be disclosed on the customer's confirmation.
When a customer, under MSRB rules, completes a signed account transfer form, it must be submitted to the firm carrying the account: A) within four business days. B) promptly. C) within ten business days. D) within three business days.
B) Completed account transfer forms (Form G-26) must be promptly submitted to the carrying firm. The carrying firm then has three business days to validate the account positions and another four business days to complete the transfer.
Which of the following may serve as grounds for the statutory disqualification of a person from association with a municipal securities dealer? Previous suspension of his registration as a municipal securities representative. Previous denial of his application for registration as a municipal securities principal. Previous revocation of his registration as a municipal securities sales principal. Previous offense causing the suspension of someone else's registration. A) I and III. B) I, II, III and IV. C) I and II. D) II and IV.
B) FINRA may impose a statutory disqualification on an associated person for a number of offenses. If a securities self-regulatory organization has expelled or suspended a person for violating its rules, FINRA may prohibit the person from associating with a municipal securities firm. The prohibition also applies if the SEC has denied or revoked the person's registration or has found the person to be the cause of another person's disqualification.
MSRB rules require that confirmations include which of the following? I. A bond's call price at date of call. II. A note that information regarding provisions of the call feature will be furnished by the dealer upon request. III. A statement that realized yield may differ from yield indicated on the statement if the bonds are called. IV. An explanation of catastrophic call provisions. A) II only. B) I, II and III. C) I, II, III and IV. D) I only.
B) MSRB rules require that confirmations contain a bond's call price and date of call and have a statement that information regarding call provisions will be furnished upon request. In addition, the confirmation should contain a statement that realized yields may differ from yields indicated on the statement if the bonds are called. Catastrophic call provisions are not required to be provided on confirmations.
Gifts and gratuities directed to those who work at another firm may not be made by a member or associated person for amounts greater than A) $100 per year B) $100 per individual per year C) $250 per year D) $250
B) No member or associated person may give anything of value in excess of $100 per individual per year to any person, principal, employee, or representative of another person where such payment is in relation to the business of the employer of the recipient of the payment or gratuity.
Mutilated securities certificates cannot be accepted unless they are accompanied by a validation letter from the A) municipal bond bank B) registrar C) NSCC D) OCC
B) Only the registrar, paying agent, trustee, and issuer may validate.
Which of the following are required to be included on customer confirmations for all municipal securities transactions? I. Dated dates. II. Assigned CUSIP numbers. III. Denominations of securities. IV. Capacity of the dealer executing the trade. A) I and II. B) II and IV. C) II and III. D) I and IV.
B) Regardless of the type of municipal security or the type of transaction, the confirmation must include the CUSIP number and the capacity of the dealer (agent or principal). The dated date does not appear on a confirmation for a security that has made its first interest payment. Denominations are not shown unless the securities are not in normal units.
A firm compliance examination of a municipal securities broker-dealer must be performed by the designated examining authority at least once every A) 3 months B) 4 years C) 6 months D) 2 years
B) The MSRB requires a compliance examination of each municipal securities broker-dealer at least once every 4 calendar years.
Randolph is an investor who has placed orders in the past that were questionable but allowable under the guidance of the municipal securities sales principal who is no longer employed at the firm. He places a new order based on an advertisement recently published by the broker/dealer. The broker/dealer's new sales principal is of the opinion that this trade is unsuitable for the customer. The broker/dealer must advise the customer of the opinion and: A) execute the order at the customer's direction. B) not execute the order based on a recommendation implicit in the advertisement. C) execute the order with prior approval of a municipal securities principal of the firm. D) execute the order with approval from RTRS.
B) The advertisement is considered a recommendation that is unsuitable for this client. It would therefore be a violation of MSRB Rule G-19 to recommend and execute an unsuitable trade. Had there been no advertisement with its underlying recommendation and the client had specifically directed the transaction, it could take place.
Each of the following must appear on a confirmation of a municipal bond transaction EXCEPT A) the notification if the bonds are escrowed to maturity B) the amount of markup or markdown in a principal transaction C) the source of commission in an agency transaction D) the amount of commission in an agency transaction
B) The amount of markup or markdown must be fair and reasonable but is not required to be disclosed on a confirmation of a municipal bond transaction.
Which of the following statements regarding characteristics of shares of beneficial interest in local government investment pools (LGIPs) are TRUE? I. Net asset value (NAV) of shares may fluctuate above or below $1 per share. II. Shares are exempt from all federal securities law. III LGIPs are generally structured to meet a particular investment objective. IV. The requirement to provide an official statement only applies in situations where state employees market their LGIPs directly without the assistance of a broker/dealer. A) I and II. B) I and III. C) II and IV. D) I and IV.
B) The value of municipal fund securities such as LGIPs may rise or fall like any other equity or debt security; they are not required to hold a value of $1 per share or more. Like mutual funds, LGIPs have an investment objective such as growth in stock or the money market. LGIPs are exempt from some U.S. securities law but not antifraud provisions. Direct marketing without the assistance of a municipal securities dealer does not require an official statement.
Which of the following statements regarding the economics of fixed-income securities are TRUE? I. Short-term interest rates are more volatile than long-term rates. II. Long-term interest rates are more volatile than short-term rates. III. Short-term bond prices react more than long-term bond prices given a change in interest rates. IV. Long-term bond prices react more than short-term bond prices given a change in interest rates. A) II and III. B) I and IV. C) II and IV. D) I and III.
B) There are two separate issues in this question: the volatility of rates and volatility of bond prices. Short-term rates are more volatile than long-term rates and move more quickly than long-term rates. Often the most volatile interest rate is the federal funds rate, which is an overnight rate of interest. Given a change in rates, long-term bond prices move more than short-term bond prices because of the compounding effect over a much longer period.
Unless otherwise indicated, a quotation on a municipal security published by one dealer on behalf of another dealer should be regarded as a(n): A) workable quote. B) bona fide quote. C) indication quote. D) nominal quote.
B) Unless a quotation is identified at the time as being a nominal quote, it is assumed to be bona fide. Bona fide quotations are subject to change based on market movement. However, a municipal securities firm that distributes a bona fide quote must be prepared to trade the security at the price stated and under the conditions specified at the time the quote is disseminated.
Which of the following statements are TRUE? I. Good faith deposits shall be returned by the manager of a syndicate to the members of the syndicate within two business days of the settlement date with the issuer. II. The broker/dealer handling the order must distribute credits designated by a customer in connection with the purchase of securities as due to a member within 10 calendar days of the date the issuer delivers the securities to the syndicate. III. Final settlement of a syndicate account must be made within 30 days of the date all securities have been delivered by the syndicate manager to the syndicate members. IV) A broker/dealer receiving a claim must send to the claimant a bank check for the amount of any interest payment or a statement denying the claim no later than ten business days after the date of receipt. A)III and IV. B)I, II, III and IV. C)I and IV. D)I and II.
B) all of the above
The dollar price used to compute the yield to call must be recorded on the confirmation of which of the following callable municipal bonds? A) 6s 07 quoted at 7.5. B) 9s 15 quoted at 7.0. C) 7s 05 quoted at 9.5. D) 8s 08 quoted at 8.0.
B.) For callable premium bonds quoted on a yield basis, the yield computed to the near term in-whole call is used. The confirmation shows the call date and call price as the expected maturity. The only bond shown quoted at a premium is 9s 15 quoted at 7.0.
All of the following statements about official communication are true EXCEPT: A) a broker/dealer may send official communications to the investment adviser for a beneficial owner, rather than to the beneficial owner, when the broker/dealer has on file a written authorization to do so. B) in lieu of retransmitting official communications to beneficial owners who have indicated in writing that they do not object to the disclosure of their names and security positions, a broker/dealer may instead promptly provide a list of nonobjecting beneficial owners and their addresses. C) a broker/dealer is required to provide duplication services for official communications if sufficient copies of official communications are not received. D) a broker/dealer is not required to send official communications to persons outside of the United States, although broker/dealers may voluntarily do so.
C) A broker/dealer should promptly request, from the party requesting the forwarding of the official communication, the correct number of copies of the official communication. There is no requirement to provide copying services.
A municipal securities broker/dealer makes a listing of municipal bonds through the Internet. A dealer or associated person who effects a trade initiated by a customer who found an exact desired municipal security through an Internet search without a recommendation is: obligated to perform a suitability analysis. obligated to disclose all material, reasonably accessible facts known by the broker/dealer about the security. obligated to obtain a price for the customer that is fair and reasonable. subject to advertising rules. A) I, II and III. B) I, II, III and IV. C) II, III and IV. D) I, III and IV.
C) A dealer or associated person who simply effects a trade initiated by a customer without a recommendation from the dealer or associated person is not required to perform a suitability analysis. However, even when a dealer does not recommend a security transaction but simply effects the transaction, the dealer is still obligated to fulfill other important obligations, such as disclosing material facts, obtaining a fair price, and obeying advertising rules and interpretations.
Which of the following statements regarding puttable bonds is TRUE? A) The bondholder can expect to receive a premium over par if he chooses to put the bonds. B) The issuer may require that the put feature be exercised if interest rates drop significantly. C) Their yields are usually lower than those of nonputtable bonds. D) The put feature is likely to be exercised when interest rates are falling.
C) A put feature is advantageous to the bondholder, and therefore carries with it a lower yield. Exercise of the put feature is at the discretion of the bondholder, not the issuer, and will most likely be used if interest rates are rising.
A representative of a dealer who solicits municipal securities business from an official of an issuer contributes $225 to the official's City Council re-election campaign during the general election. Under what circumstance would the contribution invoke a ban on the dealer's municipal securities business with that issuer? A)The representative resides in the official's city. B)The dealer seeks to engage in a competitive underwriting with the issuer. C)The dealer seeks to engage in a negotiated underwriting with the issuer. D)The representative contributed $250 during the primary election.
C) A representative of a dealer firm who gave any amount to the election campaign and then solicits a negotiated underwriting would likely cause a 2-year ban on performing any work for that municipality. There are some exceptions. For example, if the representative lives in the municipality and is eligible to vote, he may give up to $250 per election without triggering a ban.
Upon validating customer accounts after transfer instructions have been received, MSRB rules require all of the following EXCEPT: A) all open orders must be canceled. B) new orders must be refused. C) the transfer of the account must be completed within three business days. D) the account must be frozen.
C) After validation of an account due to customer transfer instructions, the account must be frozen, new orders must be `refused, and all open orders must be canceled. The transfer of the account must be completed within four business days.
Claims under SIPC are disallowed for each of the following EXCEPT A) claims of officers or partners of a failed registered securities firm B) claims of persons who own 5% or more of the equity of the failed firm C) claims of other member firms for proprietary accounts D) claims of the firm's customers with investment holdings exceeding $500,000
C) Although certain limitations exist, claims of investors who have no connections other than as a customer of the failed firm are always permitted.
The agreement among underwriters for a new municipal bond offering identifies the syndicate account as an Eastern account. This means that: I. liability is divided. II. liability is undivided. III. syndicate members assume liability for unsold bonds according to their percentage participation in the underwriting. IV. each syndicate member is responsible only for its initial allocation. A) I and IV. B) I and III. C) II and III. D) II and IV.
C) An Eastern account is an account where the underwriting liability is undivided. Each member of the syndicate is responsible for any bonds left unsold by the syndicate based on their original percentage allocation of the issue.
A municipal securities dealer must keep receipt and delivery blotters for a minimum of A) the lifetime of the enterprise B) three years C) six years D) no specified length of time
C) Blotters are records of original entry and must be held for six years. Very few records must be held for six years; items of original entry are one of them.
If an employee of a municipal securities firm wishes to open an account at another municipal firm, which of the following statements is (are) TRUE? I. The firm at which the account is being opened must receive written permission from the employing firm. II. The firm at which the account is being opened must send duplicate confirmations to the employing firm. III. The firm at which the account is being opened must send duplicate statements to the employing firm. A) I only. B) I and II. C) II only. D) I, II and III.
C) If an employee of a municipal securities firm wishes to open an account at another municipal securities firm, Rule G-28 requires that the employing firm be provided written notification of the employee's intention to open an account at another firm. Once the account is opened, the firm carrying the account must send the employing firm duplicate confirmations and abide by any further written instructions received from the employing firm. Duplicate statements are not required to be forwarded to the employing firm unless specifically requested, and written permission is not required.
In applying for a CUSIP number, the syndicate manager must provide copies of each of the following EXCEPT: A) the official statement. B) the official notice of sale. C) the commitment wire. D) the legal opinion.
C) In applying to the CUSIP Service Bureau, the manager must provide complete information on the issue, including copies of the official notice of sale, official statement, and the legal opinion. The commitment wire is sent by the manager to syndicate members affirming their allocations and is not relevant with regard to the assignment of a CUSIP number.
An investor purchases 5 Mt. Vernon Port Authority J & J bonds in a regular way transaction on Wednesday, October 18. How many days of accrued interest are added to the bond's price? A) 110. B) 114. C) 112. D) 108.
C) Interest accrues on municipal bonds on a 360-day-year basis, with all months having 30 days. Therefore, July, August, and September each have 30 days of accrued interest and October has 22 days of accrued interest; this totals 112 days. Settlement date is Monday, October 23.
A general partner of a municipal securities broker/dealer has, for several years, been very involved in local politics and is currently running for a seat on the county commission. The county is currently planning to bring to market a new issue of GO bonds. The general partner has a control relationship: A) once the general partner announced his intention of running for public office. B) under no circumstances. C) once the brokerage firm is contacted concerning the issue. D) upon being elected.
C) MSRB Rule G-22 specifies that a control relationship is deemed to exist when an associated person of a municipal securities firm is also directly or indirectly associated with an issuer of municipal securities. In this question, a better answer, if available, would have been that the general partner had established a control relationship once elected as an official of the county and once the brokerage firm had been contacted concerning the issue. However, the interpretation is that once the general partner, who had been involved in local politics for several years, began running for the seat on the county commission, this person may now have information that would not be available to the public. This information may give his brokerage firm an undue advantage with regard to obtaining the underwriting business of the county.
Under MSRB Rules, dishonored interest checks must be reclaimed within: A) 1 business day. B) no specified time limit. C) 3 business days. D) 2 business days.
C) MSRB rules require reclamation of dishonored interest checks within three business days of notice of dishonor.
A municipal finance professional (MFP) residing in New York, New York, is permitted to make which of the following political contributions without jeopardizing the firm's ability to underwrite a new issue? A) A $250 contribution to a Greenwich, Connecticut, fundraiser event for a candidate for the U.S. House of Representatives. B) A $1,000 contribution to a New York gubernatorial candidate. C) A $500 total contribution to a mayor's committee to reelect for both the primary and general election in the city in which he is entitled to vote. D) All of these would disqualify the firm.
C) Municipal finance professionals are limited to a maximum contribution of $250 per official, per election, for whom they are entitled to vote. Although eligible to vote for New York's governor, the amount is beyond the de minimis of $250 per election. MFPs may not contribute funds in any amount for elections in localities where the individual is not eligible to vote without putting his firm's negotiated underwriting ability in jeopardy.
According to MSRB rules, which of the following persons is required to qualify or re-qualify by examination as a municipal securities sales limited representative? A person who receives orders by telephone only for municipal securities from other municipal dealers and is closely supervised by a municipal securities sales principal. A municipal securities trader who only deals with other municipal securities professionals. A NYSE-qualified general securities representative who left the business entirely on August 1, 2009, but joined with a bank dealer on May 1, 2011. A branch office employee who refers a depositor to a sales representative and is compensated indirectly with respect to any resulting municipal securities transactions. A) I and III. B) III and IV. C) I and II. D) II and IV.
C) Municipal securities traders who only deal with other municipal securities professionals need to be qualified as registered representatives. Likewise, a branch office employee who refers a depositor to a sales representative and is compensated indirectly for any resulting municipal securities transactions must be qualified as a registered representative as a result of the compensation. A person who only receives orders by telephone for municipal securities from other municipal dealers and who is closely supervised by a municipal securities sales principal does not require registration because the person is not soliciting orders. An NYSE-qualified general securities representative who left the business on August 1, 2009, and joins with a bank dealer on May 1, 2011, is still within the two year grace period.
According to MSRB rules, which of the following persons is required to qualify or re-qualify by examination as a municipal securities sales limited representative? I. A person who receives orders by telephone only for municipal securities from other municipal dealers and is closely supervised by a municipal securities sales principal. II. A municipal securities trader who only deals with other municipal securities professionals. III. A NYSE-qualified general securities representative who left the business entirely on August 1, 2009, but joined with a bank dealer on May 1, 2011. IV. A branch office employee who refers a depositor to a sales representative and is compensated indirectly with respect to any resulting municipal securities transactions. A) I and III. B) I and II. C) II and IV. D) III and IV.
C) Municipal securities traders who only deal with other municipal securities professionals need to be qualified as registered representatives. Likewise, a branch office employee who refers a depositor to a sales representative and is compensated indirectly for any resulting municipal securities transactions must be qualified as a registered representative as a result of the compensation. A person who only receives orders by telephone for municipal securities from other municipal dealers and who is closely supervised by a municipal securities sales principal does not require registration because the person is not soliciting orders. An NYSE-qualified general securities representative who left the business on August 1, 2009, and joins with a bank dealer on May 1, 2011, is still within the two year grace period.
Under MSRB rules, which of the following records must be maintained by the syndicate manager? I. Names and participation percentages of each syndicate member. II. Copies of the Official Statement. III. All allotments and the price at which sold. IV. The date and amount of any good faith deposit. A) I, II and III. B) I, II, III and IV. C) I, III and IV. D) II and III.
C) Official statements are issuer documents, so there is no MSRB rule mandating their retention. Remember, the MSRB does not regulate issuers.
Under the Uniform Practice Rules of the MSRB, in which of the following situations is reclamation permitted? A) The bonds default between trade date and settlement date. B) There is a disagreement as to price. C) A coupon is discovered to be mutilated. D) There is a small money difference.
C) Reclamation is permitted within one business day for missing coupons, mutilated securities or coupons, missing legal opinions, or missing proof of insurance, if applicable. Price disagreements are not subject to reclamation. If there is a small money difference, the seller's price prevails. If securities default after trade date, the buyer takes the loss. Reclamation does not protect dealers from market risk.
How often must a municipal securities dealer review its written supervisory procedures? A) Once every 18 months. B) Once every 2 years. C) Once a year. D) Once every 6 months.
C) Supervisory rules and procedures must be updated as often as necessary to keep up with changing securities industry regulations. The MSRB requires each firm at least to review its procedures once a year to determine whether they are adequate and up to date.
Accrued interest on a bond confirmation is: I. added to the buyer's contract price. II. added to the seller's contract price. III. subtracted from the buyer's contract price. IV. subtracted from the seller's contract price. A)I and II. B)I and IV. C)II and III. D)III and IV.
C) The accrued interest calculation is made to determine the seller's share of the upcoming interest payment. It is added to the buyer's contract price (the buyer pays), and it is added to the seller's contract price (the seller receives).
Which of the following may only be accomplished after applying the additional bonds test for a revenue bond? A) Spending revenues already allocated for project expansion. B) Increasing the project's user charges. C) Issuing new bonds with an equal lien on the project's revenues. D) Prerefunding an outstanding bond issue.
C) The additional bonds test must be met under the provisions of a revenue bond indenture before additional bonds with an equal lien on project revenues can be issued. The conditions under which additional bonds may be issued are specified in the bond indenture. This is an open-end covenant.
A customer confirmation of a transaction involving callable municipal revenue bonds with floating interest rates must contain each of the following EXCEPT: A) the trade date. B) the CUSIP number. C) the par value. D) the yield to call.
D) The confirmation of a transaction in a floating-rate, or variable-rate, security does not contain YTC or YTM information. The CUSIP number, the par value, and the trade date must all be disclosed. In addition, the current interest rate must be shown.
If a municipal securities dealer receives a confirmation of a dealer transaction that it does not recognize, it must: A) ask the confirming party to check its records to see whether the trade occurred. B) send a written notice to the confirming party indicating that it does not recognize the transaction. C) check its own records to see whether the trade occurred. D) notify the other party that the transaction is cancelled.
C) The first step a dealer takes when it receives a confirmation of a transaction it does not recognize is to try to determine if the trade occurred. If, after checking, it still cannot confirm that a trade occurred, the dealer must immediately telephone the confirming dealer with this information and send written notice of nonrecognition to the confirming dealer within one business day.
The State of Florida has settled with Northstar Securities, Inc., a municipal securities dealer representing a syndicate formed to purchase $75 million in serial bonds, in a firm commitment, all-or-none offering on a negotiated basis. The bonds are scheduled to mature in 15 years, starting nine months from the dated date. A syndicate member, Aurora Associates, has a 10% commitment to the offering. Which of the following statements regarding disclosure requirements and fees is TRUE? A) There is no filing requirement for bonds that begin to mature within nine months. B) The fee must be paid to the SEC but there is no filing requirement for exempt securities. C) The underwriting assessments and Form G-32 are filed only by the lead underwriter. D) Underwriting assessments and Form SAR must be filed by both firms to disclose percentage of participation.
C) The underwriting assessments and Form G-32 are filed with the MSRB by the lead underwriter on behalf of the entire syndicate unless the two underwriters act outside a syndicate.
A dealer paid $163 in underwriting assessments over the past year. The annual MSRB membership fee due from the dealer next year is: A) $37. B)$250. C) $1000. D) $0.
C) The underwriting assessments are not used to offset the annual $1,000 registration fee.
A customer requests information regarding a trade that settled two weeks earlier. Under MSRB rules, you must respond within how many business days? A) 10 days. B) 20 days. C) 5 days. D) 15 days.
C) Under G-15, if a customer requests information on a trade that occurred within the past 30 days, you must respond within five business days. If the request relates to a trade that occurred more than 30 days ago, you have 15 business days to respond.
A natural person wants to open an account with a municipal securities firm. The person supplies the registered representative with some account information—name, address, legal age, occupation, and tax identification number—but refuses to provide any information regarding his financial background, tax status, and investment objectives. The account: A) can be opened only as a discretionary account. B) can be opened, but no recommendations can be made. C) can be opened; all recommendations will be based upon the information given. D) cannot be opened.
C.) If a person who wishes to open an account with a municipal securities firm does not supply the basic, normal account information required under MSRB Rule G-8, the account may not be opened. This basic account information includes a person's name, address, employer, age, and so forth. If the person does provide the normal account information but refuses to provide information regarding financial background, tax status, and investment objectives required under Rule G-19 concerning suitability, the account may be opened and recommendations may be made based on any information available.
Which of the following bonds would appreciate the most if the interest rates fell? A) 30-year premium. B) 15-year discount. C) 15-year premium. D) 30-year discount.
D) The general rule of thumb is that bonds with long-term maturities will have greater fluctuations in price than will short-term maturities, given the same move in interest rates. Furthermore, discounted bonds respond more favorably to falling rates than do premium bonds. Thus, the 30-year discounted bond will move farther than the others.
In determining the price at which to quote a security, a municipal securities dealer may take all of the following into consideration EXCEPT: A) the dealer's current overall inventory position. B) the amount of the security in the dealer's inventory. C) the dealer's forecast of interest rates. D) the dealer's profit/loss ratio.
D) As long as the quote has a reasonable relationship to the fair market value, the quote may take into account other factors such as the firm's current inventory position (both overall and in the security) and the firm's estimate of the direction of interest rates. A quote may not be based on the dealer's profitability.
Under MSRB Rule G-15, which of the following must be disclosed on customer confirmations? I. Current yield. II. Taxable equivalent yield. III. Call date and price (if used to calculate yield). IV. Catastrophe call dates. A) I, III and IV. B) II and III. C) I and II. D) III only.
D) Current yield and taxable equivalent yield are never shown on customer confirmations. If used to calculate yield, the call date and call price must be shown. Catastrophe calls, which apply only to revenue bonds, cannot be shown because one cannot anticipate a catastrophe.
A client in your office buys an unrated callable private activity bond at a discount. Under MSRB rules, the customer's confirmation will show all of the following information EXCEPT: A) the fact that the bond is not rated. B) the fact that the bond is subject to the AMT. C) the fact that the bond is callable. D) yield to call.
D) In showing yield, the lower of YTM or YTC must be shown. For a bond bought at a discount, yield to maturity must be shown. All of the other choices are required disclosures.
On interdealer confirmations, concessions are: A) disclosed as an aggregate dollar amount. B) disclosed upon request. C) not disclosed. D) disclosed on a per bond basis.
D) MSRB Rule G-12 requires disclosure of concessions on interdealer confirmations on a per bond basis. Rule G-15 requires disclosure of concessions on customer confirmations as an aggregate dollar amount.
Under MSRB rules, an unlimited reclamation period is available for all of the following EXCEPT: A) called securities (partial call). B) counterfeit securities. C) stolen securities. D) refusal of the transfer agent to accept.
D) MSRB rules require that reclamation be made within 18 months for refusal by the transfer agent to accept the securities. Stolen, lost, and partially called securities are eligible for reclamation without time limit.
Under MSRB Rule G-12, reclamation shall be made within one business day following the date of delivery if: I. a coupon is missing. II. the legal opinion is missing. III. the certificate is counterfeit. IV. the certificate is mutilated. A) I, II and IV. B) I and II. C) III and IV. D) I, II, III and IV.
D) Reclamation must be made on the next business day if a coupon is missing, if a legal opinion is missing, or if a certificate is mutilated. There is no time limit for reclamation if the certificate is counterfeit.
Under MSRB rules, if a nonregistered administrative employee of another broker/dealer wishes to open an account at your firm to purchase municipal fund securities: A) the broker/dealer must promptly notify the employing firm in writing. B) the account may be opened with the written permission of the MSRB. C) the account may not be opened. D) the account may be opened without restriction
D) Rule G-28 specifically exempts all provisions of the rule for municipal fund securities. Ordinarily, the dealer opening the account must notify the employing dealer in writing regarding the new account and must follow any instructions provided by the employing dealer. If the account is opened, the firm must send duplicate confirmations to the employing dealer.
A municipal securities dealer opens an account for an employee of another member firm, and the employing dealer issues no special written instructions. According to MSRB rules, which of the following must be sent to the employer? Written advice of all securities recommended to the employee for purchase. Monthly statements. A) I only. B) Both I and II. C) II only. D) Neither I nor II.
D) Rule G-28 states that written notice of opening the account must be sent to the employer and duplicate confirmations of trades must be sent to the employer. No other notification (such as monthly statements or written advice of all securities recommended to the employee for purchase) need be made unless special instructions were given to do so.
According to MSRB telemarketing rules, it is acceptable for a registered representative to place a cold call from: A)Chicago, Illinois, at 12:00 midnight to a client in San Francisco. B)New York at 8:00 am to a client in Chicago. C)New York at 10:00 pm to a client in Washington, D.C. D)California at 12:00 noon to a client in Massachusetts.
D) Rule G-39 forbids a broker to make outbound telephone calls to the residence of any person for the purpose of soliciting the purchase of municipal securities or related services at any time other than between 8:00 am and 9:00 pm local time at the person's residence.
Due to an internal communications breakdown, an issuer fails to provide copies of the final official statement to the syndicate on the award date. As a result, customers who purchased the new issue did not receive a copy at or before settlement. Under Rule G-32, the responsibility for failing to provide copies of the final official statement on a timely basis falls on the: A) CUSIP Service Bureau. B) issuer and syndicate manager. C) issuer. D) syndicate manager.
D) The MSRB does not regulate issuers. Therefore, responsibility for ensuring the timely delivery of copies of the final official statement rests with the syndicate manager.
According to MSRB rules, a bank dealer must have at least two registered municipal securities principals unless it has fewer than: A) five associated persons. B) three associated persons. C) eight associated persons. D) eleven associated persons.
D) The MSRB requires a firm to have at least two municipal securities principals unless the firm employs ten or fewer associated persons (or unless the firm is also a FINRA member). If this is the case, the requirement is one principal.
In a competitive sale, the syndicate manager must apply for a CUSIP number on or before the: A) delivery date. B) dated date. C) settlement date. D) award date.
D) The MSRB specifies that the manager in a competitive bid underwriting (also known as a public sale) must apply for a CUSIP number no later than the date the issue is awarded.
A municipal GO bond maturing on June 1, 2033, has a 4 ½% coupon. The entire issue is callable at 103 beginning on June 1, 2014. The premium over parity is reduced evenly each year. From June 1, 2020, until maturity, it is callable at par. On a transaction executed at 3% yield, the dollar price shown on the confirmation will be the: A) price to the call date of June 1, 2008. B) price to maturity June 1, 2008. C) lower price to call or price to maturity. D) higher of either price to call or price to maturity.
For bonds traded on a yield basis, the confirmation must show the dollar price. The calculation of that price must be done using the lower of yield to call or yield to maturity.
Which of the following are TRUE? I. Build America Bonds are tax exempt at all levels II. Direct payment BABs provide the municipal issuer with payments from the U.S. treasury. III. Build America Bonds are issued by the U.S. Treasury. IV. Tax credit or issuer BABs provide the municipal bondholder with a federal income tax credit. A) I and IV. B) II and III. C) I and III. D) II and IV.
NOT SURE IF CORRECT...I THINK C. D) Created under the Economic Recovery and Reinvestment Act of 2009 to assist in reducing costs to issuing municipalities and stimulate the economy, Build America Bonds (BABs) are taxable municipal securities. There are two types;Direct payment BABs that provide the municipal issuer with payments from the U.S. treasury and Tax credit or Issuer BABs that provide the bondholder with a federal income tax credit.