Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Series 53 > Chapter 2 General Supervision > Flashcards

Chapter 2 General Supervision Flashcards

1
Q

What must municipal securities broker-dealers and dealer banks do according to the Securities Exchange Act of 1934?

A

Register with the SEC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is a dealer bank?

A

A bank or a separately identifiable division of a bank that buys and sells municipal securities for its own account

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

How do broker-dealers register with the SEC?

A

By filing Form BD

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How do dealer banks register with the SEC?

A

By filing Form MSD

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the initial registration fee for municipal securities broker-dealers and dealer banks registering with the MSRB?

A

$1,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What must accompany the initial fee paid to the MSRB?

A

Form A-12

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What information must be provided with Form A-12?

A

Name, address, and SEC registration number of the municipal securities broker-dealer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What could happen if the required fee to the MSRB is not paid?

A

The Board may recommend to the SEC that the dealer’s registration be suspended or revoked

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What happens if a firm that has paid the initial fee leaves the business?

A

Another initial fee must be paid to re-register as a municipal securities broker-dealer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the annual fee that each municipal securities firm must pay to the MSRB?

A

$1,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

When must the annual fee be received by the MSRB?

A

No later than October 31 of the fiscal year for which the fee is paid

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

When does a municipal advisor’s registration with the MSRB become effective?

A

Once the Board notifies the firm that Form A-12 is complete and all required fees have been received

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the registration fees for municipal advisors?

A
  • Initial registration fee: $1,000
  • Annual professional fee: $1,000
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

When is the annual professional fee for municipal advisors due?

A

By April 30 each year for any Municipal Advisor Representative registered as of January 31

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the phased-in fee structure for the annual professional fee due by April 30?

A
  • $750 fee for the first year
  • $1,000 fee from April 30, 2021, and every year thereafter
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What activities constitute municipal securities activities?

A
  • Underwriting, trading, and sales of municipal securities
  • Providing financial advisory and consultant services for issuers
  • Processing and clearing activities
  • Providing research and investment advice
  • Communicating with public investors
  • Maintaining records pertaining to these activities

These activities are essential for the operation of municipal securities firms and banks involved in these markets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Are directors and senior officers of a bank considered part of the municipal securities unit?

A

No, if their activities are only incidental to the functioning of that unit.

For example, setting broad policy guidelines does not qualify them as part of the municipal securities unit.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What happens if a bank’s branches conduct municipal securities business?

A

They are considered a separately identifiable department subject to MSRB rules.

All branches are aggregated for regulatory purposes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Who is referred to as an associated person in the context of municipal securities?

A

A person employed by a dealer-bank or firm engaged in management, direction, supervision, or performance of municipal securities activities.

This includes roles such as underwriters, traders, and salespersons.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is the requirement for associated persons according to MSRB rules?

A

All associated persons must be supervised.

Supervision is essential to ensure compliance with applicable rules and to detect irregularities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Fill in the blank: A person whose functions are solely clerical or ministerial is normally _______.

A

not considered an associated person.

This distinction is important for regulatory purposes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are the consequences of not supervising associated persons?

A

The firm may fail to detect and prevent irregularities in transactions.

This responsibility is critical for maintaining compliance with MSRB regulations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

True or False: Directors are always considered part of the municipal securities department.

A

False.

Their inclusion depends on the nature of their activities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is Rule G-3 concerned with?

A

Professional Qualification Requirements for associated persons.

This rule outlines the qualifications and supervision necessary for individuals in municipal securities roles.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What must a firm designate in writing regarding municipal securities activities?

A

One or more principals responsible for supervising municipal securities activities

The written record must be updated as new appointments or changes occur.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Who conducts periodic reviews to ensure compliance with supervisory procedures?

A

The appropriate principals assigned to their respective areas of responsibility

They ensure compliance with MSRB rules and other regulators.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What positions are considered associated persons in municipal securities?

A
  • Municipal Securities Principal
  • Municipal Securities Sales Principal
  • Municipal Advisor Principal
  • Municipal Advisor Representative
  • Municipal Securities Registered Representative

The functions, responsibilities, and qualifications of each are described separately.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What does the MSRB’s standards of professional qualification require for firms engaging in municipal securities transactions?

A

The municipal securities firm and all associated persons must be properly qualified under Board rules

This includes meeting anti-money laundering compliance program rules.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What happens if any associated persons have not passed the required qualification examination?

A

The firm does not meet the MSRB’s standards of professional qualification

This means the firm could not continue to do business.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What is the waiting period for retaking a qualification examination after failing once?

A

At least 30 days

This applies to each failure before retaking the exam.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What is the waiting period if an individual fails a qualification examination three times in succession?

A

At least six months from the last attempt before retesting

This is a strict requirement set by MSRB rules.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Fill in the blank: If a person fails an examination twice, they must wait _______ before retaking the exam.

A

30 days

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

True or False: A firm can continue to engage in municipal securities transactions if one associated person has not passed the required qualification examination.

A

False

All associated persons must meet the qualification standards.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

What must the written record of supervising principals be updated for?

A

New appointments or changes in appointees

This ensures that the supervisory structure is current.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

What must each associated person submit to the municipal securities firm?

A

A questionnaire signed by a principal of the firm

The questionnaire includes personal and employment information.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

What information must be included in the associated person’s questionnaire?

A

Name, residence address, social security number, starting date of employment, date of birth, educational background

Additional items include a complete personal and business history for the last ten years.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

How long must the business and personal history cover?

A

At least the preceding ten years

This includes reasons for leaving prior employment and position held.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

What must each firm do with the information provided by the associated person?

A

Verify the information with all former employers for three years preceding the association

Verification is required to ensure accuracy of the submitted information.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

How quickly must an MSRB member firm respond to verification requests?

A

Within ten business days

This is applicable for requests related to former employers of the associated person.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

What residential history must be recorded in the questionnaire?

A

All residential addresses for at least the preceding five years

This helps maintain a complete profile of the associated person.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

What must be disclosed regarding disciplinary actions?

A

Any denial of membership, disciplinary action, or sanctions imposed by regulatory agencies

This includes findings of being a cause of disciplinary actions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

What records related to registration must be included?

A

Denial, suspension, or revocation of registration with the SEC or any registered securities association

This applies to brokers or dealers.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

What injunctions must be recorded?

A

Permanent or temporary injunctions against the person or associated firm

These injunctions must state that they prevent acting as an investment advisor or dealer.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

What must be disclosed about aliases?

A

Any other name by which the person has been known

This includes records of aliases used in any capacity.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

What type of convictions must be reported?

A

Conviction record involving securities purchases or sales, or any felony conviction within the past 10 years

This is crucial for assessing the integrity of the associated person.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

What must an associated person do if their information changes?

A

Inform the broker-dealer in writing

This ensures the broker-dealer has the most current information.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

What form is filed for associated persons working for municipal securities broker-dealers?

A

Form U4

This form satisfies the requirements for completing the questionnaire.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

What form is filed for associated persons working for dealer banks?

A

Form MSD-4

This form also satisfies the questionnaire requirements.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

What must every municipal securities broker-dealer maintain for at least three years after an associated person leaves the firm?

A

A copy of an associated person’s questionnaire (Form UA)

This requirement ensures that records are kept for compliance and regulatory purposes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

What information must municipal securities dealers maintain about each associated person?

A

Name, residential address, function, and qualification examination status

This information helps in tracking the qualifications and roles of associated persons.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

What are the classifications of associated persons in the securities industry?

A

Principals and Representatives

These classifications help define roles and responsibilities within broker-dealers.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

What is the purpose of the Securities Industry Essentials (SIE) Exam?

A

To ensure potential industry professionals have a broad knowledge of fundamental concepts and rules of the securities industry

The SIE Exam aims to reduce redundancy in subject matter across various exams.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

Who is eligible to take the SIE Exam?

A

Any person age 18 or older, including students and prospective candidates

This opens opportunities for individuals to demonstrate their knowledge to potential employers.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q

Is current association with a member firm required to take the SIE Exam?

A

No

Individuals can take the exam before or after associating with a firm.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
55
Q

How long are the results of the SIE Exam valid?

A

Four years

This validity period allows candidates some flexibility in pursuing employment opportunities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
56
Q

What additional requirement must be met to qualify for FINRA registration after passing the SIE Exam?

A

Passing an appropriate representative-level qualification exam related to the intended job function

This ensures that candidates are adequately qualified for specific roles.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
57
Q

What is a Municipal Securities Representative?

A

A person associated with a municipal securities broker or dealer who performs essential activities in the municipal securities industry

Their role is crucial for the functioning of municipal securities operations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
58
Q

What activities might a Municipal Securities Representative engage in?

A

Underwriting, trading, or selling municipal securities; acting as a financial advisor or consultant for issuers

These activities are fundamental to the municipal securities market.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
59
Q

Fill in the blank: The SIE Exam was implemented to reduce the redundancy of subject matter content that’s addressed on multiple exams, such as basic product knowledge, the structure and function of _______.

A

[securities industry markets]

Understanding market structure is essential for industry professionals.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
60
Q

What is the requirement for an individual seeking to become a Municipal Securities Representative?

A

Must take and pass the MSRB’s Series 52 Examination within the first 180 calendar days after joining the firm

Failure to do so will result in reverting to a clerical or ministerial status.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
61
Q

What activities can a Municipal Securities Representative engage in?

A

All activities concerning municipal securities including:
* Sales
* Structuring municipal underwritings
* Trading
* Financial advisory services
* Research

A Series 52 Municipal Securities Representative may not sell mutual funds or unit investment trusts that consist of municipal securities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
62
Q

Are bank branch office personnel required to take the representative exam?

A

No, if they merely refer depositors to qualified dealer bank personnel and are not compensated for the referral

However, if they advise depositors or are compensated, they must be registered.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
63
Q

What is a Municipal Securities Sales Limited Representative?

A

A person who passes the Series 7, limited exclusively to sales to and purchases from customers of municipal securities

Cannot perform functions related to underwriting, trading, research or investment advice.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
64
Q

What must a Municipal Securities Limited Representative - Investment Companies pass?

A

Must pass the Investment Company and Variable Contracts Products Examination (Series 6)

This representative’s activities involve municipal fund securities transactions (e.g., 529 plans).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
65
Q

What is the role of a Municipal Securities Principal?

A

Engaged in the management, direction, or supervision of activities including:
* Underwriting, trading, or selling municipal securities
* Reviewing accounts and transactions
* Providing financial advisory services
* Processing and safekeeping of municipal securities
* Providing research or investment advice
* Communicating with public investors
* Maintaining and updating supervisory procedures

This role involves a broad range of responsibilities related to municipal securities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
66
Q

True or False: A Municipal Securities Representative can sell mutual funds that consist of municipal securities.

A

False

A Series 52 Municipal Securities Representative is prohibited from selling mutual funds or unit investment trusts that consist of municipal securities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
67
Q

Fill in the blank: A Municipal Securities Principal is responsible for ________ related to municipal securities.

A

[management, direction, or supervision]

This includes various activities such as underwriting and providing advisory services.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
68
Q

What happens if a person does not pass the Series 52 Examination within the specified time frame?

A

They revert to a clerical or ministerial status

This emphasizes the importance of timely examination completion for maintaining status.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
69
Q

What is the MSRB Series 53 Examination?

A

An examination that qualifies an individual as a Municipal Securities Principal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
70
Q

What must an individual pass before taking the MSRB Series 53 Examination?

A

SIE Exam and the Municipal Securities Representative Examination (Series 52)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
71
Q

What is the grace period allowed by the MSRB for passing the Municipal Securities Principal Examination?

A

20-day grace period

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
72
Q

What qualifications are required to function as a Municipal Securities Principal before passing the Series 53 Examination?

A

Qualified as a General Securities Representative (Series 7), Municipal Securities Representative (Series 52), or General Securities Principal (Series 24)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
73
Q

True or False: A Municipal Securities Sales Principal can supervise trading activities.

A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
74
Q

What is the minimum number of Municipal Securities Principals required for a firm with fewer than 11 associated persons engaging in municipal activities?

A

One Municipal Securities Principal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
75
Q

What type of principal can be counted towards the Municipal Securities Principal numerical requirement if a firm limits its activities exclusively to municipal fund securities?

A

Municipal Fund Securities Limited Principal (Series 51)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
76
Q

List three responsibilities of a Municipal Securities Sales Principal.

A
  • Approving transactions with customers
  • Approving the opening of customer accounts
  • Supervising the handling of written customer complaints
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
77
Q

Fill in the blank: A Municipal Securities Sales Principal supervises representatives in their handling of _______.

A

customer accounts and related activities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
78
Q

What activities is a Municipal Securities Sales Principal NOT responsible for supervising?

A
  • Trading
  • Underwriting
  • Research
  • Providing financial advice and counseling to issuers
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
79
Q

What is one of the key activities a Municipal Securities Sales Principal must regularly review?

A

Customer accounts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
80
Q

What is required for municipal securities firms that are not registered with a securities association?

A

Only required to have one Municipal Securities Principal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
81
Q

What is required to qualify as a Municipal Securities Sales Principal?

A

Must pass either the Municipal Securities Representative Exam or the General Securities Registered Representative Exam, and the General Securities Sales Supervisor Exam (Series 9 and 10)

FINRA requires passing the General Securities Registered Representative Exam before taking Series 9 and 10.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
82
Q

What is the role of Municipal Fund Securities Limited Principals?

A

Acts in the same capacity as Municipal Securities Principals but limited to municipal fund securities only

They must also be registered as a General Securities Principal (Series 24) or Investment Company/Variable Contracts Products Limited Principal (Series 26).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
83
Q

How can one qualify as a Municipal Fund Securities Limited Principal?

A

By passing the Series 51 Examination

They must also fulfill registration requirements to conduct supervisory activities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
84
Q

What is required of a Municipal Advisor Representative?

A

Must pass the Municipal Advisor Representative Exam (Series 50)

This applies to individuals associated with a municipal advisor engaging in advisory activities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
85
Q

Who is NOT considered a Municipal Advisor Representative?

A

Any person employed by the advisor whose duties are solely clerical or ministerial

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
86
Q

What is the requirement for a Municipal Advisor Principal?

A

Must pass the Municipal Advisor Principal Exam (Series 54) and manage the firm’s activities

They supervise Municipal Advisor Representatives in larger firms.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
87
Q

What does the Dodd-Frank Act say about municipal advisors?

A

They are considered fiduciaries when their clients are municipal entities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
88
Q

Define fiduciary.

A

A person who acts on behalf of another person, creating a relationship of trust and confidence

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
89
Q

What is the standard to which fiduciaries are held?

A

They are held to a higher standard than other financial professionals

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
90
Q

What must fiduciaries prioritize when making decisions?

A

The interests of the people or institutions they represent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
91
Q

What is a municipal advisor?

A

The business or firm, not an individual employee or owner

A municipal advisor can be organized as an LLC, partnership, corporation, or sole proprietorship.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
92
Q

What do investment strategies include?

A

Plans and programs for the investment of municipal securities issue proceeds and recommendations for municipal escrow accounts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
93
Q

Who generally needs to register as a municipal advisor?

A

Firms advising municipalities on investment strategies or structuring municipal securities offerings

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
94
Q

According to the SEC, what determines whether something constitutes advice?

A

The particular situation surrounding the communication

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
95
Q

True or False: Providing general information that is not tailored to a specific municipality’s needs is considered advice.

A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
96
Q

What are some examples of general information that do not constitute advice?

A

Examples include:
* Information about professional qualifications and experience
* General market and financial information
* Information about available investments or services
* Factual information on debt financing structures
* Educational materials on government programs and incentives

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
97
Q

What increases the likelihood that a communication is considered advice?

A

The more tailored the communication is to the municipality’s specific needs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
98
Q

What constitutes advice in the context of investment strategies?

A

Anything that rises to the level of a recommendation or a call to action

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
99
Q

What may firms include in their written material to indicate they are not making a recommendation?

A

Disclaimers or disclosures stating they are not acting as an advisor and have no fiduciary obligations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
100
Q

If a firm responds to an RFP or RFQ without compensation, does it need to register as a municipal advisor?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
101
Q

What happens if a firm receives compensation for responding to an RFP or RFQ?

A

It is considered an advisor and may need to register

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
102
Q

Who is exempt from the definition of municipal advisor?

A

Exemptions include:
* Elected and appointed officials and employees of municipalities acting in official capacities
* Underwriters, brokers, dealers, or municipal securities dealers involved in underwriting municipal securities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
103
Q

Under what condition does the exemption for underwriters become effective?

A

Once the municipality engages the firm for a specific offering

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
104
Q

When does the exemption for underwriters end?

A

Once the offering concludes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
105
Q

Fill in the blank: A person providing advice outside her normal duties and receiving compensation must register as a _______.

A

municipal advisor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
106
Q

Who does not need to register as municipal advisors when advising municipalities on investment of securities offering proceeds?

A

SEC-registered investment advisors

They are exempt as long as the advice does not involve issuing municipal bonds or related matters.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
107
Q

What type of advisors are exempt from registration as long as their advice relates to swaps?

A

Registered Commodity Trading Advisors (CTAs)

This exemption applies to firms and their personnel registered under the Commodity Futures Trading Commission (CFTC).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
108
Q

Which professionals are exempt from registration when providing services associated with their jobs?

A

Accountants, Attorneys, and Engineers

They must be providing services typically associated with their professions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
109
Q

What types of banking products and services allow banks and their employees to be exempt from registration?

A

Traditional banking products and services, including:
* Investment in deposit accounts
* Extension of credit to municipal entities
* Funds in certain sweep accounts
* Investments by banks acting as indenture trustees

Banks must register if they advise on issuing municipal securities or derivatives.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
110
Q

What is the condition for municipalities represented by an Independent Registered Municipal Advisor (IRMA) regarding the exemption from registration?

A

They must have engaged an IRMA for the transaction or deal

This allows them to receive advice from other parties without needing to register.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
111
Q

What are the three conditions that must be satisfied to use the exemption when a municipality is represented by an IRMA?

A
  1. The advisor must not have been associated with the IRMA for at least two years.
  2. The municipality must state in writing that it has engaged an IRMA.
  3. The advisor must reasonably rely on this written representation.

These conditions ensure that the municipality has adequate protection and that the advisor can trust the representation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
112
Q

What must a person using the exemption provide to the municipality?

A

Written disclosure that it’s not a registered municipal advisor and doesn’t have a fiduciary duty to the municipality.

This is required under the Exchange Act.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
113
Q

What must the IRMA receive regarding the exemption?

A

A copy of the written disclosure document.

The municipality must have a reasonable time to evaluate the information and any conflicts of interest.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
114
Q

What happens if an associated person ceases to function in their job capacity for two or more years?

A

Their registration will lapse and they will be required to retake the appropriate examination.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
115
Q

What examination must a person pass to re-qualify as a Municipal Principal after being out of business for more than two years?

A

Municipal Securities Representative Examination (Series 52) or General Securities Representative Examination (Series 7), and the Municipal Securities Principal Examination (Series 53).

The MSRB offers registrants an extended ability to maintain their registrations following termination.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
116
Q

Under what circumstances can a waiver of qualification by exam be granted?

A

In extraordinary cases where the person demonstrates extensive experience and necessary knowledge.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
117
Q

Is a Municipal Securities Representative required for securities firms?

A

Yes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
118
Q

Is a Municipal Securities Sales Principal required for bank dealers?

A

Not allowed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
119
Q

What activities is a Municipal Securities Representative qualified to perform?

A

Sells, trades, or underwrites municipal securities, acts as financial advisor, or provides research and investment advice.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
120
Q

What is the minimum numerical requirement for a Municipal Securities Principal?

A

Minimum of one or two persons.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
121
Q

What is the qualification prerequisite for a Municipal Securities Sales Limited Representative?

A

None.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
122
Q

Fill in the blank: A waiver of qualification by exam is given only in _______.

A

[extraordinary cases].

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
123
Q

What is the qualification examination for a Municipal Securities Representative?

A

Series 523

This examination is specifically designed for individuals seeking qualification as Municipal Securities Representatives.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
124
Q

What is the examination grace period for Municipal Securities Sales Limited Representatives?

A

None

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
125
Q

Which examination must a Municipal Securities Sales Principal pass?

A

Series 9 and 10

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
126
Q

What is the grandfathering status for Municipal Securities Representatives?

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
127
Q

Is there a qualification examination for Municipal Securities Principals?

A

Series 53

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
128
Q

What is the qualification examination for Municipal Securities Sales Limited Representatives?

A

Series 7

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
129
Q

What are the functions that a General Securities Principal is permitted to perform regarding municipal securities business? List at least two.

A
  • Maintaining and preserving books and records
  • Reviewing and approving the opening of each customer account
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
130
Q

True or False: The qualification examinations and the information contained on them are confidential.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
131
Q

What actions are considered violations of MSRB rules during qualification examinations?

A
  • Disclose the questions or answers to any person
  • Give or receive assistance during the examination
  • Do anything inconsistent with the confidential nature of the exam
  • Knowingly sign a false certification concerning the examination
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
132
Q

What is statutory disqualification in the context of MSRB membership?

A

A firm or person cannot be qualified for MSRB membership if expelled or suspended from membership or participation in an exchange or association.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
133
Q

Fill in the blank: A possible reason for suspension from MSRB membership is a violation of exchange or association rules which mandate conduct consistent with _______.

A

[just and equitable principles of trade]

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
134
Q

What is statutory disqualification?

A

A person convicted of a misdemeanor related to securities or any felony during the last 10 years is subject to statutory disqualification.

A guilty plea is equivalent to a conviction.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
135
Q

Who can waive statutory disqualification?

A

The SEC or appropriate regulatory authority may waive statutory disqualification if additional facts or conditions make it appropriate.

For example, if wrongdoing unrelated to securities was committed and a penalty was paid.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
136
Q

What may trigger disciplinary action against a firm by the SEC or FINRA?

A

Financial or operational difficulties may trigger disciplinary action against a firm or its employees.

This action may restrict the ability to conduct business in municipal securities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
137
Q

What is the annual requirement for Regulatory Element training?

A

Registered representatives are required to participate in Regulatory Element training annually for each registration held.

This applies to individuals registered in both representative and principal capacities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
138
Q

By when must covered persons complete their Regulatory Element training?

A

By December 31 of the calendar year following their registration and by December 31 of every year thereafter.

This requirement continues as long as a person is associated with a member firm in a registered capacity.

139
Q

What happens if a registered representative does not complete their training on time?

A

Their registration will become inactive.

An inactive registration prohibits performing activities or receiving compensation that requires securities registration.

140
Q

What is the CE Online Program?

A

An online format for delivering the Regulatory Element, allowing participants to satisfy their CE requirement from home or office.

This transition eliminates the need for reservations at testing centers.

141
Q

What must each municipal securities firm do annually regarding training?

A

Evaluate and prioritize training needs, develop a written training plan, and conduct training.

The training plan must consider the firm’s size, organizational structure, and business activities.

142
Q

What minimum topics must the annual training plan cover?

A
  • General investment features and associated risk factors
  • Suitability and sales practices considerations
  • Applicable regulatory requirements
143
Q

Who is subject to Firm Element requirements of continuing education?

A

All registered persons and their direct supervisors.

This is part of the training and evaluation process for municipal securities firms.

144
Q

What is the status of a registered person who joins the military?

A

Special inactive status

This status is indicated by the Central Registration Depository and provides registration relief to personnel.

145
Q

During active military service, can individuals function as registered representatives?

A

No, they are not permitted to contact customers

However, they may continue to receive compensation based on securities transactions.

146
Q

What examination relief does the MSRB provide for those in special inactive status?

A

Relief from examination requirements

This applies to those serving in the military while still registered or those who left the industry.

147
Q

What is deferred during active military duty according to MSRB rules?

A

Both Regulatory and Firm Elements of Continuing Education

This deferral applies to individuals on active duty.

148
Q

Under MSRB rules, how can individuals maintain their qualifications after termination?

A

By completing their annual CE requirement

Individuals have a maximum of five years to reregister without requalifying by exam.

149
Q

What are the conditions to maintain registration after termination?

A
  1. Registered for at least one year prior
  2. No Regulatory Element CE deficiency for two years
  3. Not subject to statutory disqualification
  4. Complete all CE requirements on time

These conditions must be met to maintain qualifications.

150
Q

What must each firm establish according to MSRB rules?

A

Written supervisory procedures

These procedures ensure compliance with MSRB rules and monitor associated persons’ activities.

151
Q

What activities must be reviewed and approved by the designated principal?

A
  • Opening of customer accounts
  • Transactions in municipal securities
  • Handling of written customer complaints
  • Incoming and outgoing correspondence

The review procedures may vary based on the firm’s business size and structure.

152
Q

True or False: A firm with institutional customers will have the same review procedures as one with retail clients.

A

False

Different types of firms will have different review procedures based on their clientele.

153
Q

What must a firm do if it changes the name of the e-mail contact person?

A

File an amended Form A-12 electronically with the MSRB within 30 days of the change.

This ensures that the MSRB has up-to-date contact information.

154
Q

How often must a firm review and update information with the MSRB?

A

At least once within 17 business days after the end of each calendar year.

This is to ensure ongoing compliance and accuracy of records.

155
Q

What is the supervisory responsibility of municipal broker-dealers and dealer banks?

A

Diligently supervise their municipal securities business, including activities of registered representatives and associated persons.

This is mandated by self-regulatory organizations and SEC rules.

156
Q

What does ‘failure to supervise’ mean under the Securities Exchange Act of 1934?

A

A charge against broker-dealers or supervisors who do not prevent violations of securities acts or fail to detect violations.

This includes not taking action after detecting violations by supervised employees.

157
Q

Who can bring failure-to-supervise charges?

A

The SEC, MSRB, and other self-regulatory organizations (SROs).

This reflects the enforcement of supervisory responsibilities.

158
Q

What are the basic SEC requirements regarding supervision?

A

Broker-dealers must reasonably supervise to prevent violations by those under their supervision.

This is to ensure compliance with federal securities laws.

159
Q

Under what conditions will a supervisor not be considered to have failed to supervise properly?

A

If there are established supervisory procedures and the supervisor reasonably discharges duties under the system.

This protects conscientious supervisors from liability.

160
Q

What must a member organization of the MSRB establish according to Rule G-27?

A

Written supervisory procedures to ensure compliance with securities laws and MSRB rules.

This is essential for maintaining regulatory compliance.

161
Q

What is required from principals in a member organization concerning supervisory procedures?

A

They must review the organization’s supervisory procedures and take appropriate action for compliance.

This ensures that the supervisory system is effective and properly implemented.

162
Q

What are the qualifications required for supervisory personnel according to MSRB Rules?

A

Supervisory personnel must be qualified by experience or training, typically by passing the General Securities Sales Supervisor Examination (Series 9/10) or the Municipal Securities Principal Examination (Series 53)

163
Q

Can a Municipal Securities Principal approve activities unrelated to municipal securities?

A

No, a Municipal Securities Principal may not approve other activities of the firm that are not related to municipal securities

164
Q

What additional principal examinations might supervisors in specialized areas need to pass?

A

Supervisors may need to pass the Registered Options Principal (Series 4) or the General Securities Principal (Series 24)

165
Q

What is required of all broker-dealers engaged in municipal securities activities regarding supervisory procedures?

A

They must have a written supervisory procedures manual

166
Q

What must the written supervisory procedures manual cover?

A

The manual must cover the scope and nature of the firm’s business activities, methods of operation, detailed responsibilities of all supervisors, and review procedures

167
Q

Where must a copy of the written supervisory procedures be kept?

A

In each office or location where supervisory activities are conducted

168
Q

What must the written procedures explain regarding completed supervisory reviews?

A

The method by which completed supervisory reviews are documented

169
Q

What must the supervisory manual include about supervisory personnel?

A

The titles, registration status, location, and responsibilities of supervisory personnel

170
Q

How long must records of supervisory personnel and their designation effectiveness be maintained?

A

For six years, with two years in an easily accessible location

171
Q

What is required when changes occur in rules or regulations regarding the supervisory manual?

A

Amendments must be made within a reasonable time after changes

172
Q

What specific procedures must each firm include in their written supervisory procedures?

A

At a minimum, the procedures must state:
* How to handle customer complaints regarding municipal securities activities
* Regular review and approval of customer accounts by a designated principal
* Periodic review of each office engaging in municipal securities activities
* Maintenance and preservation of required books and records

173
Q

What must a firm maintain for the prompt review and written approval by a designated principal?

A

Written procedures for:
* Opening each customer account
* Daily transactions in municipal securities

This includes transactions with discretionary accounts.

174
Q

What is the requirement for MSRB member broker-dealers regarding the MSRB manual?

A

Must keep and maintain a current copy of the MSRB manual at each location where:
* Underwriting, trading, or sales of municipal securities occur
* Financial advisory or consultant services are provided
* Research or investment advice is given

This includes any activities involving public investors in municipal securities.

175
Q

How must a firm make MSRB rules available for customer examination?

A

Promptly on request, by:
* Keeping a hard copy at the office
* Providing Internet or software access to the Board’s rules

Internet access is available at www.msrb.org.

176
Q

What is a municipal office of supervisory jurisdiction (muni-OSJ)?

A

A location where:
* Market-making and/or order execution occurs
* Public offerings or private placements are structured
* Custody of customers’ funds and/or securities is maintained
* New accounts are approved
* Customer orders are reviewed and endorsed
* Advertising or sales literature is approved
* Other branch offices are supervised

It requires a designated principal for supervision.

177
Q

What is required of a municipal OSJ regarding personnel?

A

Must have a Municipal Securities Principal on the premises responsible for:
* Approval and review of accounts
* Transactions and correspondence
* Advertising and sales literature
* Response to customer complaints

The principal must also oversee satellite offices.

178
Q

Fill in the blank: A firm must appoint a principal to supervise activities at any location defined as an _______.

A

[office of municipal supervisory jurisdiction (muni-OSJ)]

179
Q

True or False: A member firm is required to interpret the MSRB rules for customers.

A

False

There is no requirement for a member firm to interpret the rules for customers.

180
Q

List the responsibilities of a Municipal Securities Principal in a muni-OSJ.

A
  • Approval and review of accounts
  • Transactions and correspondence
  • Advertising and sales literature
  • Response to customer complaints

This principal must also visit satellite offices frequently.

181
Q

What is required for a member organization to designate other municipal OSJs?

A

Adequate supervision

Factors to consider include registered personnel engaging in retail sales, geographical distance from a municipal OSJ, and the complexity of activities at the branch.

182
Q

Who can supervise a non-OSJ branch office?

A

A principal or a competent registered selling representative

183
Q

What defines a Municipal Branch Office?

A

A location where associated personnel regularly conduct transactions in municipal securities or represent themselves as such

184
Q

Which locations are not required to be registered as a muni-branch office?

A

Locations that include:
* A non-sales office
* A location of convenience used occasionally
* The floor of an exchange
* A temporary location for business continuity
* A location primarily for non-securities business with less than 25 transactions annually
* A representative’s primary residence not used for public office
* A temporary location for securities business for less than 30 business days

185
Q

What is a location of convenience?

A

An office situated in a bank where signs can be displayed to avoid customer confusion about low-risk investments

186
Q

What are the Primary Residence Limitations for municipal branch office registration?

A

Conditions include:
* Only one associated person or family members may conduct business
* The residence cannot be represented as an office
* No handling of customer funds or securities
* Associated person must be assigned to a muni-branch office listed on communications

187
Q

True or False: Customer funds can be handled at a primary residence used for conducting business.

A

False

188
Q

Fill in the blank: A temporary location used for securities business for less than ______ business days in any calendar year is exempt from muni-branch office registration.

A

30

189
Q

What must advertisements and sales literature identify when generated from a location not registered as a muni-branch office?

A

The location that supervises the personnel working there

190
Q

What must correspondence and communications with the public from the associated person be subject to?

A

The firm’s supervision

191
Q

Through which system must electronic communications, including e-mail, be made?

A

The firm’s system

192
Q

Where must all orders be entered?

A

Through the muni-branch of the associated person or an established electronic system

193
Q

What must the firm maintain regarding the supervision of sales activities at an associated person’s residence?

A

Written procedures

194
Q

What must the firm maintain a list of?

A

All residence locations

195
Q

What do regulators require regarding on-site reviews of an associated person’s primary residence?

A

Written supervisory procedures including inspection standards

196
Q

How often must municipal OSJs and branch offices that supervise non-branch locations be inspected?

A

Annually

197
Q

How often must non-supervisory muni-branch offices be inspected?

A

At least once every three years

198
Q

What factors should be considered when reviewing muni-branch offices?

A
  • Nature and complexities of activities
  • Volume of business
  • Number of personnel
199
Q

What must be included in the firm’s written supervisory procedures regarding inspections?

A

A record of when each inspection was conducted

200
Q

What areas must the office inspection report address in relation to municipal securities activities?

A
  • Safeguarding customer funds and municipal securities
  • Maintaining books and records
  • Supervising customer accounts
  • Transmitting funds
  • Validating changes in customer addresses
201
Q

Who must perform the office inspections?

A

Persons independent of the office activities

202
Q

Who is not allowed to conduct office inspections at a muni-branch?

A
  • The branch office manager
  • Any supervisory person within the branch
  • Any individual directly supervised by branch personnel
203
Q

What exception may the MSRB grant regarding office inspections?

A

If compliance could not be made due to limitations in size or resources

204
Q

What is the primary responsibility of designated principals in MSRB dealers?

A

To establish, maintain, and enforce supervisory control policies and procedures

This ensures compliance with federal and industry regulations.

205
Q

What must principals who monitor supervisory control procedures do annually?

A

Report to senior management, including verification of compliance and discussion of deficiencies

The report must suggest appropriate actions to correct any detected deficiencies.

206
Q

Who must conduct an independent review of a producing manager’s activities?

A

A person who is senior to, or independent of, the producing manager

This person must meet specific independence criteria.

207
Q

List the criteria that define an independent reviewer for a producing manager.

A
  • Must not report directly or indirectly to the producing manager
  • Must be located at a different office
  • Must not have supervisory authority over or be compensated by the muni-branch or muni-OSJ
  • Must alternate review responsibilities with another person at least every two years
208
Q

What additional requirement exists if a producing manager generates 20% or more of the revenue?

A

Heightened inspection requirements may be necessary

A more detailed examination is needed to avoid conflicts of interest.

209
Q

What is the Taping Rule?

A

A supervisory procedure requiring firms to tape conversations between registered personnel and customers for three years

This applies when hiring personnel from disciplined member firms.

210
Q

What qualifies a firm to be subject to the Taping Rule?

A
  • Employs at least five, but fewer than 10 registered representatives with 40% or more from disciplined firms
  • Employs at least 10, but fewer than 20 registered representatives with four or more from disciplined firms
  • Employs at least 20 registered representatives with 20% or more from disciplined firms
211
Q

True or False: The Taping Rule applies to any firm regardless of the number of registered representatives.

A

False

The Taping Rule applies only under specific employment criteria.

212
Q

What is the time frame for a broker-dealer to comply with the Taping Rule after being notified by FINRA?

A

60 days

The broker-dealer must establish procedures and begin taping its personnel.

213
Q

What must a broker-dealer do after establishing taping procedures under the Taping Rule?

A

Create procedures for reviewing, retaining, and classifying the recordings

Additionally, a report must be sent to FINRA after each calendar quarter.

214
Q

What is the one-time opportunity for a broker-dealer under the Taping Rule?

A

Reduce staffing levels below threshold levels to avoid the Taping Rule

After reduction, the broker-dealer must notify FINRA.

215
Q

What is the rehire restriction for employees terminated due to staffing reductions under the Taping Rule?

A

Cannot be rehired for 180 days

This applies to employees terminated because of a reduction in staffing levels.

216
Q

What is required of all registered persons regarding annual compliance?

A

Participate in an annual compliance review

This review can be individual or group and must focus on compliance issues.

217
Q

What should the emphasis of the annual compliance meeting be?

A

Regulation and compliance

Product knowledge is not the focus of this meeting.

218
Q

What must be documented during the annual compliance meeting?

A

Participation

Documentation is important for supervisory reviews.

219
Q

What does the Fair Dealing Rule (Rule G-17) prohibit?

A

Deceptive, dishonest, or unfair practices

This applies to municipal securities broker or dealer activities.

220
Q

What must be disclosed to a customer concerning a transaction under Rule G-17?

A

All material information, including a description of the security

Disclosure must occur at or before the sale.

221
Q

What is the obligation of a dealer regarding complex municipal securities?

A

Review a broader range of information

This is especially true if the security is non-rated.

222
Q

Is it a violation for a dealer to recommend securities based on the highest compensation?

A

True

Dealers must not consistently recommend securities where they earn the most.

223
Q

What type of investor is defined under Rule D-15?

A

Sophisticated Municipal Market Professional (SMMP)

This definition includes specific requirements for transactions.

224
Q

What are the three requirements for effecting transactions with an SMMP?

A
  • Nature of the customer
  • Dealer determination of customer sophistication
  • Customer affirmation

These requirements ensure proper handling of transactions.

225
Q

What types of entities qualify as customers under the defined nature of the customer?

A

The customer must be a bank, savings and loan association, insurance company, registered investment company, investment adviser registered with the SEC or a state securities commission, or any entity with total assets of at least $50 million.

226
Q

What is required for a dealer to determine customer sophistication?

A

The dealer must have a reasonable basis to believe that the customer can evaluate investment risks and market value independently, both generally and for specific transactions and strategies in municipal securities.

227
Q

What must a customer affirmatively indicate regarding their transactions?

A

The customer must affirmatively indicate independent judgment in evaluating:
* Recommendations of the dealer
* Quality of execution of transactions by the dealer
* Transaction price for non-recommended secondary market agency transactions.

228
Q

What does the dealer assume about the SMMP’s access to information?

A

The dealer assumes that the SMMP has timely access to material information available publicly through established industry sources regularly used by dealers, such as EMMA and credit rating agencies.

229
Q

What is the major tax advantage of municipal bonds for most investors?

A

The interest received from municipal bonds is exempt from federal taxes.

230
Q

How are municipal bonds treated for state and local income taxes?

A

Most states exempt the interest on bonds issued within their state from a resident’s state and local income taxes.

231
Q

What happens to interest earned on out-of-state municipal securities for a state resident?

A

Interest on out-of-state municipal securities is usually subject to state and local taxation.

232
Q

What is the tax treatment of capital gains from municipal bonds?

A

Capital gains resulting from the sale or redemption of a municipal bond are subject to federal taxation.

233
Q

What is the tax implication of a capital loss resulting from municipal bonds?

A

A capital loss may result from the sale or redemption of a municipal bond.

234
Q

What is the market discount rule for municipal bonds purchased at a discount?

A

If a municipal bond is purchased at a discount in the secondary market and held to maturity, there will be a taxable gain at maturity reported as ordinary income.

235
Q

Fill in the blank: If a municipal bond was originally issued at par and purchased for $900, the difference reported as ordinary income at maturity will be _______.

A

$100

236
Q

What is the tax treatment of ordinary income and capital gains from a bond?

A

A combination of ordinary income and capital gains taxes, depending on the initial discount and changing market conditions.

The initial discount is taxed at ordinary income tax rates, while gains due to market conditions are taxed at capital gains rates.

237
Q

What are Original Issue Discount Bonds (OID)?

A

Bonds initially issued at a discount, where appreciation is treated as interest rather than a capital gain.

A zero-coupon bond is considered an OID.

238
Q

How is the appreciation of an OID bond treated for tax purposes?

A

The appreciation (discount amount) is taxed as interest, not as a capital gain.

Interest on municipal securities is typically exempt from federal taxation.

239
Q

What happens to the cost basis of a municipal OID bond each year?

A

The cost basis is increased each year and reaches par at maturity, resulting in no capital gain.

The adjusted cost basis is used to calculate gains or losses if sold prior to maturity.

240
Q

If an OID municipal bond is purchased for $500 and sold for $675, what is the capital gain?

A

$25 capital gain ($675 sales proceeds - $650 adjusted cost basis).

241
Q

What is the result if an OID municipal bond is sold for $625?

A

$25 capital loss ($650 adjusted cost basis - $625 sales proceeds).

242
Q

What is a Premium Bond?

A

A bond purchased at a premium (above par) that requires amortization of the premium each year.

The amortized amount reduces the bondholder’s cost basis.

243
Q

How is the premium on a bond amortized?

A

The premium is written off over the remaining life of the bond, reducing the cost basis to the redemption price at maturity.

If sold prior to maturity, the adjusted cost basis is used to calculate gain or loss.

244
Q

What method is used to amortize bonds issued prior to September 1985?

A

The straight-line method.

The amortized amount is determined by dividing the premium amount by the number of years to maturity.

245
Q

If a municipal bond is purchased at a cost of $1,100 and has an adjusted cost basis of $1,060 after five years, what is this basis used for?

A

To determine a gain or loss on a subsequent sale.

246
Q

True or False: The adjusted cost basis of a bond decreases over time.

A

True.

247
Q

What is the capital gain if a bond is sold at $1,090?

A

3 points

Capital gain is calculated as $1,090 - $1,060 (adjusted cost basis)

248
Q

What is the capital loss if a bond is sold for $1,040?

A

2 points

Capital loss is calculated as $1,040 - $1,060 (adjusted cost basis)

249
Q

What is the outcome if a bond is sold for $1,060?

A

No gain or loss

250
Q

What are auction rate securities?

A

Securities with a variable interest rate set through a Dutch Auction process

251
Q

How is the net clearing rate for auction rate securities determined?

A

It is the lowest rate bid sufficient to cover all securities for sale

252
Q

What must a municipal securities representative disclose to a client regarding auction rate securities?

A

Risk of auction failure and material facts about the securities

253
Q

What does a variable rate demand obligation (VRDO) allow the owner to do?

A

Sell or put the security back to the issuer or third party

254
Q

How often can a VRDO adjust its interest rate?

A

Daily, weekly, or monthly

255
Q

What is a letter of credit (LOC) in relation to VRDOs?

A

Provides credit enhancement and short-term liquidity

256
Q

What is one key difference between VRDOs and auction rate securities?

A

VRDOs have a put feature; ARS do not

257
Q

What happens if an auction for auction rate securities fails?

A

Investor may not have immediate access to funds

258
Q

What type of insurance is available for municipal bonds?

A

Insurance from companies that pay interest and principal if the issuer defaults

259
Q

What is required of dealers regarding insured municipal bonds?

A

Provide a description of bond insurance and the insurer’s credit rating

260
Q

True or False: An insured bond is guaranteed to have a AAA rating.

A

False

261
Q

What is the maximum value of gifts and gratuities that can be given per person, per year according to MSRB Rule G-20?

A

$100

This limit applies if the gift is given in connection with the municipal securities activities of the recipient’s employer.

262
Q

Are legitimate business expenses bound by the $100 limit on gifts and gratuities?

A

No

Legitimate business expenses are not subject to the $100 limit.

263
Q

What must be included in a written agreement for employment and compensation contracts?

A
  • Proposed services
  • Anticipated compensation
  • Consent of the person’s employer

This agreement is necessary to comply with MSRB rules.

264
Q

Can a municipal securities firm give gifts to its own employees?

A

Yes

MSRB rules do not limit what a firm may give its own employees.

265
Q

Does MSRB Rule G-20 prohibit occasional gifts of meals or entertainment tickets?

A

No

Occasional gifts of meals or tickets to events are allowed even if the cost exceeds $100.

266
Q

What type of gifts are allowed under MSRB Rule G-20?

A
  • Meals
  • Tickets to theatrical and sporting events
  • Sponsoring legitimate business functions recognized as deductible by the IRS
  • Reminder advertising gifts

Gifts should not raise suggestions of unethical conduct.

267
Q

Is a gift of season tickets considered excessive under MSRB Rule G-20?

A

Yes

A gift of season tickets is a violation of the gift rule.

268
Q

What does the term ‘non-cash compensation’ include?

A
  • Merchandise
  • Gifts and prizes
  • Travel expenses
  • Meals
  • Lodging

These items are received in connection with the sale and distribution of municipal securities.

269
Q

Can MSRB firms compensate salespeople with non-cash compensation?

A

Yes

Compensation must not be designed to favor a particular product.

270
Q

What conditions must be met for an issuer to reimburse underwriters for meetings?

A
  • Approval from the firm for the associated person to attend
  • Appropriate location for the meeting

Reimbursements cannot be made for guests’ expenses or be tied to achieving specific sales targets.

271
Q

True or False: MSRB Rule G-20 allows for reimbursement of expenses for guests of associated persons.

A

False

Reimbursements may not be made for guests’ expenses.

272
Q

What is allowed regarding non-cash compensation between a firm and its associated persons?

A

Non-cash compensation is allowed if it is based on total production for specific product types and equally weighted for each municipal security within that type

Non-cash compensation must not involve anyone other than associated persons.

273
Q

What is the maximum dollar value for gifts according to MSRB rules?

A

The maximum dollar value for gifts is $100

Any gift exceeding this amount is considered a violation.

274
Q

What records must a municipal securities dealer maintain regarding gifts and non-cash compensation?

A

A municipal securities dealer must maintain records of:
* Gifts or gratuities defined under the gift rule
* Agreements related to compensation for services
* Certain information about non-cash compensation

These records include details such as the name of the gift giver and the value of non-cash compensation.

275
Q

For how long must firms keep records of gifts and compensation agreements?

A

Firms must keep records for six years.

276
Q

What defines a control relationship according to Rule G-22?

A

A control relationship exists when a person in a position of influence at a broker-dealer is also in a position of influence with an issuer.

277
Q

How does a control relationship manifest in a scenario involving a municipal securities firm and an issuer?

A

For example, if a mayor of a town is employed by a municipal securities firm, they could influence the municipality’s debt service and recommend bonds to clients, creating a control relationship.

278
Q

What must a firm disclose if it has a control relationship with an issuer?

A

The firm must disclose the control relationship to all clients wanting to purchase related municipal bonds before entering any trades.

279
Q

True or False: A firm can inform a client about a control relationship orally before a trade but does not need to provide written disclosure.

A

False

Written disclosure must be provided either at or before the completion of the transaction.

280
Q

Fill in the blank: A control relationship exists when a person in a position of ________ at a broker-dealer is also in a position of influence with an issuer.

A

[influence]

281
Q

What is a discretionary account?

A

A discretionary account allows a firm to transact business on behalf of the customer without prior approval for each transaction.

A firm is prohibited from transacting in a municipal security with which it has a control relationship unless each transaction has been specifically authorized by the customer.

282
Q

What is required for advertising under Rule G-21?

A

All advertising must be truthful and not misleading.

An advertisement includes any material published or designed for use in public media or promotional literature intended for public dissemination.

283
Q

How is a form letter defined in the context of advertising?

A

A form letter is any written or electronic mail message distributed to more than 25 persons within any 90-day period.

If sent to 25 persons, it’s correspondence; if sent to 26 or more, it’s advertising.

284
Q

What is the difference between advertising and correspondence?

A

Advertising requires approval, while correspondence requires supervision and review.

The number of recipients affects this classification.

285
Q

In the municipal securities business, how is a response to an RFP treated?

A

A response to an RFP is considered a response to one person, regardless of how many individuals review it.

Responses are generally not considered advertising since the intent is not for distribution.

286
Q

Are preliminary and final official statements considered advertising?

A

No, they are not considered advertising.

However, an abstract or summary of an official statement is considered an advertisement.

287
Q

What are the content standards for advertisements in municipal securities?

A

Advertisements must be fair, balanced, and provide a sound basis for evaluating facts.

They must not omit material facts or qualifications that could mislead.

288
Q

What types of statements are prohibited in advertisements?

A

Exaggerated, unwarranted, promissory, or misleading statements or claims are not allowed.

Advertisements must be consistent with the inherent risks of the investment.

289
Q

What must advertisers consider regarding their audience?

A

Advertisers must consider the nature of the audience and provide details and explanations appropriate to them.

This ensures that the information is understandable and relevant.

290
Q

Fill in the blank: An advertisement must provide a sound basis for evaluating the facts in regard to any particular municipal security or type of municipal security, _____, or service.

A

[industry]

This emphasizes the importance of clarity and accuracy in advertisements.

291
Q

What is prohibited in advertisements regarding performance predictions?

A

Predicting or projecting performance, implying past performance will recur, or making exaggerated claims

However, hypothetical illustrations of mathematical principles are allowed if they do not predict performance.

292
Q

What must a testimonial about a technical aspect of investing include?

A

The person must have the knowledge and experience to form a valid opinion.

293
Q

What disclosures are required for testimonials about investment performance?

A
  • The testimonial may not be representative of other customers’ experiences
  • It isn’t a guarantee of future performance
  • If paid over $100, it must be disclosed as a paid testimonial
294
Q

Can a firm indicate registration with the MSRB in advertisements?

A

Yes, provided it complies with all other Board rules and does not imply MSRB endorsement.

295
Q

What must advertisements regarding professional qualifications of a municipal securities dealer avoid?

A

Being materially false or misleading.

296
Q

What is considered incomplete in advertisements claiming a firm is a great place to work?

A

Missing essential aspects of the business, such as the absence of an underwriting department.

297
Q

What must a firm indicate when advertising municipal securities?

A

Must not publish materially false and misleading information.

298
Q

In ads offering bonds for sale, what must be indicated regarding percentage rates of return?

A

The nature of the rate, i.e., whether it’s a coupon rate or yield.

299
Q

What must be disclosed if a yield is shown in an advertisement?

A

The basis on which the yield is calculated (current yield, yield-to-call, yield-to-maturity).

300
Q

Can an advertisement only disclose the current yield?

A

No, it must also disclose yield-to-call or yield-to-maturity.

301
Q

What is misleading regarding the representation of yields in advertisements?

A

Confusing yield with a ‘tax-free’ return.

302
Q

If an 8% coupon bond is priced to yield 12% to maturity, how should it be represented in an advertisement?

A

The discount is subject to taxes, and the 12% is a gross yield to maturity.

303
Q

What does the MSRB consider misleading in advertisements concerning yields?

A

Disclosing only a current yield.

304
Q

What does the Board believe is the most important information for determining price fairness?

A

Yield-to-maturity or yield-to-call.

305
Q

What must be disclosed on customer confirmations according to MSRB rules?

A

Yield-to-maturity or yield-to-call

This helps avoid confusion for customers purchasing bonds based on advertised current yields.

306
Q

Why is it considered confusing if a customer sees only YTM or YTC on their confirmation?

A

Because they may have bought a bond based on an advertised current yield

This highlights the importance of clarity in yield information.

307
Q

What should be indicated in product advertisements regarding net yields?

A

Net (after-tax) yields might be less

This informs customers of potential discrepancies in actual returns.

308
Q

What must be indicated about the price of a bond in advertisements?

A

The price or approximate price or that the bond is trading at a premium

Failure to indicate this makes the advertisement unacceptable.

309
Q

Who must approve each advertisement in writing prior to first use?

A

A Municipal Securities Principal (Series 53) or a General Securities Principal (Series 24)

This ensures compliance with advertising regulations.

310
Q

What type of principal can approve advertising related to municipal fund securities?

A

A Municipal Fund Securities Limited Principal (Series 51)

This is specifically for advertising related to 529 plans.

311
Q

What does interactive content refer to?

A

Content posted for direct, real-time interaction

Examples include chatting or messaging.

312
Q

Is interactive content posted in an electronic forum exempt from reapproval requirements?

A

Yes, it is exempt from the requirement for reapproval by a Municipal Securities Principal or General Securities Principal

This allows for more fluid communication in interactive settings.

313
Q

How is static content defined?

A

Material posted to social media for an extended period and is not interactive

This type of content requires different compliance considerations.

314
Q

What happens if interactive content is copied to a static area of a social media site?

A

It is considered advertising and must be approved by a principal

This ensures that all advertising complies with regulations.

315
Q

What must a municipal broker-dealer establish regarding interactive content?

A

A system to supervise its municipal securities activities and associated persons

This is to ensure compliance with securities laws and MSRB guidelines.

316
Q

What does MSRB Rule G-21 pertain to?

A

Advertising standards for municipal securities

It includes requirements for supervision and approval of advertisements.

317
Q

How does the MSRB view the use of social media sites like LinkedIn or Facebook?

A

As advertising, unless an exception applies

This means that standard advertising rules apply to social media content.

318
Q

What happens to posts made by employees on social networking sites?

A

They are considered interactive content, subject only to review and supervision

They do not require preapproval, allowing for more dynamic engagement.

319
Q

What is the stance of MSRB member firms on employee use of personal social media sites for business purposes?

A

Many MSRB member firms prohibit their employees from using certain social media sites for business purposes.

320
Q

Are personal social media posts by employees considered advertising under Rule G-21?

A

No, personal social media posts for non-business-related communication are not considered advertising under Rule G-21.

321
Q

What is an example of a non-business-related social media post?

A

A post about a local charity event or a hyperlink to the firm’s website for an article on disaster relief.

322
Q

What happens if an employee posts business-related communication on their personal social media page?

A

It is considered advertising and is subject to Rule G-21.

323
Q

What constitutes advertising when a municipal broker-dealer includes a hyperlink to third-party content?

A

The content is considered advertising if the broker-dealer was involved in its preparation or endorsed it.

324
Q

What is the term for when a municipal securities firm is involved in the preparation of content linked on its website?

A

Entangled.

325
Q

What is the distinction between educational content and advertising for a municipal securities broker-dealer?

A

A generic article on municipal securities that doesn’t mention specific securities is considered educational and not advertising.

326
Q

Are links to independent third-party content considered advertising if they contain secondary links?

A

No, as long as the content is not entangled or adopted by the municipal securities firm.

327
Q

What are third-party posts in the context of municipal securities firms?

A

Posts by customers, municipal entity clients, or any other third party on social networking pages.

328
Q

When are third-party posts considered advertising?

A

When the municipal firm becomes entangled or has adopted the third-party content.

329
Q

What actions by a firm or employee could lead to third-party posts being subject to MSRB’s advertising rule?

A

If they solicited, paid, or shared (‘liked’) these comments on social media.

330
Q

What are municipal securities broker-dealers and their employees prohibited from doing on third-party websites?

A

Posting content that they know or have reason to know contains false or misleading information.

331
Q

What should a municipal securities firm develop regarding social media?

A

Policies and procedures

These policies should cover various factors related to supervision of social media.

332
Q

What are the factors that should be addressed in the policies and procedures for social media?

A
  • Usage restrictions
  • Training and education
  • Recordkeeping and record retention
  • Monitoring
  • Approval of social networking sites
333
Q

What must a firm determine regarding usage restrictions on social media?

A

Which sites are restricted and which are prohibited

This is crucial for compliance and effective oversight.

334
Q

What is emphasized in the training and education of a municipal securities firm regarding social media?

A

Understanding the differences between personal and business communications

Also includes how to respond to a client on social media.

335
Q

What must a firm document concerning recordkeeping and record retention for social media?

A

How it will comply when using social media

This is essential for regulatory compliance.

336
Q

What does monitoring involve for a municipal securities firm’s social media use?

A

Verifying how it will monitor and review content

This helps in maintaining compliance and oversight.

337
Q

What must a firm indicate regarding approval of social networking sites?

A

Which sites are permitted

Compliance with applicable MSRB rules is also required.

338
Q

What is the significance of using social networking sites for business communications?

A

Subject to recordkeeping requirements

This applies regardless of the device used.

339
Q

What do SEC rules prohibit for brokers, dealers, and dealer banks?

A

The use of manipulative and deceptive devices

This is critical for maintaining market integrity.

340
Q

What is unlawful for any broker-dealer according to SEC rules?

A

Engaging in manipulative, deceptive, or fraudulent acts in securities transactions

This includes municipal bonds.

341
Q

What constitutes a violation of SEC rules concerning material facts?

A

Making untrue statements, omitting material facts, or perpetrating fraud or deceit

This applies to all securities, including municipal bonds.

342
Q

What sanctions can the SEC impose for violations of its rules?

A
  • Censure
  • Fines
  • Suspensions for up to twelve months
  • Denial or revocation of registration
343
Q

Who can be sanctioned for violations of SEC rules?

A

Both the municipal securities firm and its registered persons

Sanctions may also be empowered to another regulator if the SEC is not the primary regulatory agency.

Series 53 (2 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions