FC CH 4 Flashcards
What is the disclosure document, similar to a prospectus, that is used for municipal bonds?
Official Statement
What may a trader do to gauge a bond’s value in the market?
Appraise or evaluate various conditions
An Eastern account is also referred to as a(n) _________ account.
An Eastern account is also referred to as a(n) undivided account.
The Visible Supply figure indicates the number of municipals expected to reach the market within the next ____ days.
The Visible Supply figure indicates the number of municipals expected to reach the market within the next 30 days.
What type of confirmation will a person who buys bonds prior to issuance receive?
A when issued confirmation
What is the MSRB’s primary disclosure service for official statements and other related information?
The Electronic Municipal Market Access (EMMA) system
The 20 GO Bond Index is composed of ____ GO bonds with ____-year maturities.
The 20 GO Bond Index is composed of 20 GO bonds with 20-year maturities.
What is the difference between what the syndicate pays the issuer for the new issue and the public offering price?
The underwriting spread
Are serial or term bonds more likely to have a sinking fund?
Term bonds are more likely to have a sinking fund.
For bonds trading at a discount, the yield-to-________ must be disclosed.
For bonds trading at a discount, the yield-to-maturity must be disclosed.
True or False: Term bonds are quoted on a yield basis.
False. Term bonds are quoted on a dollar basis (% of par).
For bonds trading at a premium, usually the yield-to-______ must be disclosed.
For bonds trading at a premium, usually the yield-to-call must be disclosed.
Is the Placement Ratio compiled daily or weekly?
Weekly
How is the underwriter determined for a Negotiated Sale?
The issuer selects the underwriter it would like to work with, and they negotiate the offering terms.
Define down bid.
It is when the most recent bid is lower than the previous bid
The average rating for the 20 GO Bond Index is ____________.
he average rating for the 20 GO Bond Index is AA or Aa2.
True or False: The 11 GO Bond Index is composed of 11 of the 20 bonds in the 20 GO Bond Index.
True
True or False: An undivided underwriting account is also referred to as a Western account.
False. An undivided account is also referred to as an Eastern accoun
What provides an investor with the price at which bonds may be sold?
A workable indication
True or False: By participating in an underwriting, a firm is making an implied recommendation to purchase the security.
True
True or False: The Syndicate Letter is also referred to as the Agreement Among Underwriters.
True
True or False: In a Western account, any unsold bonds are reallocated.
False. In a Western account, any unsold bonds are retained by the syndicate member that was unable to sell them.
When the best bid and the best offer for a security are identical, the market is ______.
When the best bid and the best offer for a security are identical, the market is locked.
The ____ price is the price at which a security is being offered.
The list price is the price at which a security is being offered.
Name the three components of the spread for a bond offering.
- Manager’s fee 2. Additional takedown 3. Sales concession
The document underwriters submit to issuers when bidding on a competitive issue is called the ______________________.
The document underwriters submit to issuers when bidding on a competitive issue is called the Official Bid Form.
How is the underwriter determined for a Competitive Sale?
The issuer invites syndicates to bid on the issue, with the best bid (lowest interest cost) winning the competition.
____________ orders are given to a syndicate and identify two or more members (not all) to receive credit for the sale.
Designated orders are given to a syndicate and identify two or more members (not all) to receive credit for the sale.
What yield would be disclosed for a bond purchased at a discount?
Yield to maturity (YTM)
A brokerage firm that purchases for or sells from its own account is effecting a _________ trade.
A brokerage firm that purchases for or sells from its own account is effecting a principal trade.
True or False: The legal opinion addresses the creditworthiness of an issue.
False. Legal opinions address the legality (authority/validity) of the issue and the tax exemption of the interest.
What does the Placement Ratio indicate?
The number of bonds that were sold during the week compared to what was available for sale (the demand side)
True or False: A bond counsel provides comments on the investment merits of a bond.
False
The underwriting spread is also referred to as the __________.
The underwriting spread is also referred to as the production.
For a new municipal offering, what constitutes settlement?
The issuer delivering the bonds and the syndicate paying the issuer for the bonds
How often is the Bond Buyer Municipal Bond Index published?
Daily
True or False: Presale orders are helpful in determining the final bid price.
True
True or False: Underwriting fees may be passed on to the issuer and/or customers.
False. Syndicate members are required to pay the underwriting fees.
_________ orders are those in which only one member earns the total takedown.
Member orders are those in which only one member earns the total takedown.
True or False: Receiving a selling concession is considered a form of underwriting compensation.
True
Are Visible Supply figures compiled daily or weekly?
Daily
The offer is the price at which a customer may ____ a bond.
The offer is the price at which a customer may buy a bond.
Is it mandatory for a municipal issuer to prepare an Official Statement?
No, but if one has been prepared, the MSRB requires BDs to distribute it.
At bid submission, does Net Interest Cost (NIC) or True Interest Cost (TIC) take into account the time value of money?
True Interest Cost (TIC), also called the Canadian Method
Define cover bid.
The next best bid on a new issue or secondary market transaction
If a bond counsel has no concerns related to the new offering, the counsel may render an ______________ opinion.
If a bond counsel has no concerns related to the new offering, the counsel may render an unqualified opinion.
$10,000 worth of bonds are due to mature in five years. Calculate the total number of bond years.
Ten $1,000 par bonds are outstanding and each has five years to maturity; therefore, there are 50 bond years (10 x 5).
What is a swing coupon?
The coupon on a specific maturity that is adjusted to achieve the desired spread
The index showing the average yield on 25 revenue bonds with 30-year maturities is called the ______________________.
The index showing the average yield on 25 revenue bonds with 30 year maturities is called the Revenue Bond Index.
Where can Visible Supply figures and the Placement Ratio for municipals be found?
The Bond Buyer
Municipal syndicate settlement occurs within ____ days of settlement with the issuer.
Municipal syndicate settlement occurs within 30 days of settlement with the issuer.
Which DTCC service is designed to assist in the confirmation, clearing, and reporting of trades for new municipal bonds?
The New Issue Information Dissemination Service (NIIDS)
Who prepares the official statement
The issuer
How often are the components of the 20 Bond Index adjusted?
Weekly
What advertises that municipal bonds are available and invites underwriters to bid on a new competitive issue?
Notice of Sale
True or False: In a new municipal offering, a selling group member may be reallocated unsold bonds.
False. Selling group members assume no liability and do not receive any reallocation of unsold bonds.
In a negotiated underwriting, what document binds members together?
The agreement among underwriters
How often is the 11 GO Bond Index published?
Weekly
The yield curve of the highest rated municipal bonds is referred to as the ____ curve.
The yield curve of the highest rated municipal bonds is referred to as the MMD curve.
What service is used by firms wanting to underwrite municipal securities with maturities of greater than nine months?
The New Issue Information Dissemination Service (NIIDS)
True or False: The bid is the price at which a customer may sell a bond.
True
True or False: Syndicate managers may change the priority of orders if justifiable and in the syndicate’s best interest.
True
Where can Notices of Sale be found?
In The Bond Buyer (The Daily Newspaper of Public Finance)
A Notice of Sale is created by the ______.
A Notice of Sale is created by the issuer
What orders are placed prior to the actual awarding of the issue to the syndicate?
Presale orders
What yield would be disclosed for a bond purchased at a premium and callable at par?
Yield to call (YTC)
Municipal bond traders generally engage in what type of trading?
Position trading
True or False: General obligation bond issues require voter approval.
True
A brokerage firm that assists a client in either buying or selling a security is effecting a(n) ______ trade.
A brokerage firm that assists a client in either buying or selling a security is effecting an agency trade.
When does final settlement of a syndicate account occur?
Within 30 calendar days following the date the issuer delivers the bonds to the syndicate
How often are the components of the 11 Bond Index adjusted?
Weekly
True or False: Syndicate members may withdraw from participating due to a disagreement regarding the spread.
True
Put the following four types of orders in the correct priority: Group Net, Member, Presale, Designated
1) Presale 2) Group Net 3) Designated 4) Member (Remember: P, G, D, M)
Is the average credit rating of the Revenue Bond Index higher or lower than the GO Bond Indexes?
Lower; the average is A+/A1.
A BD that is a part of the selling group (not a syndicate member) would only be entitled to the ____________________.
A BD that is a part of the selling group (not a syndicate member) would only be entitled to the sales concession.
If the winning bid is 2.25 and the next best bid is 2.30, what is the cover bid?
5 basis points (2.30 - 2.25)
Which yields does the MSRB considers to be most important in determining whether a bond’s price is fair and reasonable?
Yield-to-maturity or yield-to-call
Is the average credit rating of the 11 GO Bond Index higher or lower than the 20 GO Bond Index?
Higher; the average is AA+/Aa1.
What is the spread minus the manager’s fee?
The total takedown
When is a member bound by the obligations of the syndicate?
Once it has signed and returned the syndicate letter to the manager
Serial bonds are quoted on a ___________________ basis.
Serial bonds are quoted on a yield-to-maturity basis.
How often is the 20 GO Bond Index published?
Weekly
How often are the components of the Bond Buyer Municipal Bond Index adjusted?
Twice per month
Orders that are received before the bid has been submitted are referred to as _______ orders.
Orders that are received before the bid has been submitted are referred to as presale orders
Typically, how does the issuer determine the winning bid?
It is typically based on which provides the issuer with the lowest interest cost over the life of the bond.
Municipal firms may choose to spread the risk on large positions by forming a _____ account.
Municipal firms may choose to spread the risk on large positions by forming a joint account.
What is the benchmark for the SIFMA Index?
VRDOs with at least $10 million outstanding
Identify the acronym: MMD
Municipal Market Data
What is the Bond Buyer Municipal Bond Index?
An index that averages the prices of 40 recently issued, actively traded municipal bonds
What would a member of the syndicate (not the manager) earn for selling bonds?
The total takedown
A competitive underwriting provides the _____ flexibility when structuring a new issue.
A competitive underwriting provides the least flexibility when structuring a new issue.
Who determines the final settlement date of a new municipal offering?
The issuer and the syndicate manager
A new offering of bonds that trade prior to issuance and settlement are referred to as ___________ bonds.
A new offering of bonds that trade prior to issuance and settlement are referred to as when issued bonds.
What is the document that establishes the agreement between the issuer and the underwriter?
Underwriting Agreement
What three components are used to determine the bid in a municipal underwriting?
The pricing scale, underwriting spread, and interest rates
When bidding on a new issue, what will underwriters first determine?
Reoffering Yield
What information would the manager of a municipal underwriting provide in the Syndicate Letter?
Underwriting type (negotiated/competitive), amount, allocation, priority of orders, type of account (eastern/western)
What yield would be disclosed for a bond purchased at a premium and callable at a premium?
The lower of the YTM or YTC
Do MSRB rules require the disclosure of the yield-to-maturity or yield-to-call on a customer confirmation?
Yes. The lower of the two yields must be disclosed.
Bonds retained by syndicate members for their own purposes are referred to as _________ bonds.
Bonds retained by syndicate members for their own purposes are referred to as retention bonds.
True or False: An all-or-none order qualifier requires all of the bonds to be purchased.
True
What type of order requires that all of the bonds be purchased immediately?
A fill-or-kill order
True or False: In the Bond Buyer, the Visible Supply figure includes both municipal and corporate bonds.
False. The Visible Supply figure shows only municipal bonds that are being offered on a negotiated or competitive basis.
List the priority of orders from first to fourth.
- Presale orders 2. Group net orders 3. Designated orders 4. Member orders
Why will the manager prioritize orders for the purchase of bonds sold through the syndicate?
To give the maximum benefit to the entire syndicate as a group versus any one particular member
Define one bond year.
A unit of $1,000 of debt that is outstanding for one year
In a new municipal offering, who is responsible for determining the liability for any unsold bonds?
The syndicate manager determines the liability.
In a competitive underwriting, the members are bound together by a ________________.
In a competitive underwriting, the members are bound together by a syndicate letter.
What orders benefit the entire syndicate by percentage of liability?
Group net orders
The total takedown is made up of ____________ + _____________.
The total takedown is made up of Additional takedown + Sales concession.
The ___________________ has the authority to change the priority of orders.
The syndicate manager has the authority to change the priority of orders.
When a bond is only offered in lots of specific numbers, it is being offered in _________.
When a bond is only offered in lots of specific numbers, it is being offered in multiples.
What document describes the bidding procedures for a new municipal offering?
Notice of Sale
A quote of 3.50 basis firm for one hour is given for bonds. The quote is referred to as ________.
A quote of 3.50 basis firm for one hour is given for bonds. The quote is referred to as out firm.
