FC CH 7 Flashcards
What is the consequence of an MFP making an excessive contribution to an issuer official?
A two-year ban on negotiated municipal securities business with the issuer
Records of municipal complaints must reflect any actions that have been taken and must be maintained for ___ years.
Records of municipal complaints must reflect any actions that have been taken and must be maintained for six years.
True or False: In a principal trade, a municipal dealer must disclose the mark-up on the confirmation.
False. A customer’s confirmation is not required to disclose a municipal bond’s mark-up.
What is created when a BD employee has influence over the debt service of an issuer (e.g., an employee is a mayor)?
Control relationship
A non-MFP officer has made a political contribution. May the firm engage in municipal business with the issuer?
Yes. Business is only prohibited if the contribution is made by the firm, its MFPs, or any PAC controlled by the firm.
A party that fails to complete a trade by settlement is subject to _________ procedures.
A party that fails to complete a trade by settlement is subject to close out procedures.
Are duplicate confirms required to be sent for trades executed in accounts of spouses of other member firm employees?
Yes, but only if the firm maintaining the account is aware of the spouse’s employment.
True or False: A municipal bond advertisement should disclose whether the bond’s yield is taxable.
True. The advertisement should disclose whether it is a net (after-tax) yield.
True or False: An alternative trading system (ATS) which limits access to SMMPs is not required to evaluate each transaction.
True
True or False: A MSRB member firm is able to disclose the existence of a control relationship through e-mail.
True. Since the MSRB requires the written disclosure of a control relationship, e-mail is an acceptable method.
When must RRs complete the Regulatory Element of Continuing Education?
On the 2-year anniversary of their registration and every 3 years thereafter.
Underwriting assessments are charged at a rate of ____% of par value (or $___ per $1,000).
Underwriting assessments are charged at a rate of .00275% of par value or ($.0275 per $1,000).
True or False: Only outgoing correspondence is subject to review by a municipal principal.
False. Both incoming and outgoing correspondence are subject to review by a municipal principal.
What step must be taken if a municipal advertisement is updated to reflect a bond’s current market price?
It must be reapproved by a principal.
When must a syndicate manager provide its members with both a statement of expenses and a summary statement?
They must be sent at or prior to final settlement of the syndicate account
True or False: MSRB political contribution rules only address contributions made by MFPs.
False. The rules include payments made by BDs, non-MFP executives, and political action committees controlled by BDs.
For municipal registered bonds, what factors determine good delivery?
Proper assignment and the bonds denominated from $1,000 to $100,000 in $1,000 increments
True or False: A broker’s broker generally acts on behalf of sellers.
True
When must a syndicate member notify the manager of the allocations due from designated orders?
Within two business days of delivery of the securities to the syndicate
Is the identity of a customer submitting a group order required to be disclosed?
YES
May a firm compensate a consultant for soliciting municipal securities business?
No. Nonaffiliated persons may not be compensated for soliciting municipal securities business.
If the high bid is below the trade parameters, when may a broker’s broker effect a transaction?
Only when the broker’s broker notifies the seller and receives oral or written permission to effect the transaction
Define a customer complaint.
Any written statement (e.g., an email) that alleges a grievance against a municipal dealer or representative
If a member firm’s employee has an outside account, is the employer allowed to restrict trades?
Yes. Employers may place restrictions on the trading in outside accounts of their employees.
Written disclosure of a control relationship is normally found on a client’s ____________.
Written disclosure of a control relationship is normally found on a client’s confirmation.
When a yield is shown on a municipal advertisement, what must be disclosed?
The manner in which it was calculated (i.e., current yield, yield-to-call, or yield-to-maturity)
A form letter is defined as any written or email message distributed to ___ or more persons within a ___-day period.
A form letter is defined as any written or email message distributed to 25 or more persons within a 90-day period.
True or False: Disclosure is not needed if a control relationship exists and bonds are placed in discretionary accounts.
False. To place those bonds in the client’s account, specific written customer authorization is required.
What is the reporting requirement for trades that are effected at the listed offering price on the first day of trading?
They must be reported by the end of the day
List some of the information to be included on a municipal customer confirmation.
Description, price and yield (lower of YTM or YTC), BD capacity (commission for agency), trade and settlement dates
Validating or protesting an account transfer request is the responsibility of the ________ firm.
Validating or protesting an account transfer request is the responsibility of the carrying firm
Are new CUSIP numbers required if an outstanding bond is purchased, insured, and resold?
Yes. The bonds must be distinguishable from the uninsured bonds.
A form letter is considered advertising if it sent to ___ or more persons within a ___-day period.
A form letter is considered advertising if it sent to 25 or more persons within a 90-day period.
What is the penalty for political contributions that violate the rule?
A two-year ban on obtaining negotiated underwriting business from the issuer
True or False: Political contributions made to defray inaugural expenses may be deemed a violation of the rules.
True
Political contribution rules allow MFPs NOT able to vote for a candidate to contribute a max. of $___ (per election).
Political contribution rules allow MFPs NOT able to vote for a candidate to contribute a max. of $0 (per election).
For agency transactions, what must be fair and reasonable?
The commissions or service charges
The commissions or service charges
The temporary holding account for securities pending deposit into an investment trust
On what may an investment company base its decision to execute its trades through a specific member firm?
The quality of execution and research services and the availability of securities
For a municipal firm to take action on a complaint, it must be in _______ form.
For a municipal firm to take action on a complaint, it must be in written form.
True or False: Suitability rules do not apply when clients makes their own investment decisions.
True
A quote given by a B/D that is prepared to immediately effect a trade of a specific quantity is a _________ quote.
A quote given by a B/D that is prepared to immediately effect a trade of a specific quantity is a bona fide quote.
True or False: Customers who purchase municipal fund securities must receive an official statement on each purchase.
False. If the securities are being periodically purchased under a plan, the B/D may send supplements or amendments.
Who is required to send continuing disclosures for municipal securities?
The issuer or other obligated person
If a trade occurs after RTRS closes, it must be reported within ___ minutes of RTRS opening on the next business day.
If a trade occurs after RTRS closes, it must be reported within 15 minutes of RTRS opening on the next business day.
For its clients, a municipal securities firm must make every effort to obtain prices that are ____ and ________.
For its clients, a municipal securities firm must make every effort to obtain prices that are fair and reasonable.
True or False: All participants in a joint municipal account must publish the same quote.
True. Each participant may separately publish a quote, but the quote must be the same for all.
True or False: A payment made by an MFP to offset transition or inaugural expenses is deemed a political contribution.
True
True or False: An account for an employee of another firm may not be opened.
False. If written notice is provided to the employing firm, the account may be opened.
True or False: Account transfers must be in whole.
False. Both full and partial transfers are acceptable.
If a potential conflict of interest exists between an underwriter and an issuer, should it be disclosed?
Yes. Disclosure is required at the time the relationship between the underwriter and the issuer originates
True or False: Political contributions made by non-MFP executive officers may trigger a ban.
False. Although the contributions will not trigger a ban, they must be reported to the MSRB
Who is the associated person who primarily engages in or supervises municipal securities business?
Municipal Finance Professional (MFP)
True or False: Attempting to get a client to stay with the firm is a valid reason to reject an account transfer request.
False. A Transfer Initiation Form may not be rejected because the firm wants to keep the client.
True or False: Municipal fund securities are required to have CUSIP numbers.
False. Municipal fund securities are exempt from the CUSIP number requirement.
The new issue disclosure period ends ___ days after final delivery of the bonds by the issuer.
The new issue disclosure period ends 25 days after final delivery of the bonds by the issuer.
Who is required to notify the MSRB that continuing disclosures will be sent?
The underwriter will notify the MSRB and also identify the party that is responsible for sending the disclosures.
Political contribution rules allow MFPs who may vote for a candidate to contribute a maximum of $_____ (per election).
Political contribution rules allow MFPs who may vote for a candidate to contribute a maximum of $250 (per election).
When must customer confirmations be sent?
By the completion of the transaction (usually the settlement date)
True or False: If two firms form a joint account to sell bonds, they may maintain separate prices.
False. The firms must maintain the same price.
An MFP gives an excessive campaign contribution and as a result is fired. Does this eliminate the u/w ban to the firm?
No, dismissing employees for violating the political contribution rule does NOT eliminate the 2 year ban on the firm.
What system is used for the submission and/or modification of inter-dealer municipal transactions?
The Real-Time Trade Matching (RTTM) system
An account transfer request must be validated or protested within ____ business days.
An account transfer request must be validated or protested within one business days.
Is it acceptable for an RR to agree to repurchase a security at its original price if it has fallen in value?
No. Since this is considered a guarantee against loss, it is prohibited
Any quote qualified by the terms “subject”, “workout,” or “nominal” is not considered a ______ quote.
Any quote qualified by the terms “subject”, “workout” or “nominal: is not considered a firm quote.
RTRS requires firms to report municipal trades within ____ minutes
RTRS requires firms to report municipal trades within 15 minutes.
An MFP contributes $100 to a candidate for whom she may vote. Does the contribution violate Rule G-37?
No. Only contributions exceeding $250 violate Rule G-37 (the political contribution rule).
May an MSRB firm share in the profits and losses in a client’s account?
No. Firms are not permitted to share in client’s accounts.
If a financial advisor prepares the official statement, when must it be made available to the managing underwriter
Promptly
Official statements must be sent to customers for no less than ___ days from the end of the underwriting period.
Official statements must be sent to customers for no less than 25 days from the end of the underwriting period.
When determining the suitability of a municipal investment, what is the most important factor?
The customer’s financial profile
An underwriter must submit the official statement to EMMA within ___ business day of receipt from the issuer.
An underwriter must submit the official statement to EMMA within one business day of receipt from the issuer.
When does the new issue disclosure period begin?
When the first order is submitted to an underwriter or when the securities are purchased from the issuer
May customers be provided with official statements in electronic form?
Yes
True or False: Certain bidders are permitted to receive a “last look” from the broker’s broker to improve their bid.
False. “Last looks” or suggestions that a bid should be changed are prohibited.
Advance refunding documents must be submitted to EMMA within ____ business days of securities delivery from the issuer.
Advance refunding documents must be submitted to EMMA within five business days of securities delivery from the issuer.
A B/D has a financial advisory relationship with an issuer. May it underwrite the issuer’s bonds on a competitive basis?
No. Rule G-23 bans an advisor from acting as an underwriter for the same issuer on a negotiated or competitive basis.
Who initiates an account transfer request from a customer?
The receiving firm
A B/D has a financial advisory relationship with an issuer. May it underwrite the issuer’s bonds on a negotiated basis?
No. Rule G-23 bans an advisor from acting as an underwriter for the same issuer on a negotiated or competitive basis.
May an investment company select which firm to use to execute its trades based on the number of shares sold by the firm?
No. This is a violation of MSRB rules on reciprocal dealings with investment companies.
Each business day, the Real-Time Transaction Reporting System (RTRS) is open from ____ a.m. to ____ p.m. ET.
Each business day, the Real-Time Transaction Reporting System (RTRS) is open from 7:30 a.m. to 6:30 p.m. ET.
True or False: An operations department employee should reject a transfer request if instructed to do so by a manager.
False. Transfers may only be rejected for valid reasons such as a mismatched account or invalid signature.
True or False: A repurchase agreement is considered a guarantee against loss.
False. If the terms are stated in writing or on the confirmation, it is not considered a guarantee against loss.
True or False: The dated date must be disclosed on all municipal confirmations.
False. The dated date must only be shown for trades effected before the first interest payment date.
When must sales credits on orders designated by a customer be paid?
Within 10 calendar days following the date the issuer delivers the bonds to the syndicate
How often is a G-37 report filed detailing political contributions?
If applicable, the report is filed quarterly.
Principal transactions are evaluated based on their ________ price.
Principal transactions are evaluated based on their aggregate price.
For pricing purposes, may the expenses incurred for executing an order for a customer be taken into account?
Yes
On receipt from the issuer, when must the official statement be submitted to EMMA?
Within one business day
For a municipal bond to be considered good delivery, is a Legal Opinion mandatory?
Yes. A Legal Opinion must be imprinted or attached (unless identified as ex-legal).
True or False: Material information is only required to be disclosed when a firm executes a solicited trade.
False. Material information must always be disclosed, regardless of whether a trade is solicited or unsolicited.
What should be disclosed on an advertisement for a bond with a 4% coupon that is priced to yield 5.5%?
That the bond is trading at a discount, that it may be taxable, and that the 5.5% yield is a gross yield-to-maturity
True or False: Advertising requires approval from a supervisor.
True. However, material that is considered correspondence does not require approval.
What information must be obtained by an MSRB member before opening an account for a noninstitutional customer?
The client’s financial status, tax status, investment objectives, and any other relevant information
Is an official statement or preliminary official statement considered retail communication?
No. However, a summary or abstract of an official statement is considered retail communication.
When will a cash trade for a municipal bond settle?
Same day
True or False: E-mail that is sent to 24 persons is considered advertising.
False. Communication that is sent to fewer than 25 persons is considered correspondence, not advertising.
Who applies for the CUSIP number?
If there is a syndicate, the managing underwriter; however, if there is no syndicate, each dealer underwriting the new issue.
True or False: A B/D that is subject to a two-year ban on negotiated deals may still bid for a competitive underwriting.
True. A firm that violates the political contribution limit is still able to submit bids for competitive underwritings.
RTRS transmits data from ____ a.m. to ____ p.m. ET.
RTRS transmits data from 7:00 a.m. to 8:00 p.m. ET.
True or False: Transaction fees may be collected when one firm reports trades for another firm.
True
True or False: Accrued interest is reported to RTTM.
True. Trade information such as accrued interest, concessions, dollar amount, and yield must be reported to RTTM.
During the retail order period, the determination of what constitutes a retail order is made by the ______.
the issuer.
______________ is the return of municipal bonds that were originally accepted for delivery.
Reclamation is the return of municipal bonds that were originally accepted for delivery.
For what types of investors are zero coupon municipal securities considered to be most suitable?
For investors interested in receiving a fixed amount in the future, but not anticipating a current stream of income
True or False: A notice must be provided to EMMA if an official statement is not being prepared.
True
Regarding outgoing correspondence, whose names must be recorded?
The name of the person who prepared the correspondence and the name of the person who reviewed it
True or False: Regarding prices and commissions, MSRB rules apply to both principal and agency trades.
True. Though different factors may apply, the pricing for principal and agency trades must be fair and reasonable.
List some acceptable reasons for protesting an account transfer.
The account is flat with no assets, invalid signature or account number, additional documentation required, no SS number
What is considered the most significant benefit of investing in municipal bonds?
Tax exempt interest
True or False: A municipal registered representative who solicits underwriting business is considered an MFP.
True
Where and when does a broker’s broker disclose the deadlines and parameters for bid-wanteds?
Details are displayed on the website of the broker’s broker and disclosed annually to sellers and bidders
True or False: A broker’s broker may provide the winning bidder with information on all of the bids obtained.
False. The winning bidder may only be notified that its bid was the winning bid.
When must information be submitted to the SHORT system?
No later than 6:30 p.m. ET on the business day of the auction (for ARSs) or the date the rate is reset (for VRDOs)
Delivery versus payment (DVP) is normally used when a client _________ securities using a bank as the intermediary.
Delivery versus payment (DVP) is normally used when a client purchases securities using a bank as the intermediary.
True or False: A municipal registered representative who sells bonds to retail clients is considered an MFP.
False
With respect to the same issuer, may a financial advisor also act as a successor remarketing agent?
Yes, but only if the advisory relationship is terminated at least one year prior to being selected as remarketing agent.
If no final official statement is being prepared, what must be sent to a customer?
A notice that no official statement has been prepared as well as a copy of the preliminary official statement
When are B/Ds required to send customers a final official statement or a notice that one will not be sent?
No later than the settlement date of the transaction
To whom should a broker’s broker send bid-wanteds?
To the issuer of the security and any prior known bidders
True or False: A valid reason for rejecting a transfer request includes the fact that the account is the firm’s largest.
False. The account being the firm’s largest is not a valid reason for protesting.
Define a form letter.
A written letter or e-mail distributed to 25 or more persons within a 90-day period
For trades executed in the accounts of employees of other member firms, to whom will confirmations be sent?
To both the employee and the employing firm
If a BD wants to sell municipal bonds and have significant exposure to different bids, who should it contact?
A Broker’s Broker
True or False: Official statements may only be delivered in physical form (i.e., not in electronic form).
False. Official statements may be delivered in either physical or electronic form, or through a hyperlink to EMMA.
True or False: Employers may place restrictions on employee accounts opened to purchase only municipal fund securities.
False. These accounts are exempt from the restrictions identified in MSRB Rule G-28.
How does G-37 treat a check signed by an MFP from a joint account and submitted as a contribution to an issuer official?
G-37 considers the full contribution to have been made by the MFP.
Through what system are official statements and continuing disclosures normally submitted?
Through the Electronic Municipal Market Access (EMMA) system
After a transfer request has been validated, the MSRB requires the transfer to be completed within ____ business days.
After a transfer request has been validated, the MSRB requires the transfer to be completed within three business days.
If an MFP makes the maximum contribution to a losing candidate, may she make a contribution to defray expenses?
Yes. MFPs are NOT subject to contribution limits to defray expenses.
True or False: BDs may open accounts for employees of another BD if the employer’s prior written permission is received.
False. The BD opening the account must notify the employing firm in writing. Written permission is not required.
If an outstanding bond changes its debt service payments, are new CUSIP numbers required?
Yes, because it is no longer identical to the original issue.
When will a repurchase agreement not be considered a guarantee against a loss?
When the agreement is in written form on or with the confirmation of the transaction
If a quote is given solely for informational purposes, it is referred to as a _________ quote.
If a quote given solely for informational purposes, it is referred to as a nominal quote.
For municipal bearer bonds, what factors determine good delivery?
All unpaid coupons attached and the bonds denominated in $1,000 or $5,000 increments
If a BD hires a person in an MFP capacity, what is the look-back period for identifying prior political contributions?
Two years
If a control relationship exists between a B/D and issuer, may the bonds be placed in a client’s discretionary account?
Only if the client provides specific written consent
Are BDs who violate the political contribution rule banned from obtaining competitive underwriting deals from issuers?
No, since the deal is obtained on the merits of the bid.
If erroneous information is reported through RTTM, when must it be changed or amended?
Promptly by the participants who report the data
True or False: An RR may not enter into a joint account with a customer.
False. A joint account is permitted if the client and firm provide approval and the sharing is proportionate.
True or False: Transactions in municipal fund securities must be reported to RTRS.
False. Transactions in municipal fund securities are exempt from RTRS reporting.
____________ is the buyer’s refusal to accept the delivery of municipal bonds.
Rejection is the buyer’s refusal to accept the delivery of municipal bonds.
True or False: According to MSRB rules, obtaining information regarding the beneficiary of a 529 plan is required.
True. Obtaining the beneficiary’s age and the number of years until the funds are needed are considered relevant.
Define CUSIP number.
The identifying number assigned to each maturity of an issue
A municipal firm considering hiring an MFP would look at contributions he had given in the last ___ years .
A municipal firm considering hiring an MFP would look at contributions they had given in the last 2 years.
If an MFP of an MSRB member firm makes an excess political contribution, what is the consequence?
The employing firm is prohibited from participating in negotiated underwritings with the issuer for two years.
Without approval from the seller, when may a broker’s broker contact the bidder to see if the bid was submitted in error?
If the high bid is above or below the trade parameters
Define related portfolio.
An account that is controlled by a municipal securities dealer
If a firm uses another firm to report transactions to RTRS, which firm is responsible for timely and accurate reporting?
The firm that executed the order
True or False: RTRS transmits data only during the hours that it is open.
False. RTRS sends data from 7:00 a.m. until 8:00 p.m. (i.e., 30 minutes before it opens, and 90 minutes after it closes).
How many bids are required to be obtained by broker’s brokers?
There is no provision that exists requiring a broker’s broker to obtain a fixed number of bids.
True or False: The fact that a municipal bond is subject to the AMT is not required to be disclosed on a confirmation.
False. Confirmations must disclose whether a bond is subject to the AMT.
True or False: A seller may receive information on all the bids that have been received by a broker’s broker.
True
With respect to the same issuer, may a financial advisor also act as a remarketing agent?
No. Rule G-23 generally prohibits this activity.
If three customers who purchase municipal bonds share the same address, how many official statements must be sent?
If the customers provide consent or if they are members of the same family, only one is required.
Is it a violation for a dealer to publish quotes for a municipal bond that it does not own?
No. A quote may be published provided the dealer is prepared to honor the quoted price and quantity.
May an MFP solicit political contributions from the associates of his firm?
No. Solicitations of any amount, even those less than $250, are considered a violation.
If an official statement is not sent to the MSRB, it must be made available to customers for not less than ___ days.
If an official statement is not sent to the MSRB, it must be made available to customers for not less than 90 days.
The transaction assessment charged by the MSRB is equal to ____% of par (or $___ per $1,000).
The transaction assessment charged by the MSRB is equal to .001% of par (or $.01 per $1,000).
What is required for an RR and a client to share in the client’s account?
The firm must provide approval and the sharing in gains and losses must be proportionate to the investment of each party
In what form must official statements and advance refunding documents be submitted to EMMA?
In electronic form
Once a transfer request is received, may the carrying BD continue to effect transactions in the account?
No. Once a transfer request is received, the account is frozen.
Who is responsible for the transaction fee when one dealer is reporting trades for another dealer?
The reporting dealer is responsible for the fee.
If a BD has a control relationship with an issuer, what’s needed to place the bonds in a client’s discretionary account?
The client’s specific consent must be obtained before the bonds may be placed in the account.
If a control relationship exists, how may the relationship be disclosed?
Orally, before a trade, and then in writing, at or before settlement
For an agency transaction involving a bond, what is disclosed on a customer confirmation?
The total commission amount and the yield on the bond after commission is paid
What is an MFP?
Municipal Finance Professional (those subject to political contribution rules)
When quoting a security, may a dealer consider the anticipated direction of the market?
Yes. The dealer may also consider the availability of the security and its overall inventory position.
A political contribution is made by the spouse of an MFP of a municipal securities BD. Is this covered under Rule G-37?
No. Provided the contribution was not directed by the MFP, it is not covered under Rule G-37
The Short-Term Obligation Rate Transparency (SHORT) system receives information for what types of securities?
Variable rate demand obligations (VRDOs) and auction rate securities (ARSs)
What must a firm do if it publishes an advertisement for a 529 plan?
The firm must identify itself as an underwriter for the plan and provide official statements to purchasers.
As it relates to an underwriting agreement, define: retail order period.
The stipulated time during which retail orders for new issues will be accepted.
What type of customer may a dealer assume is capable of making its own municipal decisions?
A sophisticated municipal market professional (SMMP)
The purchase confirmation for a zero coupon bond must show an interest rate of _____.
The purchase confirmation for a zero coupon bond must show an interest rate of zero.
Is a municipal securities BD allowed to use an issuer’s confidential information obtained in a fiduciary capacity?
Only with the consent of the issuer
What is a remarketing agent?
A firm that is responsible for reselling municipal securities being offered by their owners to new customers
Material facts must be disclosed to clients either ______ or __________ at or prior to the trade.
Material facts must be disclosed to clients either orally or in writing or prior to the trade.
True or False: Bonds delivered without a legal opinion are acceptable if they are identified as ex-legal.
True
If an issuer applies for a CUSIP number, is an underwriter also required to apply?
No
If a customer requests a print copy of the official statement, how and when must it be sent?
It must be sent by first class mail within one business day of request
Underwriting assessments must be paid to the MSRB within ___________ days of receiving the invoice.
Underwriting assessments must be paid to the MSRB within 30 calendar days of receiving the invoice.
True or False: Customer correspondence is subject to approval by a principal.
False. Although correspondence is not required to be approved, it is subject to review.
Is a financial advisor permitted to deliver an official statement to the managing underwriter in electronic form?
Yes
How often is Form G37 filed with the MSRB?
Quarterly to list all political contributions
True or False: A bid-wanted must have a deadline.
True. It may be precise or be an “around time” deadline.
True or False: Transaction assessments are charged on both inter-dealer and customer sales.
True
True or False: A municipal security that has no CUSIP number must be reported to RTRS.
False. Securities without CUSIP numbers are not required to be reported to RTRS.
When merely acting as an order taker, is a dealer required to disclose material information?
Yes. The MSRB’s Fair Dealing Rule states that dealers should disclose material information in all cases.
In order to qualify as an SMMP, the customer must be _____________.
In order to qualify as an SMMP, the customer must be institutional.
When is an MSRB member firm required to disclose the existence of a control relationship?
The relationship must be disclosed in writing at or before the completion of a transaction.
