Municipal Bond Rules and Regulations Flashcards
When dealing with registered investment companies, which of the following activities would be prohibited for a securities dealer under MSRB regulations?
[A] The securities dealer facilitates a pre-sale order for the municipal securities with relation to a new issue syndicate for the benefit of a registered investment company.
[B] Without any notification being sent to the president of the investment company, the securities dealer hires an executive officer of the investment company.
[C] The sale of municipal revenue bonds by the securities dealer to the registered investment company for the investment company’s portfolio.
[D] The solicitation of municipal securities business by the securities dealer directed toward the investment company and based solely on the number of investment company shares sold.
[D] The solicitation of municipal securities business by the securities dealer directed toward the investment company and based solely on the number of investment company shares sold.
The solicitation of business based on the number of shares sold would be an example of a reciprocal dealing. The solicitation of the municipal securities is tied to the sale of shares sold in the fund, and this type of arrangement is not permitted under MSRB rules. Answer B is not prohibited. You would be allowed to hire an executive officer of the investment company without any notification being sent to the president. Answer D is saying, the municipality goes to the investment company, and says “If you buy my bond, then I will sell your fund shares.” This would not be allowed.
Ch.16 Sec.2
Under MSRB rules, advertisements must
I. be approved in writing by a principal prior to first use.
II. be approved in writing by a principal prior to each use.
III. meet record keeping retention requirements.
[A] I and II
[B] I and III
[C] II and III
[D] I, II, and III
[B] I and III
Under MSRB rules, all advertising must be approved by a principal prior to the first use and must be retained 4 years.
Ch.16 Sec.2
Under MSRB Rules, all municipal securities transactions must be approved by:
[A] A municipal securities representative
[B] The Municipal Securities Rulemaking Board (MSRB)
[C] A registered representative with a FINRA firm
[D] A municipal securities principal
[D] A municipal securities principal
Ch.16 Sec.2
According to MSRB rules, which of the following would NOT require municipal or general securities principal approval before it can be used for the first time for promotional or advertising purposes?
[A] Preliminary Official Statement
[B] Market reports
[C] Form letters
[D] Summaries of official statements
[A] Preliminary Official Statement
A Municipal or General Securities Principal must approve all of these prior to their use except the preliminary official statement. A Preliminary Official Statement is a disclosure document, not a form of advertising or marketing.
A summary of the information contained in the OS would be considered advertising or sales literature, and needs to be approved.
Ch.16 Sec.2
Under MSRB rules, a written customer confirmation for a regular way transaction must be sent:
[A] The same day as trade date.
[B] at or before completion of the transaction
[C] Three business days following trade date.
[D] Five business days following trade date.
[B] at or before completion of the transaction
Written confirmations must be sent at or before completion of a transaction that is done for or with the account of a customer.
Ch.16 Sec.3
All of the following statements concerning municipal securities transactions are correct EXCEPT:
[A] The settlement date for securities transactions is referred to as a business day.
[B] The settlement date for a regular way transaction in municipal securities is the second business day following the trade date.
[C] The trade date is the date used to calculate price and interest.
[D] The settlement date for a cash transaction in municipal securities is the trade date.
[C] The trade date is the date used to calculate price and interest.
The trade date is the date used to calculate price, but interest is calculated by settlement date.
Ch.16 Sec.3
In order to obtain favor with an official of a city so as to be awarded future municipal securities underwriting business, a partner in a municipal securities dealer (a Municipal Finance Professional) contributes $1,000. to the official’s political campaign for re-election to office. As a result of this contribution, the municipal securities dealer would have to:
[A] Report the contribution to the MSRB on the next quarterly report (Form G-37)
[B] Refrain from any municipal securities business with the city for two years
[C] A and B
[D] None of the above
[C] A and B
MSRB Rule G-37 on political contribution limits (aka the “pay to play” rules) prohibits municipal securities dealers, “Municipal Finance Professionals” (MFPs) associated with dealers and political action committees (PACs) controlled by these people to make political contributions to municipal officials in excess of $250 per election and then only in elections in which the MFP is entitled to vote. The rule also requires quarterly reports by dealers to the MSRB on Form G-37 with information about contributions to officials of issuers and political parties and bond ballot campaigns in excess of permitted contributions. Violations of this rule result in the dealer being prohibited from engaging in municipal securities business with the issuer of the official for two years.
Ch.16 Sec.2
Which of the following transactions in a discretionary account would ALWAYS require authorization from the customer on every transaction?
[A] Transactions involving UITs (Unit Investment Trusts) focused in municipal securities
[B] Transactions in securities that are not investment grade
[C] Transactions in securities where a control relationship exists between a member at the firm and the municipality
[D] Transactions in securities where there may not be a high volume of trades on a regular basis
[C] Transactions in securities where a control relationship exists between a member at the firm and the municipality
Of the transactions listed, those involving a control relationship would require authorization by the client on a per transaction basis, even when the client has given the firm discretionary authority. MSRB Rules make this authorization by the client a requirement when such a relationship exists.
Ch.16 Sec.2
If a municipal securities representative placed buy and sell orders on behalf of a customer that were excessive in size or frequency, it would be considered:
[A] Short selling
[B] Swapping
[C] Churning
[D] Exciting
[C] Churning
Ch.16 Sec.2
A municipal principal approves all orders for the accounts of:
I. Individuals
II. Trust departments
III. Insurance companies
IV. Commercial banks
[A] I
[B] I, II
[C] III, IV
[D] All of the above
[D] All of the above
Principals must approve “all” orders.
Ch.16 Sec.2
Municipal securities dealer First Montana Corp. must do which of the following in order to handle trades for an employee of First Delaware Corp., also a municipal securities dealer?
I. Before establishing the account, send written notification to First Delaware Corp.
II. Accept orders only in full compliance with written instructions from First Delaware Corp.
III. Send duplicate copies of confirmations to First Delaware Corp.
IV. Obtain approval in advance from First Delaware Corp. before executing each transaction for the employee.
[A] I, II, and IV
[B] II, III, and IV
[C] I, II, and III
[D] All of the above
[C] I, II, and III
Prior approval (IV) is not required in order to handle trades, but I, II, and III are required. Ch.16 Sec.2
Under MSRB rules, additional requirements must be met when opening an account for:
I. An employee of another municipal dealer
II. An officer of another municipal dealer
III. A minor child of a principal of another dealer
IV. The husband of an officer of another dealer
[A] I and II
[B] III and IV
[C] I and III
[D] I, II, III, and IV
[D] I, II, III, and IV
Under MSRB rules, additional requirements must be met when opening an account for any person who is an employee of a municipal dealer, or any person who is in the immediate family of an employee of a municipal dealer.
Ch.16 Sec.2
A regular way municipal bond trade takes place on Tuesday, August 13. Interest payment dates for the bond are February 15 and August 15. Which of the following statements are true?
I. Settlement occurs prior to the interest payment date.
II. Settlement occurs on the interest payment date.
III. Accrued interest must be paid by the buyer.
IV. No accrued interest will be paid by the buyer.
[A] I and III
[B] I and IV
[C] II and III
[D] II and IV
[D] II and IV
Municipal bond trades settle 2 business days after the trade date. Accrued interest is paid up to but not including the settlement date. Therefore settlement will occur on the interest payment date of the 15th (T + 2). Since the trade settles on the interest payment date and interest is paid up to but not including settlement, there is no interest which accrues.
Ch.16 Sec.3
Under MSRB rules, municipal bond confirmations must contain all EXCEPT:
[A] Trade date
[B] Settlement date
[C] Whether or not the bonds are callable
[D] Paying agent
[D] Paying agent
The paying agent for municipal bonds will be indicated in the Official Statement, but not on the confirmation.
Ch.16 Sec.3
A client requests a bid for a block of municipal bonds in the secondary market. Bidders will assume, unless specified differently, that the bonds:
[A] May be in registered or bearer form, accompanied by a legal opinion.
[B] Are bearer with all unpaid coupons attached and are accompanied by the pertinent legal opinion.
[C] Are registered as to principal only and have all unpaid coupons attached and are accompanied by the pertinent legal opinion.
[D] Are registered with a properly executed bond power to permit free transfer.
[A] May be in registered or bearer form, accompanied by a legal opinion.
When a client requests a bid for a block of municipal bonds, bidders will assume, unless specified differently, that the bonds will be either in registered or bearer form, accompanied by a legal opinion.
Ch.16 Sec.3
