s 5

Question 1

Joint Account secondary market trading records

Answer 1

6 years
The name and percentage of participation of each member of the account
 The terms and conditions governing the formation and operation of the account
 All orders received for the purchase of the securities from the account
 All allotments of securities and the price at which the securities were sold
 The date of closing of the account
 A reconciliation of profits and expenses of the account
Final settlement of a secondary market trading account formed for the purchase of securities must be made
within 30 calendar days following the date all securities have been delivered by the account manager to the
account members.

Question 2

A bid-wanted auction involves the sale of municipal securities in which

Answer 2

At the commencement of the auction, the seller doesn’t specify a minimum or desired price for the
securities that are the subject of the auction,
 The identities of the bidders and the seller are not disclosed prior to the conclusion of the auction,
other than to the broker’s broker,
 Bidders must submit bids for the auctioned securities to the broker’s broker, and
 The seller decides whether to accept the winning bid

Question 3

Brokers Broker

Receives erroneous bid

Answer 3

a. If the high bid is above or below the parameters and it’s believed to be submitted in error, the
broker’s broker may contact the bidder prior to the deadline for bids in order to determine
whether the bid was submitted in error. This contact may be made without having to obtain the
consent of the seller.
CHAPTER 5 – TRADING
S53 5-4 Copyright © Securities Training Corporation. All Rights Reserved.
b. If the high bid is within the parameters, but is believed to be submitted in error, the broker’s
broker must first receive oral or written consent from the seller in order to contact the bidder to
determine if the bid was submitted in error.
c. If the high bid received in a bid-wanted is below the predetermined parameters of the broker’s
broker, the broker’s broker must disclose that fact to the seller, in which case the broker’s broker
may only effect the trade if the seller provides either oral or written acknowledgement of such
disclosure. Records must be maintained by the broker’s broker including the name of the person
who received the notice, the directions received, and the name of the person providing the
directions to be followed.

Question 4

Policies and Procedures for Bid-Wanted Auctions

Answer 4

1. The broker’s broker must disclose the maximum commission that may be charged on a transaction.
2. If the winning high bid or next best bid (i.e., cover bid) in a bid-wanted auction has changed, the
   seller must be notified of both the original and changed bid.
3. If a broker’s broker allows customers or affiliates to place bids, it must provide written disclosure of
   this fact. Also, disclosure to both sellers and bidders is required if the high bid in a bid-wanted or
   offering is from a customer or an affiliate of the broker’s broker. The name of the customer or
   affiliate need not be disclosed.
4. Bids will be tested to determine if they represent fair market value.
5. Bidders will not be given preferential treatment. Broker’s brokers are prohibited from providing
   specific bidders with a “last look” or suggesting that their bid should be changed.
6. Prohibiting a broker’s broker from changing a bid price or offer price without the permission of the
   respective bidder or seller.
7. Prohibiting a broker’s broker from failing to inform the seller of the highest bid in a bid-wanted or
   offering.
8. Prohibiting anyone other than the seller and the winning bidder from receiving information about bid
   prices before the bid-wanted auction has been completed. The seller may receive information on all bids;
   however, the winning bidder may only be notified that its bid is the winning bid.

Question 5

Alternative Trading System (ATS)

Answer 5

An ATS is an electronic venue for matching the buy and sell
orders of its subscribers. An ATS is exempt from the MSRB’s broker’s broker definition which will allow
the system to operate without the need to comply with MSRB Rule G-43.

Question 6

To qualify as an ATS

Answer 6

It must be registered with the SEC under Regulation ATS
 It must only utilize automated and electronic means to communicate with bidders and sellers
 All of its customers must be sophisticated municipal market professionals (SMMPs)
 The ATS must adopt policies and procedures that at a minimum:
– Require the ATS to disclose the nature of its undertakings for the seller and bidders in bidwanteds and offerings
– Require the ATS to disclose the manner in which it will conduct bid-wanteds and offerings
– Prohibit the ATS from engaging in the conduct prohibited under Rule G-43 regarding the use of a
broker’s broker by dealers

Question 7

brokers broker records

Answer 7

6 years
All bids to purchase municipal securities together with the time of receipt
 All offers to sell municipal securities with the time the broker’s broker first received the offering
 The time that the high bid is provided to the seller, the time the seller notifies the broker’s broker that
it will sell the securities at the high bid, and the time the trade is executed
 A copy of the policies and procedures required under Rule G-43
 The date and time of all the communication required under Rule G-43

Question 8

Alternative Trading Systems

Records

Answer 8

6 years
For all changed bids, the full name of the person at the bidder firm that authorized the change as well
as the full name of the person at the ATS at whose direction the change was made
 A copy of the policies and procedures required under Rule G-43

Question 9

Best Execution (Rule G-18)

Answer 9

According to this rule, a dealer firm must use reasonable diligence to ascertain the best market for any
municipal security purchases or sales for its customers.
 The general character of the market in which the security trades (e.g., the price, volatility, and relative
liquidity)
 The size and type of transaction
 The number of markets checked
 The information reviewed to determine the current market for the subject security or similar securities
 Accessibility of the quotation, and
 The terms and conditions of the customer’s inquiry or order, including any bids or offers that result in
the transaction, as communicated to the dealer

Question 10

Best Execution and Executing Brokers

Answer 10

A dealer’s duty to provide best execution in any transaction
either for or with a customer of another dealer doesn’t apply when the other dealer is simply executing a
customer transaction against the dealer’s quote (i.e., a market order). A dealer’s duty to provide best
execution to customer orders that are received from other dealers arises only when a customer order is
routed from another dealer to the dealer for handling and execution

Question 11

best execution obligations do NOT apply to

Answer 11

 Municipal fund securities (529 plans)

 Sophisticated municipal market professionals (SMMP)

Question 12

Principal Transactions

Answer 12

In a principal transaction with a customer, a municipal securities broker-dealer
is required to purchase municipal securities for its own account from a customer (who is selling), or sell
municipal securities for its own account to a customer (who is buying), at an aggregate price (including
any markup or markdown) that’s fair and reasonable.

Question 13

Agency Transactions

Answer 13

When acting in an agency capacity, a municipal securities broker-dealer is
required to both make a reasonable effort to execute a transaction for a customer at a price that’s fair and
reasonable in relation to prevailing market conditions, and charge a customer a commission or service
charge that’s fair and reasonable.

Question 14

Factors When Charging an Aggregate Price (Principal Transaction)

Answer 14

The most important factor in
determining whether the aggregate price to a customer in municipal securities in a principal transaction is
fair and reasonable is that the yield should be comparable to the yield on other securities of comparable
quality, maturity, coupon rate, and block size then available in the market.

Question 15

Principal Transaction

Pricing Factors

Answer 15

The best judgment of the dealer concerning the fair market value of the securities when the transaction
occurs and, where applicable, of any securities exchanged or traded in connection with the transaction
 The expense involved in effecting the transaction
 That the dealer is entitled to a profit
 The total dollar amount of the transaction
– To the extent that institutional transactions are often larger than retail transactions, this factor may
enter into the fair and reasonable pricing of retail versus institutional transactions
 The service provided in effecting the transaction
 The availability of the securities in the market
 The rating and call features of the security
– The dealer should consider information from the rating agencies for both actual and potential
changes in the underlying rating as well as any changes in the bond insurance
– The dealer should consider the possibility that the call feature may not be exercised
 The maturity of the securities
 The nature of the dealer’s business
 The existence of material information about a security available through EMMA or other established
industry sources

Question 16

Agency Transaction

Pricing Factors

Answer 16

The availability of the securities involved in the transaction
 The expense of executing or filling the customer’s order
 The value of the services rendered by the dealer
 The amount of any other compensation received or to be received by the dealer in connection with the
transaction
 That the dealer is entitled to a profit
 The total dollar amount and price of the transaction
 The best judgment of the dealer concerning the fair market value of the securities when the transaction
occurs and of any securities exchanged or traded in connection with the transaction

Question 17

Markup Policy

Answer 17

If dealer acts in a principal capacity in a transaction with a customer, any markup or
markdown that it receives must be derived from the prevailing market price.

Question 18

Prevailing Market Price

Answer 18

The prevailing market price
of a debt security is its contemporaneous cost or contemporaneous proceeds. A dealer’s cost (proceeds) is
contemporaneous when its inventory purchase and subsequent resale to a retail customer occur in close
time proximity.
If a dealer hasn’t made a contemporaneous purchase (sale), it may present other evidence of the prevailing
market price. This price is established by referring to the dealer’s contemporaneous cost as incurred, or
contemporaneous proceeds as obtained, consistent with applicable MSRB rules.

Question 19

Prevailing Market Price Hierarchy

Answer 19

2. Prices of contemporaneous dealer transactions with institutional customers in the same security (in
   the absence of factor 1)
3. For actively traded securities, the dealer may use the contemporaneous quotes of the same security
   (in the absence of factors 1 and 2)
4. PRice of similar securities
5. Economic models

Question 20

In summary, the pricing of debt instruments is prioritized as follows

Answer 20

The contemporaneous price of a dealer
 The contemporaneous price of a similar security
 The price based on a pricing model

Question 21

(RTRS)

hours

Answer 21

The Real-Time Transaction Reporting System (RTRS) is operated by the MSRB and is open each business
day from 7:30 a.m. until 6:30 p.m. Eastern Time.

Question 22

RTRS

Identification Procedures

Answer 22

broker-dealer needs to obtain a unique reporting symbol from the Financial Industry Regulatory
Authority (FINRA) and file it with the MSRB. When submitting reports to the MSRB, reporting symbol and
transactions will be included on Form RTRS along with the identity and relative information on any
intermediary used as a submitter.

Question 23

The following transactions don’t need to be reported to RTRS:

Answer 23

 Transactions in securities without a CUSIP number
 Transactions in municipal fund securities
 Inter-dealer transactions that are not inter-dealer transactions eligible for comparison in a clearing
agency registered with the Commission

Question 24

RTRS TIME FRAMES FOR REPORTING

Answer 24

The RTRS portals will be
open for data transmission beginning 30 minutes prior to the opening of the business day and will remain
open 90 minutes after the end of the RTRS business day. Unless an exception is available, all transactions
must be reported within 15 minutes of time of trade. Any transaction effected outside the hours that RTRS
is open must be reported no later than 15 minutes after the beginning of the next business day

Question 25

RTRS TIME FRAME EXCEPTIONS

Answer 25

1. On the first day of trading at the offering price of a new issue (called list offering price/ takedown
   transactions), syndicate and selling group members will report transactions by the end of the day.
2. Dealers effecting trades in short-term instruments (under nine months to maturity) such as variable
   rate instruments, auction rate instruments, and commercial paper may report such trades by the end
   of the day.
3. Dealers may report trades within three hours of execution under the following conditions:
   a. CUSIP numbers and indicative data of the issues traded are not in the securities master file used
   by the dealer to process the trade.
   b. The dealer has not traded the issue in the previous year and the dealer is not the manager or a
   member of an underwriting syndicate. Additionally, if there are fewer than three hours remaining in the RTRS business day, the trade must be
   reported by no later than 15 minutes after the beginning of the next RTRS business day

Question 26

Inter-Dealer Transactions

Reporting

Answer 26

1. The message-based trade input portal. This method may be used for any trade record submission or
   trade record modification.
2. The RTRS Web-based trade input method. This system is operated by the MSRB and may be used
   for low volume transactions reports or modifications, but cannot be used for submitting or amending
   inter-dealer trade comparisons.
3. The NSCC Real-Time Trade Matching (RTTM) portal. This method is used only for submitting or
   modifying data with respect to inter-dealer transactions eligible for comparison.

Question 27

RTRS Inter Dealer Transactions

Information That Must Be Reported

Answer 27

Accrued interest and concession
 Buy/Sell indicators
 Contraparty to the transaction
 Reasons for rejecting the trade (DK reason)
 CUSIP number(s) and type of issue
 Trade indicator (locked-in, demand, bilateral, etc.)
 Market of execution
 Participant (buyer or seller)
 Price (dollar amount or yield) and quantity
 Record type (modify, cancel, DK, etc.)
 Reversal indicator (If the report is reversing a trade)
 Settlement date and amount
 Settlement date adjustment (If using an extended settlement)
 Trade date and time (The time is not a match data item)
 Trade type (locked-in, regular-way, new issue, etc.)

Question 28

MSRB Inter dealer required info

Answer 28

 Time the trade was executed
 Identity of the executing broker
 Identity of the entity that clears the transaction
f clearing/introducing broker arrangements are used for transactions, the introducing brokers must be
identified as the executing brokers. If the settlement date is known, the report will include a value for
accrued interest.
A transaction that’s subject to a one-sided or unilateral submission (e.g., a dealer transacting business with
a customer rather than another firm) is reported by the dealer.
A transaction that’s subject to a two-sided (bilateral) submission (two dealers) must be entered by both
sides and monitored (compared) by both sides.

Question 29

“step-out”

Answer 29

hich a trade is executed with one
dealer and the client (in this case an investment adviser) transfers the trade allocation to other dealers. A
step-out is a transfer and should not be reported as a transaction.
I.e.e executing broker reports it not the final dealer receiving the securities/cash.

Question 30

Special Condition Indicators

When dealers report trade through the RTRS

Answer 30

A — Alternative Trading System Trade Inter dealer trade
 B — Broker’s Broker Trade — Inter dealer trade
 L — List Offering Price/Takedown Trade — indicates a trade that’s executed on the first day of
trading for a new issue, either by an underwriter or another broker-dealer or bank involved in the
initial distribution of the securities at the published “list offering price” for the security, or by an
underwriter to another broker-dealer or bank involved in the initial distribution of the securities at a
discount (or “takedown”) from the published list offering price for the security.
 N — Non-Transaction-Based Compensation Arrangement Trade — indicates customer trades that
didn’t include a markup, markdown, or commission.
 P — Weighted Average Price Trade — indicates that a trade was reported using a weighted average
price based on multiple transactions that were done at different prices earlier in the day to accumulate
the total amount of bonds needed to make the transaction.
 W — When Issued Trade — indicates that a trade in a new issue security was executed on or before
the final issuance and settlement of the issue of securities by the issuer.

Question 31

Customer Transactions

Required reporting info

Answer 31

1. CUSIP number of the security
2. Trade date
3. Time the trade was executed
4. Executing broker symbol (This identifies the firm that effected the transaction.)
5. Par value traded
6. Dollar price of the transaction (excluding commission)
7. Yield of the transaction
8. Capacity in which the firm acted (as agent for the customer or principal)
9. Commission, if any
10. Settlement date, if known
11. Control number (This identifies the transaction.)
12. Symbol indicating whether the trade has previously been reported to the Board, and, if so, the
    control number

Question 32

Transaction assessments

Answer 32

Firms must pay the Board an assessment or fee equal to .001% ($.01 per
$1,000) of the total par value of municipal securities sales that are reported to the Board for both inter-dealer
sales and customer sales. When one dealer does transaction reporting for another dealer, the firm reporting
the transaction is responsible for the fee. The reporting firm may then collect inter-dealer transactions fees
from the firm on whose behalf the report was made

Question 33

Technology fee

Answer 33

The MSRB will also charge municipal securities broker-dealers a technology fee,
which is $1.00 per transaction and applies to both inter-dealer and customer sales. There are no
exemptions from this fee.

Question 34

Short-Term Obligation Rate Transparency System (SHORT

Answer 34

Variable Rate Demand Obligations (VRDOs) and Auction Rate
Securities (ARSs)
Municipal securities dealers are required to submit information concerning these
securities through the SHORT System by no later than 6:30 p.m. on the business day the auction occurs or,
in the case of a VRDO, the date on which the rate is reset.

Question 35

Records for Agency Transactions

Answer 35

Must keep a trade ticket (memorandum)
This information must include:
 The account for which the order was entered
 The date and time the order was received
 The price at which the order was executed
 The date of execution
 The time of execution (to the extent this is possible)
 The name and address of the person entering the order if other than the account itself. This is
necessary in the case of discretionary accounts, joint accounts, corporate or partnership accounts, or
other accounts in which a power of attorney exists

Question 36

Records for Transactions as Principal

Answer 36

Trade tickets for principal trades must show the price and date of execution,
and if possible, the time. If a customer of the firm is on the other side of the
trade, then it’s required that a record of the customer’s order be created
containing the same information (previously listed) as for agency
transactions