S-53 Flashcards
What information must be included and kept current in an associated person’s personnel file?
Past employment must be verified with all employers over the last three years. The file must also include any convictions over the last ten years.
Jones and Company, a municipal securities broker-dealer, currently has fifteen full-time employees, of which nine are associated persons. How many municipal securities principals must Jones and Company appoint?
Since there are fewer than eleven full-time associated persons at Jones and Company, only one municipal securities principal is required. If Jones had eleven or more associated persons, the requirement calls for two municipal securities principals. This number could increase as the number of associated persons increases.
An associated person is defined as:
An associated person is any employee who performs municipal securities dealer activities that are not clerical or ministerial in nature. Such persons must register by passing a qualifying exam.
A firm’s written supervisory procedures must provide for the prompt review and written approval by a municipal securities principal of:
- The opening of each customer account in which transactions for municipal securities may be effected
- Each transaction in municipal securities
- The handling of all written customer complaints pertaining to transactions in municipal securities
- All advertising relating to municipal securities activities
All of these statements are true.
Which of the following choices would always be a cause for denial of an individual’s accreditation and registration with a municipal securities broker or dealer?
- Willful violation of the Securities Exchange Act
- Censure by a registered securities association
- Failure to reasonably supervise a person who violated the Securities Exchange Act
- Expulsion from a self-regulatory organization
There are various reasons that an individual’s registration would be denied. Among them are a previous willful violation of the Securities Exchange Act of 1934, failure to reasonably supervise a person who violated the ‘34 Act and a prior expulsion from an industry SRO. However, a censure will not be a cause for denial of an individual’s registration.
What are some reasons that could be a cause for denial of an individual’s accreditation and registration with a municipal securities broker or dealer?
- Willful violation of the Securities Exchange Act of 1934,
-Failure to reasonably supervise a person who violated the ‘34 Act and a
-Prior expulsion from an industry SRO.
However, note that a censure will not be a cause for denial of an individual’s registration.
Is a Preliminary Official Statement considered “Adavertising”
No. Therefore approval by a principal is not required.
Mackinnsey Securities has decided to leave the municipal bond business and focus on higher margin equity trading. What step(s) must the firm take when leaving the business?
Municipal firms are required to give the MSRB prompt written notice when exiting the business. There is no termination fee nor minimum notice that must be given to customers. Written permission is not required of the MSRB.
Which events would always be cause for denial or revocation of an individual’s registration with a municipal securities broker-dealer?
Suspension from an SRO will not result in the revocation or denial of a person’s registration. However, a willful violation of the ‘34 Act, expulsion from an SRO, or an intentional misstatement on the U4 will be cause for denial or revocation of registration.
An apprentice may do which of the following? Buy bonds from another broker-dealer Buy bonds from an insurance company Sell bonds to another broker-dealer Buy bonds from an institutional customer
During the 90-day apprenticeship period, a trainee may discuss the purchase and sale of municipal securities with other securities professionals only. An apprentice may not contact the public.
A copy of the MSRB manual must be available in all departments EXCEPT:
Municipal securities firms must keep a copy of the MSRB rules in each office in which any of the following activities take place:
Underwriting, trading or sales of municipal securities
Financial advisory or consultant services for issuers
Research or investment advice with respect to municipal securities
Any other activities which involve communication, directly or indirectly, with public investors in municipal securities
Clearing activities are not included on this list.
For the purpose of verifying information provided on an employment application by a prospective associated person, a municipal securities dealer shall make inquiry of all employers of the person during the:
Three years immediately preceding the application
While a prospective associated person must provide information on all employers within the preceding ten years, the broker-dealer only has to make inquiry of the employers during the past three years.
What are MSRB guidelines regarding gifts?
The MSRB’s gift limit is $100 per person per year when given in connection with the business of the recipient’s employer. Business expenses, as recognized by the IRS, would not fall within this rule so long as it is not frequent and excessive. Giving a person a season ticket to a sporting event would be considered excessive and would thus violate this rule.
A research report must be approved by a municipal securities principal in all of the following cases EXCEPT where the report is only:
a) Being sent to the manager of the firm’s syndicate department
b) Being sent to the trust departments of large banks
c) Sent to the managers of municipal bond funds
d) Distributed to customers who currently own the securities addressed in the research report
Being sent to the manager of the firm’s syndicate department.
Any correspondence being sent to customers pertaining to municipal securities activities must be approved by a municipal securities principal. Choices (b), (c), and (d) all refer to sending a research report to a customer. The report would not have to be approved if it is kept within the firm for internal use only.
When designating an e-mail contact at the firm, the MSRB rules require that the individual be registered:
As a municipal securities principal
The e-mail contact person must be designated by the firm and the name filed with the MSRB on Form G-40. This person will serve as the official contact person for purposes of electronic mail and must be registered as a municipal securities principal.
What is Rule G-23?
The MSRB created rule G-23 to establish ethical standards and discloseure requirements for any broker-dealer that acts as a financial adviser to issuers with respect to the issueance of municipal securities.
Can a BD that has a Financial Advisory relationship with an issuer act as an underwriter to that issuer?
No. A BD that has a Financial Advisory relationship is prohibited from acting as an underwriter with respect to the same issuer of municipal securities.
Can a BD that has a Financial Advisory relationship with an issuer act as remarketing agent for the issuer?
No. A BD that has a Financial Advisory relationship is generaly prohibited from acting as a remarketing agent with respect to the same issuer of municipal securities.
Acting as an underwriter or as a financial adviser must be clearly notified to the issuer at the earliest possible stage fo the process.
True. and in general acting as an underwriter also involves the structure, timing, and terms of the issue.
SEC Rule 15c2-12 Municipal Securities Disclosure
Underwriters must have reasonable basis for recommending a municipal security. In order to do this, an underwriter must obtain and review the Official Statement, and has certain obligations to send customers copies of the preliminary Official Statement, must contract with the issuer to obtain sufficient copies of the Official Statement within 7 days of upon entering into an agreement to purchase, offer, or sell the securities.
SEC Rule 15c2-12 Municipal Securities Disclosure pertains to issues of $1,000,000 par value or more. Exempted are:
Offers of $100,000 or more that:
- are sold to no more than 35 sophisticated investors (limited placement)
- have a maximum maturity of 9 months or
- have tender or put features as frequent as every 9 months to maturity.
MSRB Rule G-32
Addresses disclosure requirements in connection with primary offerings, and submissions to the electronic municipal market access (EMMA) system.
The SEC has the right to censure, impose fines and suspensions on municipal securities firms and their registered persons. The maximum suspension that may be imposed on a registered person by the SEC is:
Twelve months
On February 6, your firm appointed a new e-mail contact principal for MSRB communications. The firm must file an amended Form G-40 with the MSRB:
If a firm changes the name of the primary e-mail contact, it is required to electronically file an amended Form G-40 with the MSRB. This must be done promptly, but no later than 30 days following the change. The firm is also required to review and update or affirm the information on Form G-40 within 17 business days after the end of each calendar year.
Your firm is a member of the New York Stock Exchange and conducts a general securities business with the public. In the municipal bond trading area, the firm employs thirty-five associated persons, one municipal securities principal (Series 53), and one municipal fund securities limited principal (Series 51). Is the firm in violation for not having enough principals supervising its municipal activities?
Every municipal securities firm needs two municipal principals unless it is a member of a registered securities association, or has fewer than eleven associated persons engaged in municipal securities activities. In this case, the firm needs only one principal since it is a member of an exchange.
A record of each person designated with the responsibility of supervising the activities of a municipal securities dealer must be kept for:
A record of each person designated for the responsibility of supervising the activities of a municipal securities dealer must be kept for six years. If the person designated changes, the records must be kept for six years following the date of the change
Duties of the principal in charge of a municipal Office of Supervisory Jurisdiction include:
- All customer transactions and correspondence sent by municipal securities representatives to customers
- The person in charge is required to review the daily blotter, as well as
- The statements sent to customers to determine the suitability of recommendations based on the customer’s investment objectives and financial means.
- The review of representatives should be continuous, not annual.
The MSRB will assess a dealer a fee except:
The MSRB charges dealers an assessment fee for both primary and secondary market transactions. An exception is made for any security that has a final maturity of nine months or less.
A registered person who has been in the securities industry for 9 years is subject to the Regulatory Element of continuing education
In two more years
The Regulatory Element of continuing education begins on the second anniversary after a registered person’s initial registration. The Regulatory Element training reoccurs every three years after the first anniversary. Therefore, the registered person in the question has had Regulatory Element training on her second, fifth, and eighth anniversary. The next sitting for training would be on her eleventh anniversary.
MSRB policy towards supervision of Municipal securities business requires:
A person supervising municipal securities business is required to pass the Series 53. So is a person supervising the training of municipal securities representatives, but, the individuals conducting the training are not.
If a person has not passed the Municipal Securities Principal Examination by the end of the grace period, she is not permitted to function in a supervisory capacity. The MSRB allows a candidate a 90-day grace period to pass the Municipal Securities Principal Examination. In order to function as this type of principal prior to passing the examination, the person is required to be qualified as a general securities representative (Series 7), municipal securities representative (Series 52), or general securities principal (Series 24). A person qualified as a municipal securities principal is permitted to approve her own transactions if she is also qualified as a municipal securities representative. It is important to remember that the Series 52 is always considered a prerequisite for the Series 53. The Series 7 is only considered a prerequisite for the Series 53 if the person passed the Series 7 examination prior to November 7, 2011.
Your firm has employees who are only engaged in the sale of both municipal bonds and municipal fund securities. Which of the following statements is TRUE regarding the requirements for a minimum number of principals?
The firm is required to have two municipal securities principals
Every municipal securities firm is required to have at least two municipal securities principals. A municipal securities principal (Series 53) is permitted to supervise the sale of all municipal securities including municipal fund securities. There is no requirement to have a separate municipal fund securities limited principal. A municipal fund securities limited principal (Series 51) may be included when determining the required number of principals if the firm limits its business exclusively to the sale of municipal fund securities.
The MSRB allows a candidate seeking to be qualified as a municipal securities principal a grace period if the person is functioning as any one of the following EXCEPT a:
Financial and operations principal
The MSRB allows a candidate a 90-day grace period to pass the Municipal Securities Principal Examination (53). In order to function as this type of principal prior to passing the examination, the person is required to be qualified as a general securities representative (Series 7), municipal securities representative (Series 52), or general securities principal (Series 24).
What is EMMA?
Electronic Municipal Market Access which is a centralized online source for free access to municipal disclosures, market transparency data and educational materials about the municipal securities market. EMMA is operated by the MSRB. It contains important information about a Municipal bond issuance, the use of the funds, and notices throught the life of the bonds as well as secondary market transactions submitted by dealers. EMMA receives transactional information from the MSRB’s Real-time Transaction Reporting System (RTRS).
emma.msrb.org
What Is an Official Statement?
An official statement is a document prepared by or on behalf of a state or local government or other issuer of municipal securities in connection with a new issue of municipal securities that discloses material information on the offering of the securities.
An official statement describes the essential terms of the bonds. It typically provides the most detailed description of the terms and features of the bonds through maturity. Information in an official statement includes, but is not limited to, the terms under which the bond can be redeemed prior to maturity; financial information or operating data concerning the issuer and other entities,enterprises, funds, accounts or other persons material to an evaluation of the offering; the source of money pledged to repay the bonds; and the state or local government’s covenants for the benefit of investors.
What Is an Advance Refunding Document?
A refunding is a refinancing of existing “refunded” bonds with new “refunding” bonds. Similar to a homeowner who obtains a new mortgage with a lower rate to pay off an older, more expensive mortgage, an issuer of refunding bonds often seeks to lower its interest payments by paying off bonds it has previously issued with newly issued refunding bonds that pay interest at a lower rate than the original refunded bonds. In an advance refunding, rather than paying off the old debt immediately, the proceeds of the new refunding bonds are placed in an escrow account to be applied according to a predetermined schedule to the future payment of principal and interest on the old refunded bonds.
Which of the following statements is TRUE concerning a municipal securities dealer’s internal inspection procedures?
Each muni-OSJ and municipal branch office that supervises one or more nonbranch locations must be reviewed on an annual basis. Branch offices that do not supervise one or more nonbranch locations should be reviewed every three years and nonbranch locations should be reviewed periodically.
What is RTRS?
It is the MSRB’s Real Time Transaction Reporting System. Where Dealers report secondary market transaction prices.
What is the Underwritter Spread?
It is the difference between what the underwriters paid the issuer for the bonds and the price at which these bonds are sold to investors. The spread is distributed amongst members of the syndicate and the selling group. A selling firm that is not a member of the syndicate is only entitled to the concession.
Obligations of the SEC Rule 15c2-12 require:
- Obtain and review the Official Statement before bidding on or buying the securities.
- Contract with the Issuer to receive the Final Official Statement (in sufficient copies) to distribute to customers.
- Send a copy of the Official Statement to potential customers within 1 business day of request.
What is a Syndicate Letter?
Syndicate Letters are sent out by the Syndicate Manager to invite other firms to participate. The letter will specify oblications and participations of the members.
What is SMMP?
Sophisticated Municipal Market Specialist. It is one where the dealer has reasonable basis to believe is capable of evaluating investment risks and market value independently, and affirmatively indicates that it is exercising independent judgement.
What is Eastern account?
A method for determining liability in an underwriting of a new issue of municipal securities, as set out in the agreement among underwriters, in which each member of the underwriting syndicate is liable for any unsold portion of the issue according to each member’s percentage participation in the syndicate. Almost all syndicates are structured as undivided accounts
What is Western account?
A method for determining liability in an underwriting of a new issue of municipal securities, as set out in the agreement among underwriters, in which each member of an underwriting syndicate is liable only for the amount of its participation in the issue and not for any unsold portion of the participation amounts allocated to the other underwriters
What is MFP?
Municipal Finance Professional
Political Contributions - Ban on Business occurs when and for how long?
Municipal Securities Firms are prohibited from engaging in specified municipal business with issuers for 2 years if certain political contributions are made to officials of those issuers. If the MFP is entitled to vote for the official, and the contribution is limited to < $250, the ban is not triggered.
What does form G-37 Tack?
Among other things, Political contributions. This form is filed quarterly and made public by the MSRB.
Pursuant to MSRB rules, a municipal securities sales principal (Series 10) may engage in all of the following supervisory activities :
- Giving final approval to the opening of new accounts
- Reviewing customer transactions at the end of each day
- Reviewing correspondence by registered representatives in a branch office
- But NOT the Supervising the underwriting of a small bond issue in a branch office
Among the responsibilities of an OSJ manager is:
A municipal Office of Supervisory Jurisdiction (muni-OSJ) is an office of a member firm that is specifically authorized to supervise municipal securities representatives under written supervisory procedures. An Office of Supervisory Jurisdiction may be managed by anyone who has passed the appropriate principal examination. Among the responsibilities of an OSJ manager is the approval of new accounts, of discretionary and nondiscretionary orders on a daily basis, and of communications sent to the public prior to being sent to clients and not on a periodic basis. The manager of an OSJ has the responsibility of ensuring compliance with securities laws and MSRB rules.
A branch office may or may not be designated as an OSJ, at the discretion of the member firm. For example, a firm might have two branch offices in San Francisco. A firm could appoint each branch an OSJ, or it might make one branch an OSJ with the responsibility of supervising municipal securities representatives within its own office and the other branch office. In this case, the manager of the OSJ would be responsible for ensuring compliance as indicated previously and would be required to inspect each branch office frequently.
A municipal securities sales principal is permitted to supervise which of the following activities?
A municipal securities sales principal is a person associated with a municipal securities dealer or broker who supervises representatives in their handling of customer accounts and related activities. The activities a sales principal may be responsible for include:
-Approving transactions with customers
-Approving the opening of customer accounts
-Approving discretionary accounts and related transactions
-Reviewing all customer accounts regularly
-Supervising the handling of written customer complaints
-Reviewing correspondence with customers regarding the solicitation or execution of municipal securities transactions
The sales principal may not supervise activities such as trading, underwriting, research, or providing financial advice and counseling to issuers. These activities would be the responsibility of the municipal securities principal.
Concerning the duties of a financial and operations principal associated with an MSRB member firm functions:
A financial and operations principal supervises financial reporting and the processing, clearing, and safekeeping of municipal securities. This principal’s duties include:
-Approval of, and responsibility for, financial reports required to be filed with the SEC or any self-regulatory organization
-Supervision of individuals who assist in the preparation of financial reports
-Overall supervision of, and responsibility for, individuals who are involved in the actual maintenance of the books and records from which financial reports are derived
-Overall supervision of, and responsibility for, all individuals who are involved in the administration and maintenance of the processing and clearance functions of the municipal securities broker-dealer
-Overall supervision of, and responsibility for, individuals who are involved in the administration and maintenance of the safekeeping functions of the broker-dealer.
Municipal securities firms need only one financial and operations principal. A person qualifies as a financial and operations principal by passing the Financial and Operations Principal Examination (Series 27) or Introducing Broker/Dealer Financial and Operations Principal Examination (Series 28).
