s 6

Question 1

Customer Confirmations

Answer 1

The following transaction information is required as part of a customer confirmation:
 Name, address, and telephone number of the firm
 Name of the customer
 Designation of whether the transaction is a purchase from or a sale to the customer
CHAPTER 6 – OPERATIONS
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 The capacity in which the firm acted (agent or principal)
 Par value of the securities; for zero-coupon securities, the maturity value must be shown if it differs
from par value
 Trade date and time of execution, or a statement that the time of execution will be furnished upon the
customer’s written request
 Settlement date
 Yield and dollar price; if the computed yield or dollar price is not based on a redemption at par, the
dollar price used in the computation must be shown (e.g., 5% yield-to-call on 6/1/20XX at 102)
 Amount of accrued interest (for zero-coupon securities, accrued interest is not shown)
 If the bonds are being delivered in non-standard denominations. Standard denominations for bearer
bonds are $1,000 or $5,000, and for registered bonds, multiples of $1,000 par, up to $100,000 par
 The first interest payment date if other than semiannual, but only if necessary for the calculation of
final money
 Extended principal amount
 Total dollar amount of the transaction (final money)
 If the securities are traded without interest, a notation that they traded flat
 Any additional instructions necessary to ensure a timely settlement, such as delivery instructions or
form of payment (e.g., fed funds)

Question 2

The following identification information of the security should be shown on the confirmation:

Answer 2

Issuer name; for stripped coupon securities, the series designation assigned to the stripped coupon
security by the dealer
 CUSIP number, if any, assigned to the security
 Interest rate. The following securities should include additional information:
– For zero-coupon securities, the interest rate of 0% must be shown
– For securities with adjustable tender fees, the stated interest rate of the underlying security
should be shown with the phrase “less fee for put”
– For stepped securities (the interest rate increases over periods of time at stated intervals), the
interest rate currently being paid
– For stripped coupon securities, the interest rate being paid on the instrument must be shown
– For variable rate securities the interest rate is shown as variable
 Dated date, if it affects the price or interest calculation

Question 3

The following descriptive information about the security should be included on the confirmation:

Answer 3

 Credit backing
– For revenue securities, the security should be identified as a revenue issue and the source of
revenue should be stated
– If the security has additional credit backing, the name of the person or company should be
shown. If a letter of credit is used, the bank issuing the letter of credit must be indicated.
 Features, such as callable securities, puttable securities, stepped coupon securities, book-entry only
securities
 Advanced Refunded
– If securities purchased are advance-refunded and the issue has only a sinking fund call, the
proper disclosure on a customer confirmation is escrowed-to-maturity.
– If the sinking fund is operable, the securities must also be described as callable.
– If securities purchased are advance-refunded and the issue has an explicitly reserved call
feature, the proper disclosure on a customer confirmation is escrowed-to-call date.
(The actual date is listed.)
– If the securities are called, the proper disclosure is prerefunded and the date of the call and
amount of the call price must be disclosed.
 Tax information
– If the security is subject to federal taxation, it must be disclosed
– If the interest is subject to the alternative minimum tax, it must be stated
– If the security is an original issue discount, it must be stated and the initial public offering price
(in dollars) should be shown
 For municipal fund securities the disclosure of the purchase price of each share (or unit), the number of
shares (or units) to be delivered, and the name of the muncipal fund security portfolio being purchased

Question 4

Trade Executed at Par

confirmation

Answer 4

The confirmation must show the dollar price at which the trade was done (par).
Yield doesn’t have to be shown, since it will be the same at the coupon rate.

Question 5

Confirms

Stating additional information is available

Answer 5

If a confirmation indicates that additional information is availableand the customer requests that information, the dealer must provide it within
5 business days if the tradeoccurred within the last 30 calendar days. For trades that occurred after this time period (i.e.,
the request is received more than 30 calendar days following the transaction date), the information must be
given or sent to the customer within 15 business days following receipt of the request.

Question 6

Dealer-to-dealer when, as, and if issued initial confirmations

Answer 6

must be sent within one business day
following the trade date. Confirmations indicating the final settlement date must be sent by the seller at
least three business days prior to the settlement date. Why? To give the buyer the opportunity to prepare to
receive the bonds and to pay for them.

Question 7

The following information must be included on a dealer-to-dealer confirmation

Answer 7

 Confirming party’s name, address, and telephone number
 Contra-party identification
 Designation of purchase from or sale to
 Par value of the securities
 Description of the securities
 CUSIP number, if any, assigned to the securities
 Trade date
 Settlement date
 Required yield and price information (see below)
 Amount of concession, if any, per $1,000 par value (unless there’s an agreement to use an aggregate
figure)
 Amount of accrued interest
Extended principal amount
 Total dollar amount of transaction (final money)
 delivery Instructions,

Question 8

dealer-to-dealer confirmations should also include any of the
following information, if applicable:

Answer 8

 Dated date, if it affects the price or interest calculation
 If the security is available in book-entry form only
 If the security is subject to federal taxation
 If the interest is subject to the alternative minimum tax
 If the securities are called or prerefunded
 If the bonds are original issue discount securities
 Any special instructions or qualifications such as if the bonds are ex-legal, flat, if trading without
interest, or in default

Question 9

Dealer-to-Dealer Yield and Price Disclosures on confirms

Answer 9

Trade Executed at Par shows the price Yield isn’t needed.
Trades Executed on a Yield-to-Maturity (YTM), Yield-to-Call, (YTC), or Yield-to-Put (YTP) Basis
The confirmation must show:
1. The yield at which the trade was done.
2. The lower of price-to-call, price-to-par option, or price-to-maturity.Trades Executed on a Dollar Basis The confirmation must show the dollar price at which the trade was
done. Yield disclosure is not required.

Question 10

When, as, and if issued transactions settle on

Answer 10

date agreed upon by both parties. For transactions required
to be compared in an automated comparison system, this date should not be earlier than two business days
after notification of the initial settlement date. For transactions that are ineligible for automated trade
comparison, this date should not be earlier than the third business day following the date that the
confirmation indicating final settlement is sent.

Question 11

Calculations

showing pricing on confirms

Answer 11

Accrued interest must be truncated to three decimal places and then rounded to two places
 Dollar prices must be truncated to three decimal places
 Yields must be truncated to four places and rounded to three

Question 12

Mutilated Certificates

Answer 12

A certificate is deemed mutilated if any one of the following is
unable to be ascertained:
 Name of issuer
 Par value
 Signature
 Coupon rate or maturity date
 Seal of the issuer, or
 Certificate number

Question 13

damaged coupon

Answer 13

A damaged coupon is characterized by not being able to ascertain
any one of the following:
 Title of the issuer
 Certificate number
 Coupon number or payment date (if either one is ascertainable, the coupon isn’t considered mutilated)
 The fact that there’s a signature

Question 14

A municipal securities dealer seeking to claim an interest payment is required to send to the municipal
securities dealer against which the claim is made a written notice of claim including, at minimum:

Answer 14

The name and address of the broker, dealer, or municipal securities dealer making the claim
 The name of the broker, dealer, or municipal securities dealer against which the claim is made
 The amount of the interest payment that’s the subject of the claim
 The date on which such interest payment was scheduled to be made (and, in the case of an interest
payment on securities that are in default, the original interest payment date)
 A description of the security (including any CUSIP number assigned) on which such interest payment
was made
 A statement of the basis of the claim for the interest payment
 If the claim is based on the delivery of a registered security, the certificate numbers of each security
on which the claim is based and a photocopy of the certificate(s) on which the claim is based or (in
lieu of such a photocopy) a written statement from the paying agent identifying the party that received
the interest payment which is the subject of the claim
 If the claim is made against the broker, dealer or municipal securities dealer, that previously delivered
the security on which the claim is based, or the broker, dealer or municipal securities dealer that
received such security, the delivery date or settlement date of the transaction

Question 15

Rejection and Reclamation

time frames

Answer 15

One business day
 Missing a coupon, or an interest check in lieu of the coupon
 Mutilated certificate or coupon
 Missing a legal opinion or other required documents

Three business days
 If an interest check, in lieu of a coupon, is not honored (i.e., it bounces)

One-and-one-half years (18 months)
 Irregularity in delivery (such as delivery of wrong issue or over delivery)
 Refusal of a transfer agent to transfer or deregister due to lack of required documentation
 Information regarding the securities’ description was inaccurate

No time limit (forever)
 Security delivered is reported missing, stolen, fraudulent, or counterfeit
 A call for less than the entire issue of securities was published on or prior to the delivery date and the
securities were not identified as called at the time of the trade
 A call for the entire issue was published on or prior to the trade date and the security was not
identified as called at the time of the trade
Rejection or reclamation of securities doesn’t constitute a cancellation of the transaction.

Question 16

Close-Out Procedures

max time frame

Answer 16

Transactions which have been compared or agreed upon by both parties, but have not be completed, will
be closed out by the parties by no later than 10 calendar days after settlement.

Question 17

Close-Out by the Purchaser

Answer 17

trade must first have been compared (confirmed by both parties to the
trade) before the close-out procedure may be initiated.
 Notice of close-out by purchaser:
− If the purchaser chooses to close-out a transaction, by no earlier than the first business day
following the original transaction settlement date, the purchaser must notify the seller via an
inter-dealer communication system (e.g., DTC).
− This notice should include the date and time by which the transaction must be completed,
which cannot be earlier than 5:15 PM of the third business day following the date on which
the notice is given.

The purchaser is permitted to grant the seller one 10-calendar-day extension

Question 18

Close-Out by the Purchaser

Retransmittals

Answer 18

The time limit on a retransmittal is very strict. A retransmittal must be initiated by no later than 5:15 p.m.
EST of the first business day following its receipt of the notice from the originating dealer.
Additionally, the retransmittal may affect the time periods previously mentioned. The first time a close-out
is retransmitted, all the dates applying to that notice (i.e., the deadline date for delivery of the securities and
the dates during which the close-out may be executed) are extended by one business day. The second and
subsequent retransmittals do NOT extend the close-out process.

Question 19

Purchasing Dealer (Buy-In)

Answer 19

The rule allows for the close-out process to provide the following three
options to the purchasing dealer:
1. Purchase (“buy-in”) at the current market price all or any part of the securities that’s necessary to
complete the transaction for the account and liability of the seller;
2. In satisfaction of the seller’s obligation under the original contract (which shall be concurrently
cancelled), accept from the seller the delivery of municipal securities that are comparable to those
that were originally bought in quantity, quality, yield or price, and maturity, with any additional
expenses or any additional cost of acquiring such substituted securities being borne by the seller; or
3. Require the seller to repurchase the securities on terms which provide that the seller will pay an
amount which includes accrued interest and bear the burden of any change in market price or yield.

Question 20

Close-Out by the Seller

Answer 20

If the seller makes good delivery of the securities and the buyer rejects
delivery, the seller may close-out the transaction.
 The close-out cannot be earlier than the first business day following receipt by the seller of the notice
of the rejection
 The notice will have the time and date by which the transaction must be completed, which cannot be
earlier than 5:15 PM of the business day following the date on which the notice is given.

Question 21

Selling Dealer (Sell-out)

Answer 21

 No earlier than the close of the business day following the date of the notice given to the purchasing
party, the seller may sell out the transaction at the current market value for the account and liability of
the purchaser
 Notify the purchaser by telephone and forward a copy of the confirmation
Any funds, with any additional expenses or any additional cost due on the close-out of the transaction, must
be forwarded to the appropriate party within five business days of the date of execution of the close-out.

Question 22

Blotters showing purchases and sales of municipal securities should be prepared

Answer 22

no later than the end of

the business day following the trade date.

Question 23

Transactions involving the purchase and sale of securities should
be posted to the account records by no later

Answer 23

than settlement date and to the securities records by no later than
the end of the business day following the settlement date.

Question 24

Records relating to securities movements and cash receipts and disbursements should reflect such events
on

Answer 24

the date they occur and should be posted to the appropriate records by no later than the end of the
following business day.

Question 25

The following records must be preserved for six years:

Answer 25

Blotters (records of original entry)
 Account records
 Securities records
 Records of syndicate transactions if the account was successful
 Customer complaints
 For firms subject to the SEC’s net capital rule, the firm’s general ledger.
 Records of political contributions
 Records concerning consulting arrangements
 Records relating to gifts, gratuities, and employment agreements

Question 26

The following records must be preserved for four year

Answer 26

 Subsidiary records
 Records of put options and repurchase agreements
 Records relating to agency transactions
 Records for principal transactions
 Copies of customer confirmations
 Customer account information
 The firm’s check books, bank statements, cancelled checks, cash reconciliations and wire transfers
 Bills receivable or payable
 All written communications received and sent, including interoffice memoranda, relating to the conduct
of the activities of the firm with respect to municipal securities
 All written agreements entered into by the firm (such as joint accounts)
 Records indicating the delivery of official statements for new issues
 All powers of attorney and other evidence of granting any authority to act on behalf of any account
 All records relating to fingerprinting which are required under the Securities Acts
 Each advertisement (four years from the date of each use)

Question 27

The following records must be preserved for the life of the firm

Answer 27

All partnership articles or, in the case of a corporation, the articles of incorporation or corporate charter,
minute books, and stock certificate books (Bank dealers are not subject to this requirement.)