s ch1 & 2 notes Flashcards
Who Enforces MSRB Rules
For dealer banks, MSRB rules are enforced by one of the following bank regulatory agencies:
Comptroller of the Currency, in the case of a national bank or a subsidiary, department, or division of
any such bank
Federal Reserve Board, in the case of nonnational banks that are members of the Federal Reserve
System
Federal Deposit Insurance Corporation, in the case of nonnational banks that are not members of the
Federal Reserve System
Bank activity not covered by MSRB
Note that MSRB rules govern the municipal securities activities of a bank that are conducted on a dealer
basis, in which the bank is buying or selling for its own account. MSRB rules don’t cover municipal
securities transactions of banks conducted as a fiduciary or on an agency basis, such as trust department
transactions for clients.
Periodic Compliance Examinations
Each municipal securities broker-dealer must be examined at
least once every four calendar years to ensure that the firm and its associated persons are in compliance with
all MSRB and SEC rules. This examination may be, and normally is, combined with other examinations
conducted by the firm’s examining authority (i.e., FINRA, Comptroller of the Currency, FRB, or FDIC)
in order to avoid unnecessary regulatory duplication.
Your firm is a registered broker-dealer with the Securities and Exchange Commission (SEC). The SEC has delegated the responsibility for auditing the firm to FINRA. During an audit, a violation of sales practices in municipal fund securities was discovered. Who has primary jurisdiction for investigating and prosecuting the offense
The SEC has the right to impose fines and suspensions on both municipal securities firms and their registered persons; however, if the SEC is not the primary regulatory agency overseeing the firm and its employees, it may empower another regulator to impose the same sanctions.
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
When do approved rules take effect
no earlier than 10 business days after publication
Registration of BD’s and Dealer Banks
According to the Securities Exchange Act of 1934, municipal securities broker-dealers, dealer banks, and
municipal advisors must register with the SEC. A dealer bank is either a bank or a separately identifiable
division of a bank that buys and sells municipal securities for its own account. Broker-dealers register with
the SEC by filing Form BD while dealer banks register by filing Form MSD.
Registration
Fee and Form
Form A-12
Fee = $1,000
Annual Fee
$1,000
and send in form a-12
Due october 31 of fiscal year
MAP ASSESSMENTS
Registration and annual fee is $1,000 both are due at initial registration
Fee is due April 30th
monthly late fee of 25
Notifying the MSRB of a Change in Status
If a firm ceases to be a municipal securities broker or dealer, it must notify the Board of the change of
status by submitting a written statement. The statement should contain the name, address, and SEC
registration number for the firm, and a statement that the firm is no longer a municipal securities broker or
dealer. If any fees are due at this time, the firm is obligated to pay them despite the change in status
Separately Identifiable
- The unit must be under the direct supervision of an officer or officers, designated by the board of
directors of the bank, who are responsible for the day-to-day conduct of the bank’s municipal
securities dealer activities, including the supervision of all bank employees engaged in the
performance of the activities. - All of the records relating to the bank’s municipal securities dealer activities must be separately
maintained or separately extractable from all other records of the bank. Also, the records must be
accessible to allow for independent examinations and enforcement of applicable provisions of the
securities acts and the rules of the MSRB.
Activities of a bank (or any other municipal securities firm) which constitute municipal securities activities
include:
Underwriting, trading, and sales of municipal securities
Providing financial advisory and consultant services for issuers in connection with the issuance of
municipal securities
Processing and clearing activities with respect to municipal securities
Providing research and investment advice with respect to municipal securities
Communicating, directly or indirectly, with public investors in municipal securities
Maintaining records pertaining to the above activities
associated person.
A person employed by a dealer-bank or firm who is directly engaged in the management, direction,
supervision, or performance of any of the municipal securities dealer’s activities is referred to as an
associated person
Employment Verification for U4
Each firm must verify the information provided by the associated
person with all former employers for a period of three years
immediately preceding the person’s association with the new firm.
Each MSRB member firm that’s contacted must respond within ten
business days following the request
U4 info
MSD4
A record of all residential addresses for at least the preceding five years
A record of any denial of membership or registration, and of any disciplinary action taken against, or
sanction imposed upon, the person by any federal, state securities or bank regulatory agency, or by any
national securities exchange or registered securities association, including any finding that the person was a
cause of any disciplinary action or violated any law
A record of any denial, suspension or revocation of registration with the SEC or from any registered
securities association as a broker or dealer
A record of any permanent or temporary injunctions entered against the person or against any firm with
which the person was associated at the time the injunction was entered stating that the person or firm was
enjoined from acting as an investment advisor, underwriter, broker, dealer, or municipal securities dealer,
or as an affiliated person or employee of any investment company
A record of any other name by which the person has been known or which the person used (aliases)
The person’s conviction record involving the purchase of sale of securities, or any felony conviction within
the past 10 years
Time period to act as and pass the 52
180 days
Advisory and other services can be performed however they can’t sell
Municipal Securities Principal
Activities
A Municipal Securities Principal is directly engaged in the management, direction, or supervision of one
or more of the following activities:
Underwriting, trading, or selling municipal securities
Reviewing accounts, new account forms, and transactions
Providing financial advisory or consultant services to issuers in connection with the issuance of
municipal securities
Processing, clearing, and in the case of municipal securities brokers and dealers other than bank
dealers, safekeeping of municipal securities
Providing research or investment advice with respect to municipal securities
Communicating, directly or indirectly, with public investors in municipal securities, including
handling customer complaints
Maintaining, enforcing, and updating (at least annually) supervisory procedures
Updating and reviewing written supervisory procedures based on Board rule changes
Maintaining records on the activities listed above
Training municipal securities representatives
Principal Grace Period
The MSRB allows a 120-day grace period for a candidate to pass the
Municipal Securities Principal Examination
Must have either a 7, 52, 24.
a 9/10 does not get the grace period
Municipal Securities Sales Principal
Activities
A Municipal Securities Sales Principal is a person associated with a municipal securities broker or dealer
who supervises representatives in their handling of customer accounts and related activities. The activities
for which a sales principal may be responsible 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 (but not advertising)
Municipal Fund Securities Limited Principals
License requirments
Must have a 24 or 26 and then Gets the 51
Municipal Advisor Representative
License?
Series 50
Municipal Advisor Principal
License
54
Municipal Advisors — Definitions and Terminology
A municipal advisor is the business or firm—
not an individual employee or owner. A municipal advisor may be organized in a number of ways, for
example as a limited liability company (LLC), partnership, corporation or sole proprietorship.
A Municipal Advisor Representative
definition
is an individual who interacts with clients on the firm’s behalf.
However, in the case of a sole proprietorship, the municipal advisor and the Municipal Advisor
Representative will be the same person.
examples of a municipal adviser
Municipal advisors may be financial advisors, guaranteed investment contract brokers, third-party
marketers, placement agents, finders, solicitors, or swap advisors. All of these are considered municipal
advisors if they’re performing these services for a municipality or obligated person, or are soliciting them
in hopes of being hired to perform these services.
The term obligated person
is any person, including an issuer of municipal securities, who is either generally,
or through an enterprise, fund or account of such person, committed by contract or other arrangement to
support payments of all, or part of, the obligations of the municipal securities to be sold in the offering. The
following are exempt from this definition regarding the rules concerning municipal advisors:
A guaranteed investment contract (GIC)
is a secure investment that helps to preserve the principal of a
municipal issuer that doesn’t need all of the funds of a bond issuance right away. In other words, it’s a
type of investment for an issuer of municipal securities. The investment earns interest at either a fixed or a
variable rate, or based on a predetermined formula. Most GICs offer a guarantee of original investment
and interest payments as well as flexible terms of the length of the contract and frequency of interest
payments (e.g., monthly, annually)
General info that isn’t advice
Information about professional qualifications and experience
General market and financial information
Information about what investments or services the institution currently offers
Factual information describing various types of debt financing structures
Educational materials regarding government programs and incentives
Responses to RFPs and RFQs
A firm that’s merely responding to a Request for a Proposal (RFP) or
Request for Qualifications (RFQ) from a municipal entity or obligated person doesn’t need to register as a
municipal advisor. However, if the firm receives compensation (either directly or indirectly) in connection
with its response, then it’s considered an advisor and may need to register
Exemptions from the definition of municipal adviser
Public Officials and Employees of Municipalities
Underwriters
Registered Investment Advisers -unless advising on issuance
Registered Commodity Trading Advisors (CTAs) -swaps only
Accountants, Attorneys, and Engineers
Banks
Bank Principals
Bank dealers can’t have a 9/10
They can have 51, 53 principals
: A General Securities Principal is permitted to perform
Maintaining and preserving books and records
Reviewing and approving the opening of each customer account introduced or carried by the firm
Signing the questionnaire associated persons must submit (discussed earlier in this chapter)
Approving, in writing, advertising before its first use
Requirement to Submit an E-mail Contact to the MSRB
Each broker, dealer, or municipal securities dealer is required to appoint an Electronic Mail Contact to serve
as the official contact person for purposes of electronic-mail (e-mail) communication between the firm and
the MSRB. The e-mail contact must be registered as a Municipal Securities Principal of the firm. Form A-12
must also be completed by the firm and mailed to the MSRB. This includes the following information:
The firm’s name and date of submission
The firm’s MSRB registration number
The name and e-mail address of the e-mail contact and that person’s CRD number
The name, title, signature, and telephone number of the person who prepared the form
Availability of Board Rules
A copy of the MSRB rules manual must be kept in each location in which any of the following activities
are conducted:
1. Underwriting, trading, or sales of municipal securities
2. Financial advisory or consultant services for issuers in connection with the issuance of municipal
securities
3. Research or investment advice with respect to municipal securities or any other activities which involve
communication, directly or indirectly, with public investors in municipal securities
office of municipal supervisory jurisdiction (muni-OSJ).
Defined
any location at which one or more of the following takes place:
Market-making and/or order execution
Structuring of public offerings or private placements
Maintaining custody of customers’ funds and/or securities
Final acceptance (approval) of new accounts
Review and endorsement of customer orders
Final approval of advertising or sales literature
Responsibility for supervising other branch offices
MUNI OSJ
Supervision
A municipal OSJ must have a Municipal Securities Principal on the premises whose responsibilities include
the approval and review of accounts, transactions, correspondence, advertising, sales literature, and the
response to customer complaints. If the principal has jurisdiction over satellite offices (muni-branches), he
must approve accounts and orders within those offices and make frequent visits of those sites.
A non-OSJ branch office may be supervised by?
either by a principal or a competent registered selling
representative.
Municipal Branch Office
branch office of a MSRB member broker-dealer or dealer bank is
considered a location from which one or more of the firm’s associated personnel regularly conduct the
business of effecting transactions in, or inducing or attempting to induce the purchase or sale of municipal
securities, or any location represented as such.
exemptions from muni branch office definition
Locations that are not required to be registered as a muni-branch office include:
A non-sales office (e.g., back-office sites and operations offices)
A location of convenience used occasionally and by appointment only
The floor of an exchange
A temporary location used in a business continuity plan (i.e., a back-up office)
A location primarily used for non-securities business and from which less than 25 securities
transactions are effected annually (advertisements and sales literature generated from this location
must identify the location that supervises the personnel working at the location where the
communication was obtained)
A representative’s primary residence that’s not used as an office for the public (see Primary Residence
Limitations, discussed shortly)
A temporary location used for securities business (excluding a primary residence) for less than 30
business days in any calendar year (see Primary Residence Limitations, discussed shortly). A business
day doesn’t include any partial business day during which an associated person spends at least four
hours at her branch office during normal business hours.
A location of convenience
may be situated in a bank. When a member firm maintains an office at a bank
as a location of convenience, it’s permitted to display signs in compliance with federal, state, and SRO
rules and regulations in order to avoid confusing customers who may be under the impression that low-risk
investments (e.g., deposits) are being offered by associated persons at the office.
Primary Residence Limitations
Only one associated person or all associated persons who reside at the same place, who are members
of the same immediate family, may conduct business at the residence
The residence may not be represented as an office of the firm, nor may associated personnel meet with
customers at the residence
Neither customer funds nor securities may be handled at the residence
The associated person must be assigned to a muni-branch office and the address for that branch must
be listed on the person’s business cards, stationery, advertisements, and other communications with
the public
Correspondence and communications with the public from the associated person must be subject to
the firm’s supervision
Electronic communications, including e-mail, must be made through the firm’s system
All orders must be entered through the muni-branch of the associated person or through an electronic
system established and reviewable at the muni-branch by the firm
Written procedures regarding the supervision of sales activities conducted at an associated person’s
residence must be maintained by the firm
The firm must maintain a list of all residence locations
OSJ INSPECTIONS
Each municipal OSJ and branch office that supervises one or more non-branch locations
must be inspected annually
Non Supervisory Muni branch offices
inspection
once every three years
