s ch1 & 2 notes

Question 1

Who Enforces MSRB Rules

Answer 1

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

Question 2

Bank activity not covered by MSRB

Answer 2

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.

Question 3

Periodic Compliance Examinations

Answer 3

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.

Question 4

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

Answer 4

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.

Question 5

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

Answer 5

Twelve months

Question 6

When do approved rules take effect

Answer 6

no earlier than 10 business days after publication

Question 7

Registration of BD’s and Dealer Banks

Answer 7

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.

Question 8

Registration

Fee and Form

Answer 8

Form A-12

Fee = $1,000

Question 9

Annual Fee

Answer 9

$1,000
and send in form a-12
Due october 31 of fiscal year

Question 10

MAP ASSESSMENTS

Answer 10

Registration and annual fee is $1,000 both are due at initial registration
Fee is due April 30th
monthly late fee of 25

Question 11

Notifying the MSRB of a Change in Status

Answer 11

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

Question 12

Separately Identifiable

Answer 12

1. 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.
2. 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.

Question 13

Activities of a bank (or any other municipal securities firm) which constitute municipal securities activities
include:

Answer 13

 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

Question 14

associated person.

Answer 14

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

Question 15

Employment Verification for U4

Answer 15

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

Question 16

U4 info

MSD4

Answer 16

 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

Question 17

Time period to act as and pass the 52

Answer 17

180 days

Advisory and other services can be performed however they can’t sell

Question 18

Municipal Securities Principal

Activities

Answer 18

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

Question 19

Principal Grace Period

Answer 19

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

Question 20

Municipal Securities Sales Principal

Activities

Answer 20

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)

Question 21

Municipal Fund Securities Limited Principals

License requirments

Answer 21

Must have a 24 or 26 and then Gets the 51

Question 22

Municipal Advisor Representative

License?

Answer 22

Series 50

Question 23

Municipal Advisor Principal

License

Answer 23

54

Question 24

Municipal Advisors — Definitions and Terminology

Answer 24

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.

Question 25

A Municipal Advisor Representative

definition

Answer 25

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.

Question 26

examples of a municipal adviser

Answer 26

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.

Question 27

The term obligated person

Answer 27

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:

Question 28

A guaranteed investment contract (GIC)

Answer 28

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)

Question 29

General info that isn’t advice

Answer 29

 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

Question 30

Responses to RFPs and RFQs

Answer 30

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

Question 31

Exemptions from the definition of municipal adviser

Answer 31

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

Question 32

Bank Principals

Answer 32

Bank dealers can’t have a 9/10

They can have 51, 53 principals

Question 33

: A General Securities Principal is permitted to perform

Answer 33

 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

Question 34

Requirement to Submit an E-mail Contact to the MSRB

Answer 34

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

Question 35

Availability of Board Rules

Answer 35

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

Question 36

office of municipal supervisory jurisdiction (muni-OSJ).

Defined

Answer 36

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

Question 37

MUNI OSJ

Supervision

Answer 37

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.

Question 38

A non-OSJ branch office may be supervised by?

Answer 38

either by a principal or a competent registered selling

representative.

Question 39

Municipal Branch Office

Answer 39

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.

Question 40

exemptions from muni branch office definition

Answer 40

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.

Question 41

A location of convenience

Answer 41

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.

Question 42

Primary Residence Limitations

Answer 42

 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

Question 43

OSJ INSPECTIONS

Answer 43

Each municipal OSJ and branch office that supervises one or more non-branch locations
must be inspected annually

Question 44

Non Supervisory Muni branch offices

inspection

Answer 44

once every three years