The Issuance of Municipal Securities and MSRB Rules

Question 1

The total takedown is made up of ____________ + _____________.

Answer 1

The total takedown is made up of Additional takedown + Sales concession.

Question 2

What yield would be disclosed for a bond purchased at a premium and callable at a premium?

Answer 2

The lower of the YTM or YTC

Question 3

Is it mandatory for a municipal issuer to prepare an Official Statement?

Answer 3

No, but if one has been prepared, the MSRB requires BDs to distribute it.

Question 4

True or False: A recall provision notifies clients that the time period on an out-firm bond quote has been shortened.

Answer 4

True

Question 5

______________ is the return of municipal bonds that were originally accepted for delivery.

Answer 5

Reclamation is the return of municipal bonds that were originally accepted for delivery.

Question 6

At bid submission, does Net Interest Cost (NIC) or True Interest Cost (TIC) take into account the time value of money?

Answer 6

True Interest Cost (TIC), also called the Canadian Method

Question 7

What is created when a BD employee has influence over the debt service of an issuer (e.g., an employee is a mayor)?

Answer 7

Control relationship

Question 8

Those qualified as municipal RRs (Series 52) may sell, trade, or underwrite municipals, but may not ____________ sales.

Answer 8

Those qualified as municipal RRs (Series 52) may sell, trade, or underwrite municipals, but may not supervise sales.

Question 9

What orders benefit the entire syndicate by percentage of liability?

Answer 9

Group net orders

Question 10

____________ orders are given to a syndicate and identify two or more members (not all) to receive credit for the sale.

Answer 10

Designated orders are given to a syndicate and identify two or more members (not all) to receive credit for the sale.

Question 11

What advertises that municipal bonds are available and invites underwriters to bid on a new competitive issue?

Answer 11

Notice of Sale

Question 12

Is an official statement or preliminary official statement considered retail communication?

Answer 12

No. However, a summary or abstract of an official statement is considered retail communication.

Question 13

Is a $300 political contribution from a joint checking account a violation if the check is only signed by the MFP?

Answer 13

Yes. To avoid a violation, the check must be signed by both owners.

Question 14

Are BDs who violate the political contribution rule banned from obtaining competitive underwriting deals from issuers?

Answer 14

No, since the deal is obtained on the merits of the bid.

Question 15

What yield would always be disclosed for a bond that has been prerefunded?

Answer 15

YTC

Question 16

Who enforces MSRB rules?

Answer 16

BD Enforcement: SEC or FINRA and Bank Dealer Enforcement: FRB, FDIC, or the Comptroller of the Currency

Question 17

What’s stated in a municipal indenture (bond resolution)? 3

Answer 17

1. Issuer’s responsibilities,
2. Bondholders’ rights, and
3. The different covenants (pledges) made to protect bondholders

Question 18

When do municipal bond trades settle?

Answer 18

3 business days after the trade date (T+3)

Question 19

If a BD wants to sell municipal bonds and have significant exposure to different bids, who should it contact?

Answer 19

A Broker’s Broker

Question 20

Political contribution rules allow MFPs who may vote for a candidate to contribute a maximum of $_____ (per election).

Answer 20

Political contribution rules allow MFPs who may vote for a candidate to contribute a maximum of $250 (per election).

Question 21

For municipal registered bonds, what factors determine good delivery?

Answer 21

Proper assignment and the bonds denominated from $1,000 to $100,000 in $1,000 increments

Question 22

A political contribution made from a joint checking account may exceed $250 if signed by ___________.

Answer 22

A political contribution made from a joint checking account may exceed $250 if signed by both owners.

Question 23

What type of syndicate has members responsible only for their specific allocation - Eastern or Western?

Answer 23

Western or Divided syndicate

Question 24

How is the underwriter determined for a Competitive Sale?

Answer 24

The issuer invites syndicates to bid on the issue, with the best bid (lowest interest cost) winning the competition.

Question 25

True or False: Disclosure is not needed if a control relationship exists and bonds are placed in discretionary accounts.

Answer 25

False. To place those bonds in the client's account, specific written customer authorization is required.

Question 26

If a control relationship exists, how may the relationship be disclosed?

Answer 26

Orally, before a trade, and then in writing, at or before settlement

Question 27

Series ____ or Series _____ will qualify an individual to sell municipal securities.

Answer 27

Series 7 or Series 52 will qualify an individual to sell municipal securities.

Question 28

Name the three components of the spread for a bond offering.

Answer 28

1. Manager’s fee 2. Additional takedown 3. Sales concession

Question 29

If a bid is unsuccessful, when must the manager return the syndicate member's portion of the good-faith deposit?

Answer 29

Within 2 business days of its return from the issuer

Question 30

When will a cash trade for a municipal bond settle?

Answer 30

Same day

Question 31

Is the average credit rating of the 11 GO Bond Index higher or lower than the 20 GO Bond Index?

Answer 31

Higher; the average is AA+/Aa1.

Question 32

What is the appropriate registration designation to supervise the municipal activity for a BD?

Answer 32

Municipal Securities Principal (Series 53)

Question 33

Where can Visible Supply figures and the Placement Ratio for municipals be found?

Answer 33

The Bond Buyer

Question 34

What is a municipal indenture or bond resolution?

Answer 34

The contract between the issuer and the bondholders

Question 35

Do S&P and AM Best insure municipal bonds?

Answer 35

No, they provide bond ratings.

Question 36

Serial bonds are quoted on a ___________________ basis.

Answer 36

Serial bonds are quoted on a yield-to-maturity basis.

Question 37

A BD that is a part of the selling group (not a syndicate member) would only be entitled to the ____________________.

Answer 37

A BD that is a part of the selling group (not a syndicate member) would only be entitled to the sales concession.

Question 38

What is the penalty for political contributions that violate the rule?

Answer 38

A two-year ban on obtaining negotiated underwriting business from the issuer

Question 39

When must customer confirmations be sent?

Answer 39

By the completion of the transaction (usually the settlement date)

Question 40

Is the Placement Ratio compiled daily or weekly?

Answer 40

Weekly

Question 41

How is the underwriter determined for a Negotiated Sale?

Answer 41

The issuer selects the underwriter it would like to work with, and they negotiate the offering terms.

Question 42

Does the MSRB have the authority to enforce its own rules?

Answer 42

No. The MSRB has no enforcement authority.

Question 43

The ___________________ has the authority to change the priority of orders.

Answer 43

The syndicate manager has the authority to change the priority of orders.

Question 44

Who supervises a firm's municipal activities and provides account approval, transaction review, and complaint handling?

Answer 44

Municipal Securities Principal (Series 53)

Question 45

What is the purpose of a Tombstone Ad?

Answer 45

It calls attention to the new issuance of securities and members of the syndicate.

Question 46

The average rating for the 20 GO Bond Index is ____________.

Answer 46

The average rating for the 20 GO Bond Index is AA or Aa2.

Question 47

The 20 GO Bond Index is composed of ____ GO bonds with ____-year maturities.

Answer 47

The 20 GO Bond Index is composed of 20 GO bonds with 20-year maturities.

Question 48

True or False: The 11 GO Bond Index is composed of 11 of the 20 bonds in the 20 GO Bond Index.

Answer 48

True

Question 49

What would a member of the syndicate (not the manager) earn for selling bonds?

Answer 49

The total takedown

Question 50

For a municipal bond to be considered good delivery, is a Legal Opinion mandatory?

Answer 50

Yes. A Legal Opinion must be imprinted or attached (unless identified as ex-legal).

Question 51

What type of syndicate is formed when members retain a level of liability until all bonds are sold - Eastern or Western?

Answer 51

Eastern or Undivided syndicate

Question 52

True or False: The Syndicate Letter is also referred to as the Agreement Among Underwriters.

Answer 52

True

Question 53

_________ orders are those in which only one member earns the total takedown.

Answer 53

Member orders are those in which only one member earns the total takedown.

Question 54

Is the average credit rating of the Revenue Bond Index higher or lower than the GO Bond Indexes?

Answer 54

Lower; the average is A+/A1.

Question 55

What does the Placement Ratio indicate?

Answer 55

The number of bonds that were sold during the week compared to what was available for sale (the demand side)

Question 56

True or False: Syndicate managers may change the priority of orders if justifiable and in the syndicate's best interest.

Answer 56

True

Question 57

The document underwriters submit to issuers when bidding on a competitive issue is called the ______________________.

Answer 57

The document underwriters submit to issuers when bidding on a competitive issue is called the Official Bid Form.

Question 58

True or False: MSRB rules regulate the municipal activities of BDs, banks, and the employees of these institutions.

Answer 58

True. The MSRB also regulates municipal advertising.

Question 59

What relationship is created when a BD receives a fee for giving advice to a municipality regarding a new issue?

Answer 59

Financial Advisory relationship

Question 60

True or False: MBIA, FGIC, and AMBAC protect customers against broker-dealer bankruptcy.

Answer 60

False. MBIA, FGIC, and AMBAC insure municipal bond offerings, while SIPC protects against broker-dealer bankruptcy.

Question 61

What yield would be disclosed for a bond purchased at a premium and callable at par?

Answer 61

Yield to call (YTC)

Question 62

List the priority of orders from first to fourth.

Answer 62

1. Presale orders 2. Group net orders 3. Designated orders 4. Member orders

Question 63

For municipal bearer bonds, what factors determine good delivery?

Answer 63

All unpaid coupons attached and the bonds denominated in $1,000 or $5,000 increments

Question 64

What is the spread minus the manager’s fee?

Answer 64

The total takedown

Question 65

What orders are placed prior to the actual awarding of the issue to the syndicate?

Answer 65

Presale orders

Question 66

True or False: Term bonds are quoted on a yield basis.

Answer 66

False. Term bonds are quoted on a dollar basis (% of par).

Question 67

$_____ is the MSRB gift rule limitation.

Answer 67

$100 is the MSRB gift rule limitation (same as FINRA).

Question 68

Which bond would most likely require a feasibility study to be issued?

Answer 68

Revenue Bond

Question 69

If a bond counsel has no concerns related to the new offering, the counsel may render an ______________ opinion.

Answer 69

If a bond counsel has no concerns related to the new offering, the counsel may render an unqualified opinion.

Question 70

Are Visible Supply figures compiled daily or weekly?

Answer 70

Daily

Question 71

Where can Notices of Sale be found?

Answer 71

In The Bond Buyer (The Daily Newspaper of Public Finance)

Question 72

True or False: A broker's broker deals with other BDs, but does not deal with the public or underwrite new issues.

Answer 72

True

Question 73

The Visible Supply figure indicates the number of municipals expected to reach the market within the next ____ days.

Answer 73

The Visible Supply figure indicates the number of municipals expected to reach the market within the next 30 days.

Question 74

What yield would be disclosed for a bond purchased at a discount?

Answer 74

Yield to maturity (YTM)

Question 75

True or False: The MSRB has no authority or control over municipal issuers.

Answer 75

True

Question 76

A B/D has a financial advisory relationship with an issuer. May it underwrite the issuer's bonds on a negotiated basis?

Answer 76

No. Rule G-23 bans an advisor from acting as an underwriter for the same issuer on a negotiated or competitive basis.

Question 77

What information would the manager of a municipal underwriting provide in the Syndicate Letter? 4

Answer 77

1. Underwriting type (negotiated/competitive), 2. amount, allocation, 3. priority of orders, 4. type of account (eastern/western)

Question 78

The index showing the average yield on 25 revenue bonds with 30-year maturities is called the ______________________.

Answer 78

The index showing the average yield on 25 revenue bonds with 30 year maturities is called the Revenue Bond Index.

Question 79

True or False: Municipal securities representatives may sell municipal bond funds.

Answer 79

False. Municipal representatives may only sell individual municipal bonds.

Question 80

When a municipal dealer gives a firm quote for a specific period (e.g., 1 hour), the bonds are considered ___________.

Answer 80

When a municipal dealer gives a firm quote for a specific period (e.g., 1 hour), the bonds are considered out firm.

Question 81

What is the disclosure document, similar to a prospectus, that is used for municipal bonds?

Answer 81

Official Statement

Question 82

Why will the manager prioritize orders for the purchase of bonds sold through the syndicate?

Answer 82

To give the maximum benefit to the entire syndicate as a group versus any one particular member

Question 83

What is the document that establishes the agreement between the issuer and the underwriter?

Answer 83

Underwriting Agreement

Question 84

Political contribution rules allow MFPs NOT able to vote for a candidate to contribute a max. of $___ (per election).

Answer 84

Political contribution rules allow MFPs NOT able to vote for a candidate to contribute a max. of $0 (per election).

Question 85

____________ is the buyer's refusal to accept the delivery of municipal bonds.

Answer 85

Rejection is the buyer's refusal to accept the delivery of municipal bonds.

Question 86

List some of the information to be included on a municipal customer confirmation.

Answer 86

Description, price and yield (lower of YTM or YTC), BD capacity (commission for agency), trade and settlement dates

Question 87

Put the following four types of orders in the correct priority: Group Net, Member, Presale, Designated

Answer 87

1) Presale 2) Group Net 3) Designated 4) Member (Remember: P, G, D, M)

Question 88

What type of opinion will a bond counsel render if the legality of the issue is in question or a lawsuit is pending?

Answer 88

Qualified

Question 89

Who is responsible for the formulation and interpretation of rules for the municipal industry?

Answer 89

The MSRB

Question 90

A B/D has a financial advisory relationship with an issuer. May it underwrite the issuer's bonds on a competitive basis?

Answer 90

No. Rule G-23 bans an advisor from acting as an underwriter for the same issuer on a negotiated or competitive basis.

Question 91

When bidding on a new issue, what will underwriters first determine?

Answer 91

Reoffering Yield

Question 92

______________________ bonds would most likely require voter approval.

Answer 92

General Obligation (GO) bonds would most likely require voter approval.

Question 93

Who is the associated person who primarily engages in or supervises municipal securities business?

Answer 93

Municipal Finance Professional (MFP)

Question 94

What is the difference between what the syndicate pays the issuer for the new issue and the public offering price?

Answer 94

The underwriting spread

Question 95

True or False: The legal opinion addresses the creditworthiness of an issue.

Answer 95

False. Legal opinions address the legality (authority/validity) of the issue and the tax exemption of the interest.

Question 96

COP

Answer 96

Certificate of Participation Like a revenue bond version of a GO Bond - Rev from lease payments, no voter approval, not subject to debt limits - lower rating than other similar GO bonds