The Issuance of Municipal Securities and MSRB Rules Flashcards
The total takedown is made up of ____________ + _____________.
The total takedown is made up of Additional takedown + Sales concession.
What yield would be disclosed for a bond purchased at a premium and callable at a premium?
The lower of the YTM or YTC
Is it mandatory for a municipal issuer to prepare an Official Statement?
No, but if one has been prepared, the MSRB requires BDs to distribute it.
True or False: A recall provision notifies clients that the time period on an out-firm bond quote has been shortened.
True
______________ is the return of municipal bonds that were originally accepted for delivery.
Reclamation is the return of municipal bonds that were originally accepted for delivery.
At bid submission, does Net Interest Cost (NIC) or True Interest Cost (TIC) take into account the time value of money?
True Interest Cost (TIC), also called the Canadian Method
What is created when a BD employee has influence over the debt service of an issuer (e.g., an employee is a mayor)?
Control relationship
Those qualified as municipal RRs (Series 52) may sell, trade, or underwrite municipals, but may not ____________ sales.
Those qualified as municipal RRs (Series 52) may sell, trade, or underwrite municipals, but may not supervise sales.
What orders benefit the entire syndicate by percentage of liability?
Group net orders
____________ orders are given to a syndicate and identify two or more members (not all) to receive credit for the sale.
Designated orders are given to a syndicate and identify two or more members (not all) to receive credit for the sale.
What advertises that municipal bonds are available and invites underwriters to bid on a new competitive issue?
Notice of Sale
Is an official statement or preliminary official statement considered retail communication?
No. However, a summary or abstract of an official statement is considered retail communication.
Is a $300 political contribution from a joint checking account a violation if the check is only signed by the MFP?
Yes. To avoid a violation, the check must be signed by both owners.
Are BDs who violate the political contribution rule banned from obtaining competitive underwriting deals from issuers?
No, since the deal is obtained on the merits of the bid.
What yield would always be disclosed for a bond that has been prerefunded?
YTC
Who enforces MSRB rules?
BD Enforcement: SEC or FINRA and Bank Dealer Enforcement: FRB, FDIC, or the Comptroller of the Currency
What’s stated in a municipal indenture (bond resolution)? 3
- Issuer’s responsibilities,
- Bondholders’ rights, and
- The different covenants (pledges) made to protect bondholders
When do municipal bond trades settle?
3 business days after the trade date (T+3)
If a BD wants to sell municipal bonds and have significant exposure to different bids, who should it contact?
A Broker’s Broker
Political contribution rules allow MFPs who may vote for a candidate to contribute a maximum of $_____ (per election).
Political contribution rules allow MFPs who may vote for a candidate to contribute a maximum of $250 (per election).
For municipal registered bonds, what factors determine good delivery?
Proper assignment and the bonds denominated from $1,000 to $100,000 in $1,000 increments
A political contribution made from a joint checking account may exceed $250 if signed by ___________.
A political contribution made from a joint checking account may exceed $250 if signed by both owners.
What type of syndicate has members responsible only for their specific allocation - Eastern or Western?
Western or Divided syndicate
How is the underwriter determined for a Competitive Sale?
The issuer invites syndicates to bid on the issue, with the best bid (lowest interest cost) winning the competition.
True or False: Disclosure is not needed if a control relationship exists and bonds are placed in discretionary accounts.
False. To place those bonds in the client’s account, specific written customer authorization is required.
If a control relationship exists, how may the relationship be disclosed?
Orally, before a trade, and then in writing, at or before settlement
Series ____ or Series _____ will qualify an individual to sell municipal securities.
Series 7 or Series 52 will qualify an individual to sell municipal securities.
Name the three components of the spread for a bond offering.
- Manager’s fee 2. Additional takedown 3. Sales concession
If a bid is unsuccessful, when must the manager return the syndicate member’s portion of the good-faith deposit?
Within 2 business days of its return from the issuer
When will a cash trade for a municipal bond settle?
Same day
Is the average credit rating of the 11 GO Bond Index higher or lower than the 20 GO Bond Index?
Higher; the average is AA+/Aa1.
What is the appropriate registration designation to supervise the municipal activity for a BD?
Municipal Securities Principal (Series 53)
Where can Visible Supply figures and the Placement Ratio for municipals be found?
The Bond Buyer
What is a municipal indenture or bond resolution?
The contract between the issuer and the bondholders
Do S&P and AM Best insure municipal bonds?
No, they provide bond ratings.
Serial bonds are quoted on a ___________________ basis.
Serial bonds are quoted on a yield-to-maturity basis.
A BD that is a part of the selling group (not a syndicate member) would only be entitled to the ____________________.
A BD that is a part of the selling group (not a syndicate member) would only be entitled to the sales concession.
What is the penalty for political contributions that violate the rule?
A two-year ban on obtaining negotiated underwriting business from the issuer
When must customer confirmations be sent?
By the completion of the transaction (usually the settlement date)
Is the Placement Ratio compiled daily or weekly?
Weekly
How is the underwriter determined for a Negotiated Sale?
The issuer selects the underwriter it would like to work with, and they negotiate the offering terms.
Does the MSRB have the authority to enforce its own rules?
No. The MSRB has no enforcement authority.
The ___________________ has the authority to change the priority of orders.
The syndicate manager has the authority to change the priority of orders.
Who supervises a firm’s municipal activities and provides account approval, transaction review, and complaint handling?
Municipal Securities Principal (Series 53)
What is the purpose of a Tombstone Ad?
It calls attention to the new issuance of securities and members of the syndicate.
The average rating for the 20 GO Bond Index is ____________.
The average rating for the 20 GO Bond Index is AA or Aa2.
The 20 GO Bond Index is composed of ____ GO bonds with ____-year maturities.
The 20 GO Bond Index is composed of 20 GO bonds with 20-year maturities.
True or False: The 11 GO Bond Index is composed of 11 of the 20 bonds in the 20 GO Bond Index.
True
What would a member of the syndicate (not the manager) earn for selling bonds?
The total takedown
For a municipal bond to be considered good delivery, is a Legal Opinion mandatory?
Yes. A Legal Opinion must be imprinted or attached (unless identified as ex-legal).
What type of syndicate is formed when members retain a level of liability until all bonds are sold - Eastern or Western?
Eastern or Undivided syndicate
True or False: The Syndicate Letter is also referred to as the Agreement Among Underwriters.
True
_________ orders are those in which only one member earns the total takedown.
Member orders are those in which only one member earns the total takedown.
Is the average credit rating of the Revenue Bond Index higher or lower than the GO Bond Indexes?
Lower; the average is A+/A1.
What does the Placement Ratio indicate?
The number of bonds that were sold during the week compared to what was available for sale (the demand side)
True or False: Syndicate managers may change the priority of orders if justifiable and in the syndicate’s best interest.
True
The document underwriters submit to issuers when bidding on a competitive issue is called the ______________________.
The document underwriters submit to issuers when bidding on a competitive issue is called the Official Bid Form.
True or False: MSRB rules regulate the municipal activities of BDs, banks, and the employees of these institutions.
True. The MSRB also regulates municipal advertising.
What relationship is created when a BD receives a fee for giving advice to a municipality regarding a new issue?
Financial Advisory relationship
True or False: MBIA, FGIC, and AMBAC protect customers against broker-dealer bankruptcy.
False. MBIA, FGIC, and AMBAC insure municipal bond offerings, while SIPC protects against broker-dealer bankruptcy.
What yield would be disclosed for a bond purchased at a premium and callable at par?
Yield to call (YTC)
List the priority of orders from first to fourth.
- Presale orders 2. Group net orders 3. Designated orders 4. Member orders
For municipal bearer bonds, what factors determine good delivery?
All unpaid coupons attached and the bonds denominated in $1,000 or $5,000 increments
What is the spread minus the manager’s fee?
The total takedown
What orders are placed prior to the actual awarding of the issue to the syndicate?
Presale orders
True or False: Term bonds are quoted on a yield basis.
False. Term bonds are quoted on a dollar basis (% of par).
$_____ is the MSRB gift rule limitation.
$100 is the MSRB gift rule limitation (same as FINRA).
Which bond would most likely require a feasibility study to be issued?
Revenue Bond
If a bond counsel has no concerns related to the new offering, the counsel may render an ______________ opinion.
If a bond counsel has no concerns related to the new offering, the counsel may render an unqualified opinion.
Are Visible Supply figures compiled daily or weekly?
Daily
Where can Notices of Sale be found?
In The Bond Buyer (The Daily Newspaper of Public Finance)
True or False: A broker’s broker deals with other BDs, but does not deal with the public or underwrite new issues.
True
The Visible Supply figure indicates the number of municipals expected to reach the market within the next ____ days.
The Visible Supply figure indicates the number of municipals expected to reach the market within the next 30 days.
What yield would be disclosed for a bond purchased at a discount?
Yield to maturity (YTM)
True or False: The MSRB has no authority or control over municipal issuers.
True
A B/D has a financial advisory relationship with an issuer. May it underwrite the issuer’s bonds on a negotiated basis?
No. Rule G-23 bans an advisor from acting as an underwriter for the same issuer on a negotiated or competitive basis.
What information would the manager of a municipal underwriting provide in the Syndicate Letter? 4
- Underwriting type (negotiated/competitive),
- amount, allocation,
- priority of orders,
- type of account (eastern/western)
The index showing the average yield on 25 revenue bonds with 30-year maturities is called the ______________________.
The index showing the average yield on 25 revenue bonds with 30 year maturities is called the Revenue Bond Index.
True or False: Municipal securities representatives may sell municipal bond funds.
False. Municipal representatives may only sell individual municipal bonds.
When a municipal dealer gives a firm quote for a specific period (e.g., 1 hour), the bonds are considered ___________.
When a municipal dealer gives a firm quote for a specific period (e.g., 1 hour), the bonds are considered out firm.
What is the disclosure document, similar to a prospectus, that is used for municipal bonds?
Official Statement
Why will the manager prioritize orders for the purchase of bonds sold through the syndicate?
To give the maximum benefit to the entire syndicate as a group versus any one particular member
What is the document that establishes the agreement between the issuer and the underwriter?
Underwriting Agreement
Political contribution rules allow MFPs NOT able to vote for a candidate to contribute a max. of $___ (per election).
Political contribution rules allow MFPs NOT able to vote for a candidate to contribute a max. of $0 (per election).
____________ is the buyer’s refusal to accept the delivery of municipal bonds.
Rejection is the buyer’s refusal to accept the delivery of municipal bonds.
List some of the information to be included on a municipal customer confirmation.
Description, price and yield (lower of YTM or YTC), BD capacity (commission for agency), trade and settlement dates
Put the following four types of orders in the correct priority: Group Net, Member, Presale, Designated
1) Presale 2) Group Net 3) Designated 4) Member (Remember: P, G, D, M)
What type of opinion will a bond counsel render if the legality of the issue is in question or a lawsuit is pending?
Qualified
Who is responsible for the formulation and interpretation of rules for the municipal industry?
The MSRB
A B/D has a financial advisory relationship with an issuer. May it underwrite the issuer’s bonds on a competitive basis?
No. Rule G-23 bans an advisor from acting as an underwriter for the same issuer on a negotiated or competitive basis.
When bidding on a new issue, what will underwriters first determine?
Reoffering Yield
______________________ bonds would most likely require voter approval.
General Obligation (GO) bonds would most likely require voter approval.
Who is the associated person who primarily engages in or supervises municipal securities business?
Municipal Finance Professional (MFP)
What is the difference between what the syndicate pays the issuer for the new issue and the public offering price?
The underwriting spread
True or False: The legal opinion addresses the creditworthiness of an issue.
False. Legal opinions address the legality (authority/validity) of the issue and the tax exemption of the interest.
