Unit 7 - Municipal Securities Rules

Question 1

Administration and Registration
Question ID: 48986
Which of the following information is not required on Form A-13?

I. Managing underwriter’s name.
II. Participations of syndicate members.
III. Gross spread.
IV. Ratings.

A) II, III and IV.
B) I only.
C) II and III.
D) III and IV.

Answer 1

Answer: A

Form A-13 must accompany the transmittal of the underwriting fees. The MSRB requires the name of the managing underwriter, the issuer’s name, and the total amount of the issue. This must be submitted within 30 days of the invoice date, along with the $0.03 per $1,000 underwriting assessment.

Reference: 7.1.1.4 in the License Exam Manual.

Question 2

Administration and Registration
Question ID: 48987

In 2011, the Mt. Vernon Port Authority sold $100 million of general obligation bonds that mature in 2019 to a syndicate managed by a municipal broker/dealer. The broker/dealer must pay an underwriting fee of:

A) $0.03 per $1,000 par value of securities on behalf of the entire syndicate.
B) $0 because the manager of the syndicate is exempt from paying an underwriting fee.
C) $0.03 per $1,000 par value of securities that it is responsible to sell.
D) $0.02 per $1,000 par value of securities.

Answer 2

Answer: A

The managing underwriter is required to consolidate the fee due the MSRB and issue the monies no later than 30 days following the invoice date.

Reference: 7.1.1.4 in the License Exam Manual.

Question 3

Administration and Registration
Question ID: 48988
Regarding the fees levied upon dealers that are MSRB members, which of the following statements is TRUE?

A) The initial fee is $500, and the annual fee is $500.
B) The initial fee is $100, and the annual fee is $500.
C) The initial fee is $500, and the annual fee is $100.
D) The initial fee is $100, and the annual fee is $1,000.

Answer 3

Answer: B

The initial fee is $100, and it is $500 for every year thereafter.

Reference: Answer: B

The MSRB requires a firm to have at least two municipal principals unless the firm is also a FINRA member, or there are ten or fewer registered representatives. If this is the case, the requirement is one principal.

Reference: 7.1.1.5 in the License Exam Manual7.1.1.4 in the License Exam Manual.

Question 4

Administration and Registration
Question ID: 48989
How many registered municipal securities principals must a municipal securities firm with five employees have?

A) Two principals.
B) Three principals.
C) None, if a designated employee is qualified as a general securities principal.
D) One principal.

Answer 4

Answer: D

The MSRB requires a firm to have at least two municipal principals unless the firm is also a FINRA member, or there are ten or fewer registered representatives. If this is the case, the requirement is one principal.

Reference: 7.1.1.5 in the License Exam Manual.

Question 5

Administration and Registration
Question ID: 49042
The MSRB imposes an initial single assessment on municipal securities dealers of:

A) $200.
B) $1,000.
C) $1,500.
D) $100.

Answer 5

Answer: D

The initial fee for a newly registered municipal securities dealer is $100 and the annual fee is $500.

Reference: 7.1.1.4 in the License Exam Manual.

Question 6

Rules G-8 and G-9
Question ID: 48718
All of the following municipal records must be kept for six years EXCEPT:

A) customer complaints.
B) securities borrowed and loaned.
C) general ledger.
D) syndicate records.

Answer 6

Answer: B

General ledgers, records of successful syndicate operations, customer files, and customer complaints must be filed for six years. Records involving the founding of the firm and ongoing minutes must be kept for the lifetime of the firm. All other records must be kept for three years.

Reference: 7.2.2.2 in the License Exam Manual.

Question 7

Rules G-8 and G-9
Question ID: 48796
Under MSRB rules, which of the following records must be maintained by the syndicate manager?

I. Names and participation percentages of each syndicate member.
II. Copies of the Official Statement.
III. All allotments and the price at which sold.
IV. The date and amount of any good faith deposit.

A) II and III.
B) I, II, III and IV.
C) I, III and IV.
D) I, II and III.

Answer 7

Answer: C

Official statements are issuer documents, so there is no MSRB rule mandating their retention. Remember, the MSRB does not regulate issuers.

Reference: 7.2.1 in the License Exam Manual.

Question 8

Rules G-8 and G-9
Question ID: 48807
Under MSRB rules, which of the following records must be maintained by the syndicate manager?

I. Date of settlement with the issuer.
II. Date of closing the account.
III. Terms and conditions governing the operation of the syndicate.
IV. Reconciliation of profits and expenses including designated credits and miscellaneous expenses.

A) I and II.
B) I, II and IV.
C) I and III.
D) I, II, III and IV.

Answer 8

Answer: D

All items listed are required records that must be kept by the syndicate manager for six years.

Reference: 7.2.2.2 in the License Exam Manual.

Question 9

Rules G-8 and G-9
Question ID: 48809
According to MSRB rules, copies of put options and repurchase agreements must be maintained by the firm:

A) for five years.
B) for six years.
C) until the option is exercised or the securities repurchased.
D) for three years.

Answer 9

Answer: D

These records must be kept for three years and in a readily accessible location the first two years.

Reference: 7.2.2.1 in the License Exam Manual.

Question 10

Rules G-8 and G-9
Question ID: 48975
The City of Templeton sold $100 million of GO bonds that mature in 2010 to a syndicate managed by ABC Corp., a municipal broker/dealer. Who is responsible for maintaining the books and records for the syndicate?

A) The City of Templeton, the issuer of the bonds.
B) The MSRB.
C) ABC, the manager of the syndicate.
D) All members of the syndicate.

Answer 10

Answer: C

The managing underwriter is required to maintain the records of the underwriting. Each member is required to maintain a record of its transactions.

Reference: 7.2.2.2 in the License Exam Manual.

Question 11

Rules G-8 and G-9
Question ID: 48976
All of the following statements regarding repurchase agreements are true EXCEPT:

A) records for these types of agreements are kept for three years.
B) they are usually arranged for short periods of time.
C) in the agreement, securities are sold by a firm with the intent of repurchasing them at a later date and agreed upon price.
D) the terms of the agreement do not have to be recorded if municipal securities are involved.

Answer 11

Answer: D

A repurchase agreement is where a person sells a security for a short period with the promise to buy it back at a later date. Records must be kept for three years.

Reference: 7.2.2.1 in the License Exam Manual.

Question 12

Rules G-8 and G-9
Question ID: 48977
An agreement permitting an investor to sell municipal securities at a specified time and at an agreed upon price is called a:

A) syndicate.
B) negotiated deal.
C) warrant.
D) put option.

Answer 12

Answer: D

A put option allows the holder to sell the bonds at a specific price and time to the issuer or another party.

Reference: 7.2.2.1 in the License Exam Manual.

Question 13

Rules G-8 and G-9
Question ID: 48978
According to MSRB rules, which of the following records must a broker/dealer preserve for at least three years?

A) Copies of confirmations sent to customers.
B) All of these.
C) Put option records.
D) Repurchase agreement records.

Answer 13

Answer: B

All of the records listed must be retained for three years. Customer files, the general ledger, customer account files, blotters, securities position logs, complaints, and underwriting records must be kept for six years while corporate charters and resolutions and partnership agreements must be kept for the lifetime of the firm. Official statements have no requirement; everything else must be kept for three years.

Reference: 7.2.2.1 in the License Exam Manual.

Question 14

Rules G-8 and G-9
Question ID: 48979
When maintaining syndicate transactions records, which of the following must be preserved?

I. Settlement date with the issuer.
II. All allotments of securities and sale prices.
III. Percentage participation for each member of the syndicate.
IV. Copy of the issuer’s notice of sale.

A) I and IV.
B) III only.
C) I, II and III.
D) I and III.

Answer 14

Answer: C

The syndicate records include the settlement date, the allotments, and the syndicate’s allocation. A copy of the official notice of sale need not be retained; it is an issuer document.

Reference: 7.2.2.2 in the License Exam Manual.

Question 15

Rules G-8 and G-9
Question ID: 48980
All records maintained by a municipal securities dealer under MSRB rules must be:

A) retained for six years.
B) maintained on either a trade date or settlement date basis.
C) maintained on a trade date basis.
D) maintained on a settlement basis.

Answer 15

Answer: B

The records of a broker/dealer can be maintained either on a trade date or settlement date basis, provided the broker/dealer is consistent in its postings.

Reference: 7.2.2.4 in the License Exam Manual.

Question 16

Rules G-8 and G-9
Question ID: 48981
Subsidiary records preserved by a municipal securities dealer include:

A) municipal securities in transfer.
B) municipal securities borrowed or loaned.
C) municipal securities to be validated.
D) all of these.

Answer 16

Answer: D

All of the choices would be considered subsidiary records to the general ledger.

Reference: 7.2.2.1.1 in the License Exam Manual.

Question 17

Rules G-8 and G-9
Question ID: 48982
All of the following records are maintained as subsidiary records of the general ledger. Which of those records is more commonly referred to as a fail record?

A) Municipal securities transactions not completed on settlement date.
B) Municipal securities in transfer.
C) Municipal securities to be validated.
D) Municipal securities borrowed or loaned.

Answer 17

Answer: A

Fail record refers to transactions that are fails to deliver (or receive) of securities; therefore, the record would reflect transactions that have not settled in a timely manner.

Reference: 7.2.2.1.1 in the License Exam Manual.

Question 18

Rules G-8 and G-9
Question ID: 48983
According to MSRB rules, a record of all written customer complaints and any action taken in relation to the complaints must be kept by the firm:

A) complaints do not have to be preserved unless the municipal securities principal decides otherwise.
B) for six years.
C) for three years.
D) until the complaint is settled.

Answer 18

Answer: B

Under MSRB rules, records of written customer complaints must be maintained for six years.

Reference: 7.2.2.2 in the License Exam Manual.

Question 19

Rules G-8 and G-9
Question ID: 48984
A customer registers a complaint with a municipal dealer alleging improper execution of the customer’s order. The dealer must:

I. maintain a record of the complaint for not less than six years.
II. record what action, if any, has been taken in connection with the complaint.
III. file a copy of the complaint with the MSRB.
IV. cease trading for the customer’s account until the complaint has been resolved.

A) I and III.
B) II and IV.
C) I, II, III and IV.
D) I and II.

Answer 19

Answer: D

Under MSRB rules, the municipal securities principal is required to oversee all written complaints, note the action taken, and maintain the complaint and resolution for no less than six years.

Reference: 7.2.2.2 in the License Exam Manual.

Question 20

Rules G-8 and G-9
Question ID: 48985
Under MSRB rules, records of agency and principal transactions:

must be segregated from each other.
may be combined.
must be preserved for at least three years.
must be preserved for at least six years.
A) I and III.
B) I and IV.
C) II and III.
D) II and IV.

Answer 20

Answer: A

Records of agency and principal transactions must be segregated and retained for three years.

Reference: 7.2.2.1 in the License Exam Manual.

Question 21

Rules G-8 and G-9
Question ID: 49082
Under MSRB Rule G-8, a dealer must maintain records relating to:

successful syndicate bids.
unsuccessful syndicate bids.
A) neither I nor II.
B) I only.
C) II only.
D) both I and II.

Answer 21

Answer: B

Under Rule G-8, a dealer is not required to maintain records relating to unsuccessful syndicate bids. Records relating to successful bids must be retained by the syndicate manager for six years.

Reference: 7.2.2.2 in the License Exam Manual.

Question 22

Rule G-12
Question ID: 48680
Under MSRB rules, information on interdealer trades must be submitted to a registered clearing agency:

A) on trade date.
B) no later than T+1.
C) no later than T+2.
D) by settlement date.

Answer 22

Answer: A

Uniform Practice Rules of the MSRB require that information on all interdealer trades in securities with CUSIP numbers be submitted to a registered clearing agency (e.g., NSCC) for automated comparison. Both sides must report on trade date. This information is matched by computer and reported back to each side on the following business day.

Reference: 7.3 in the License Exam Manual.

Question 23

Rule G-12
Question ID: 48689
Under MSRB rules, all of the following may be changed by mutual agreement between dealers EXCEPT:

A) settlement dates on When Issued (WI) securities.
B) buy-in procedures.
C) confirmation information.
D) close-out procedures.

Answer 23

Answer: C

MSRB rules do not allow alterations to required information on a confirmation.

Reference: 7.3.2.1 in the License Exam Manual.

Question 24

Rule G-12
Question ID: 48712
Under MSRB rules, which of the following reclamations must be made within one business day?

I. Missing interest coupons.
II. Missing legal opinion.
III. Mutilated security.
IV. Stolen certificate.
A) III and IV.
B) I, II, III and IV.
C) I, II and III.
D) I and II.

Answer 24

Answer: C

MSRB reclamation time limits include one day for missing coupons, legal opinions, and mutilated certificates, and no time limit for stolen or counterfeit securities.

Reference: 7.3.2.4 in the License Exam Manua

Question 25

Rule G-12
Question ID: 48799
A municipal dealer receives a confirmation for a transaction it does not recognize. After investigation, the dealer concludes that a trade occurred. Under MSRB rules, the dealer must:

A) immediately notify the confirming dealer by telephone and send a confirmation to the confirming dealer within one business day.
B) send a confirmation to the confirming dealer within one business day.
C) immediately send written notice with return receipt requested to the confirming dealer indicating recognition, and send a confirmation within one business day.
D) immediately send a confirmation to the confirming dealer.

Answer 25

Answer: A

After an investigation concludes a trade occurred, MSRB rules require the firm to immediately telephone the confirming dealer and send written confirmation the next business day.

Reference: 7.3.2.1 in the License Exam Manual.

Question 26

Rule G-12
Question ID: 48810
Under MSRB rules, which of the following deliveries must be reclaimed within 18 months?

I. Wrong securities delivered.
II. Refusal of the transfer agent to accept.
III. Legal documentation missing.
IV. Mutilated coupons.

A) II and III.
B) I and II.
C) I and III.
D) I and IV.

Answer 26

Answer: B

Irregular deliveries and refusal of the transfer agent to accept the securities require reclamation within 18 months. Missing coupons, mutilated securities or coupons, missing legal opinions, and missing proof of insurance must all be reclaimed within one business day.

Reference: 7.3.2.4 in the License Exam Manual.

Question 27

Rule G-12
Question ID: 48945
Confirmations for transactions between broker/dealers must include the:

I. CUSIP number of the security, if any.
II. amount of concession per $1,000 value.

A) I only.
B) II only.
C) neither I nor II.
D) both I and II.

Answer 27

Answer: D

Confirmations must include the CUSIP number and the concession as well as the name and amount of the securities being traded, the settlement date, and all other information pertinent to the trade.

Reference: 7.3.2.1 in the License Exam Manual.

Question 28

Rule G-12
Question ID: 48946
The MSRB’s Uniform Practice Code Rule G-12 deals with transactions between a:

I. customer and broker/dealer.
II. bank dealer and nonbank dealer.
III. customer and bank dealer.

A) I and III.
B) I, II and III.
C) II only.
D) I only.

Answer 28

Answer: C

The Uniform Practice Code dictates industry practices such as delivery dates and accrual of interest. These are dealer-to-dealer rules.

Reference: 7.3 in the License Exam Manual.

Question 29

Rule G-12
Question ID: 48947
Under MSRB rules, reclamation is permitted for 1 business day following delivery when:

A) the securities go into default.
B) a coupon is discovered to be mutilated.
C) a disagreement exists as to the purchase price.
D) the CUSIP number is not imprinted on the certificates.

Answer 29

Answer: B

Reclamation occurs when a firm that has accepted delivery of securities it now wants to send back. They would be sent back because of bad delivery (e.g., mutilated coupons).

Reference: 7.3.2.4 in the License Exam Manual.

Question 30

Rule G-12
Question ID: 48948
On a settlement of a municipal securities transaction between dealers, assume that the selling dealer delivers to the buying dealer securities that are contracted for, but there is a small dollar difference in the delivery price. Which of the following statements is TRUE?

A) Any money differences can cause rejection.
B) Any money differences not resolved on the settlement date can cause cancellation unless reconciliation occurs within two business days of settlement.
C) Money differences less than the maximum allowed by MSRB rules will not cause rejection and the calculation of the buyer will be used.
D) Money differences less than the maximum allowed by MSRB rules will not cause rejection and the calculation of the seller will be used.

Answer 30

Answer: D

Small money differences do not cause rejection of a municipal delivery. In this case, the seller’s computation prevails.

Reference: 7.3.2.4 in the License Exam Manual.

Question 31

Rule G-12
Question ID: 48951
According to MSRB rules, under which of the following circumstances would reclamation procedures be available?

I. A transfer agent refuses to accept the transfer securities.
II. Certificates are reported as stolen.
III. A notice of an in-whole call is published within 5 business days after settlement.

A) I only.
B) II only.
C) I, II and III.
D) I and II.

Answer 31

Answer: D

Reclamation is permitted if a transfer agent refuses to transfer a security or if certificates are found to be stolen. For a broker/dealer to reclaim a bond subject to an in-whole call, the call must be published on or before trade date.

Reference: 7.3.2.4 in the License Exam Manual.

Question 32

Rule G-12
Question ID: 48952
Under MSRB rules, reclamation must be made within 18 months following the date of delivery under all of the following circumstances EXCEPT:

A) if delivery is made of 10 City of Kenosha GOs, 5s of 2010, instead of 2011, maturity.
B) if a transfer agent refuses transfer because the customer did not execute the assignment correctly.
C) if delivery is made of 20 Mt. Vernon Port Authority 6s of 2009 to a broker/dealer that ordered only 15 bonds.
D) if a security was not identified as called at the time of the trade and a notice of partial call was published before the delivery date.

Answer 32

Answer: D

Reclamation is available without time limit when called bonds are delivered and only a partial call has been issued. Reclamation within 18 months is available if the wrong bonds are delivered, if the transfer agent refuses to transfer, or if there is an irregularity in the delivery.

Reference: 7.3.2.4 in the License Exam Manual.

Question 33

Rule G-12
Question ID: 48953
If securities are delivered with the wrong maturity dates, which of the following statements is TRUE?

A) Reclamation may be made at any time after the date of delivery.
B) Reclamation must be made within 18 months following the date of delivery.
C) Reclamation must be made within one business day following the date of delivery.
D) Reclamation must be made within three business days following the purchaser’s receipt of the notice of dishonor.

Answer 33

Answer: B

If an irregularity occurs in the delivery of securities, such as a delivery of securities with wrong maturity dates, the buyer must demand reclamation within 18 months following the date of delivery.

Reference: 7.3.2.4 in the License Exam Manual.

Question 34

Rule G-12
Question ID: 48954
According to MSRB Rule G-12, expenses of securities shipment (such as insurance, postage, and collection charges) shall be paid by:

A) the seller.
B) the buyer.
C) either the buyer or the seller, as established at the time of the trade.
D) both the buyer and seller on a 50-50 split basis.

Answer 34

Answer: A

All expenses of shipping securities are paid by the seller.

Reference: 7.3.2.3 in the License Exam Manual.

Question 35

Rule G-12
Question ID: 48955
Under MSRB rules, how many business days must elapse after settlement before the purchasing dealer may issue a close-out notice to the selling dealer?

A) 5 days.
B) 2 days.
C) 15 days.
D) 30 days.

Answer 35

Answer: A

For the buying dealer to close out a transaction, it must wait 5 business days after settlement, and then it must notify the seller by telephone of its intention to close out the trade.

Reference: 7.3.2.5 in the License Exam Manual.

Question 36

Rule G-12
Question ID: 48959
According to MSRB rules, all of the following statements are true EXCEPT:

A) a delivery ticket shall accompany the delivery of securities.
B) if the parties so agree, book-entry delivery will constitute good delivery.
C) delivery shall be made at the office of the purchaser between the hours established by rule or practice.
D) delivery of securities that are available in both bearer and registered form must be in bearer form.

Answer 36

Answer: D

MSRB Uniform Practice Code rules require that a delivery ticket accompany each shipment of securities; that book-entry delivery is permitted if agreed upon by both parties; and that the seller will deliver the securities to the purchaser’s office (unless there is an agreement to either book-entry settlement or delivery through a registered clearing agency). If, at the time of trade, it is not stated in which form the bond will be delivered, delivery may be made in any form.

Reference: 7.3.2.3 in the License Exam Manual.

Question 37

Rule G-12
Question ID: 48960
Under MSRB rules, if a dealer purchases $50,000 of City of Mineral Point general obligation bonds, Series M, 5s of 2040, which of the following face-amount deliveries may be acceptable?

A) $20,000.
B) $40,000.
C) All of these.
D) $50,000.

Answer 37

Answer: D

Under MSRB rules, partial deliveries do not have to be accepted. Only the full delivery (in this case, $50,000 face amount) must be accepted.

Reference: 7.3.2.3.1 in the License Exam Manual.

Question 38

Rule G-12
Question ID: 48961
Under MSRB rules regarding a transaction that has not been completed by the seller according to its terms, when is the soonest that the purchaser may close out the transaction?

A) Three days after the purchaser warns the seller by telephone-telephone call may not be made earlier than the fifth day after settlement.
B) Not sooner than the close of business on the tenth business day after the purchaser warns the seller by telephone-telephone call may not be made earlier than the fifth business day after settlement.
C) One day after settlement.
D) Three days after settlement.

Answer 38

Answer: B

Close-out by the buyer cannot be effected earlier than 10 business days after it gives notice to the seller. The first time notice can be given to the seller is five business days after settlement.

Reference: 7.3.2.5 in the License Exam Manual.

Question 39

Rule G-12
Question ID: 48963
Under MSRB Rule G-12, if ALFA Securities, Inc., a broker/dealer, is to deliver to Beta Securities five $5,000 bonds (total face value $25,000) in bearer form, which of the following information need not be on the trade confirmation?

A) Certificate denominations of the bonds.
B) CUSIP number assigned to the securities, if any.
C) Yield at which the transaction was effected and the resulting dollar price.
D) Whether the securities are called or prerefunded, a designation to such effect, the date of maturity that has been fixed by the call notice, and the call price.

Answer 39

Answer: A

Bearer bonds are expected to be delivered in either $1,000 or $5,000 units and the denominations are not required on the confirmation because the delivery rules are clear. The CUSIP number, the yield and dollar price, and whether the securities are called or prerefunded must be on the confirmation.

Reference: 7.3.2.1 in the License Exam Manual.

Question 40

Rule G-12
Question ID: 48965
Under MSRB rules, which of the following may be an acceptable option(s) for a buying broker/dealer effecting a close-out?

I. Requiring the seller to repurchase the securities on terms that require the seller to pay an amount that includes accrued interest, and to bear the burden of any change in market price or yield.
II. Buying in at the current market all or any part of the securities necessary to complete the transaction.
III. Accepting from the seller the delivery of municipal securities that are comparable to those originally bought in quantity, quality, yield or price, and maturity.

A) I and II.
B) II and III.
C) III only.
D) I, II and III.

Answer 40

Answer: D

Requiring the seller to repurchase the securities, buy-in at the current market, and accepting from the seller other securities having equal value, are allowed procedures in effecting a close-out.

Reference: 7.3.2.5 in the License Exam Manual.

Question 41

Rule G-12
Question ID: 48966
ALFA Securities has received a close-out notice from Beta Securities, the purchaser. According to MSRB rules, which of the following would not be an adequate explanation for the nondelivery of the securities by the seller?

A) The certificates are in transfer.
B) The seller has a short position in the security and yields have been rising.
C) The seller has an offsetting fail to receive.
D) The certificates have been lost and replacements have been ordered.

Answer 41

Answer: B

All listed answers are acceptable reasons for nondelivery except, the seller has a short position in the security and yields have been rising.

Reference: 7.3.2.5 in the License Exam Manual.

Question 42

Rule G-12
Question ID: 48967
ALFA Securities, which purchased bonds from Beta Securities, telephones Beta to state that it will close out the transaction not completed by Beta. Under MSRB rules, the first point at which ALFA can buy in the position is the close of business on the:

A) 5th business day following the notice of close out.
B) 15th business day following the notice of close out.
C) 10th business day following the notice of close out.
D) next business day following the notice of close out.

Answer 42

Answer: C

MSRB rules allow a buying broker/dealer to close out a transaction after ten business days from the date notice of close out is given. However, the notice may not be given until 5 business days have elapsed after settlement, which means the earliest date a buy in can be executed is 15 business days after settlement.

Reference: 7.3.2.5 in the License Exam Manual.

Question 43

Rule G-12
Question ID: 48968
Under MSRB Rule G-12, which of the following constitutes good delivery?

A) Securities of an issue in default without all unpaid coupons.
B) Delivery of 50 Kenosha Harbor Authority general obligation bonds, 5s of 2006, when 100 bonds had been purchased.
C) Certificates identified as ex-legal at the time of the trade delivered without a legal opinion.
D) Mutilated certificates not validated by the transfer agent.

Answer 43

Answer: C

Mutilated certificates and bearer bonds delivered without all unpaid coupons attached (whether defaulted or not) are not good delivery. Partial deliveries do not have to be accepted under MSRB rules (FINRA allows partial deliveries) and are not good delivery. Normally, municipal bonds require a legal opinion to be good delivery. However, if the bonds are identified as ex-legal (coming without a legal opinion), they are good delivery.

Reference: 7.3.2.3.1 in the License Exam Manual.

Question 44

Rule G-12
Question ID: 48969
If a broker/dealer wants to effect a reclamation on municipal securities, all of the following are true EXCEPT:

A) the broker/dealer must state the date of the reclamation.
B) the broker/dealer must send a uniform reclamation form to the contra-dealer.
C) the broker/dealer must send a copy of the original delivery ticket to the contra-dealer.
D) the broker/dealer must provide a reason for the reclamation.

Answer 44

Answer: B

To effect a reclamation, a broker/dealer must send written notice to the originating broker/dealer along with a copy of the delivery ticket. The notice includes the reason for and date of the rejection. Uniform reclamation forms are used only under FINRA’s Uniform Practice Code and municipal securities are exempt from this code.

Reference: 7.3.2.4 in the License Exam Manual.

Question 45

Rule G-12
Question ID: 48970
Under MSRB Rule G-12, reclamation may be made without time limit if the security delivered is:

I. reported as counterfeit.
II. reported missing.
III. reported stolen.
IV. part of an issue that has been called and is not identified as called at the time of the trade.

A) I, II, III and IV.
B) I and II.
C) I and III.
D) III and IV.

Answer 45

Answer: A

Reclamation without time limit is available for securities reported as missing, stolen, counterfeit, or if part of an issue is called and one of the called bonds is delivered.

Reference: 7.3.2.4 in the License Exam Manual.

Question 46

Rule G-12
Question ID: 48971
Under MSRB Rule G-12, reclamation shall be made within 18 months following the date of delivery because:

the wrong issue is delivered.
delivery is made to the wrong party.
the transfer agent refuses to transfer because of improper assignment.
the security delivered has been reported stolen.
A) III and IV.
B) I, II and III.
C) I and II.
D) II, III and IV.

Answer 46

Answer: B

Reclamation is permitted up to 18 months from the original delivery date if innocent errors are involved (e.g., delivery of the wrong security, delivery to the wrong broker, improper assignment). If, however, fraud or larceny is involved, as in the case of a security reported stolen, no time limit is imposed on the reclamation process.

Reference: 7.3.2.4 in the License Exam Manual.

Question 47

Rule G-12
Question ID: 48972
Under MSRB Rule G-12, reclamation shall be made within one business day following the date of delivery if:

I. a coupon is missing.
II. the legal opinion is missing.
III. the certificate is counterfeit.
IV. the certificate is mutilated.

A) I and II.
B) III and IV.
C) I, II, III and IV.
D) I, II and IV.

Answer 47

Answer: D

Reclamation must be made on the next business day if a coupon is missing, if a legal opinion is missing, or if a certificate is mutilated. There is no time limit for reclamation if the certificate is counterfeit.

Reference: 7.3.2.4 in the License Exam Manual.

Question 48

Rule G-12
Question ID: 48973
Under MSRB Rule G-12, reclamation may be made without time limitation under all of the following circumstances EXCEPT if the security delivered was:

A) missing a coupon.
B) reported stolen.
C) part of an issue, only part of which was called, and the security was not identified as called at the time of the trade.
D) counterfeit.

Answer 48

Answer: A

If a coupon bond is delivered with a coupon missing, reclamation must be made within one business day. Reclamation without time limit is allowed for securities reported as missing, stolen, counterfeit, and for called securities delivered when only a partial call has been made.

Reference: 7.3.2.4 in the License Exam Manual.

Question 49

Rule G-12
Question ID: 49041
If a municipal securities dealer receives a confirmation of a dealer transaction that it does not recognize, it must:

A) send a written notice to the confirming party indicating that it does not recognize the transaction.
B) check its own records to see whether the trade occurred.
C) notify the other party that the transaction is cancelled.
D) ask the confirming party to check its records to see whether the trade occurred.

Answer 49

Answer: B

The first step a dealer takes when it receives a confirmation of a transaction it does not recognize is to try to determine if the trade occurred. If, after checking, it still cannot confirm that a trade occurred, the dealer must immediately telephone the confirming dealer with this information and send written notice of nonrecognition to the confirming dealer within one business day.

Reference: 7.3.2.2 in the License Exam Manual.

Question 50

Rule G-12
Question ID: 49043
If a municipal dealer receives a mutilated bond that is properly endorsed and has a legal opinion, which of the following statements is TRUE?

A) To be good delivery, the bond must be validated by the transfer agent.
B) It is automatically considered to be good delivery.
C) Mutilated bonds may not be accepted under any circumstances.
D) To be good delivery, the bond must be authenticated by the MSRB.

Answer 50

Answer: A

For MSRB purposes, good delivery of a mutilated bond means that the bond has an attached and signed bond power, an attached legal opinion, and is authenticated by the transfer agent or the issuer.

Reference: 7.3.2.3.2 in the License Exam Manual.

Question 51

Rule G-12
Question ID: 49044
If securities are delivered and accepted with coupons missing, then reclamation:

A) must be made within one business day following the date of delivery.
B) must be made within 18 months following the date of delivery.
C) must be made within three business days following the purchaser’s receipt of the notice of dishonor.
D) may be made at any time after the date of delivery.

Answer 51

Answer: A

If coupons are missing, the buyer must demand reclamation within one business day following the date of delivery.

Reference: 7.3.2.4 in the License Exam Manual.

Question 52

ule G-12
Question ID: 49045
Reclamation of securities delivered that have been reported as stolen must occur:

A) within 18 months following the date of delivery.
B) within one business day following the date of delivery.
C) within three business days following the purchaser’s receipt of the notice of dishonor.
D) at any time following the date of delivery.

Answer 52

Answer: D

Reclamation without time limit is allowed if the securities delivered are reported missing, stolen, or counterfeit.

Reference: 7.3.2.4 in the License Exam Manual.

Question 53

Rule G-12
Question ID: 49075
A municipal dealer buys $2 million par value of bonds from an institution and 1 day before settlement, the issuer publishes a notice of call affecting the entire issue. Which of the following statements is TRUE?

A) The transaction must be submitted to arbitration.
B) The dealer has the option of accepting or rejecting delivery.
C) The transaction is subject to reclamation.
D) The transaction constitutes good delivery and must be completed.

Answer 53

Answer: D

In this situation, the notice of an in-whole call was not made until after trade date. When the trade was effected, the bonds had not been called, so no disclosure could have been made. The seller has no choice but to deliver a called bond.

Reference: 7.3.2.4 in the License Exam Manual.

Question 54

Rule G-12
Question ID: 49077
A written notice of reclamation will include all of the following information EXCEPT:

A) description of the securities.
B) reason for the reclamation.
C) par value of the securities.
D) price of the securities.

Answer 54

Answer: D

The price or yield of a trade is not relevant in a reclamation.

Reference: 7.3.2.4 in the License Exam Manual.

Question 55

Rule G-12
Question ID: 49078
Under MSRB Rule G-12, all monies due as the result of a buy-in must be paid:

A) promptly.
B) within 2 business days of the execution date.
C) within 5 business days of the execution date.
D) within 10 business days of the execution date.

Answer 55

Answer: D

Any monies due must be paid to the contra dealer no later than ten business days of receipt of the written notice of the claim.

Reference: 7.3.2.5 in the License Exam Manual.

Question 56

Rule G-12
Question ID: 49079
Under the closeout rules of G-12, if a seller makes good delivery and it is rejected by the purchaser, the seller can give telephone notice no earlier than:

A) SD+5.
B) SD.
C) SD+1.
D) SD+2.

Answer 56

Answer: A

If a good delivery is rejected, the seller can give telephone notice of intent to close out (sell out) no earlier than five business days after settlement date (SD). The intended date of the sellout specified in the phone call can be no earlier than the business day following the call.

Reference: 7.3.2.5 in the License Exam Manual.

Question 57

Rule G-12
Question ID: 49080
If confirmations between dealers do not compare due to a small money difference, the seller’s price prevails and the trade settles as scheduled. Under MSRB rules, the parties must reconcile the difference:

A) within two business days of settlement.
B) within five business days of settlement.
C) within ten business days of settlement.
D) before settlement.

Answer 57

Answer: C

Under Rule G-12, the difference must be reconciled within ten business days of settlement.

Reference: 7.3.2.4 in the License Exam Manual.

Question 58

Rule G-12
Question ID: 49081
Under the Uniform Practice Rules of the MSRB, in which of the following situations is reclamation permitted?

A) There is a disagreement as to price.
B) There is a small money difference.
C) The bonds default between trade date and settlement date.
D) A coupon is discovered to be mutilated.

Answer 58

Answer: D

Reclamation is permitted within one business day for missing coupons, mutilated securities or coupons, missing legal opinions, or missing proof of insurance, if applicable. Price disagreements are not subject to reclamation. If there is a small money difference, the seller’s price prevails. If securities default after trade date, the buyer takes the loss. Reclamation does not protect dealers from market risk.

Reference: 7.3.2.4 in the License Exam Manual.

Question 59

Rule G-12
Question ID: 49083
To satisfy a $400,000 trade of registered general obligation bonds, which of the following would be good delivery?

A) One certificate at $400,000.
B) Two certificate at $200,000 and four certificates at $50,000.
C) One certificate at $100,000 and six certificates at $50,000.
D) Two certificates at $200,000 each.

Answer 59

Answer: C

Under Uniform Practice rules, registered bonds may be delivered in $1,000 denominations or multiples up to a maximum denomination of $100,000 per bond.

Reference: 7.3.2.3 in the License Exam Manual

Question 60

Rule G-12
Question ID: 49084
If a dealer executes an open market buy-in at a price different from the contract price, which of the following are TRUE?

I. Loss is borne by the selling dealer.
II. Loss is borne by the purchasing dealer.
III. Gain is credited to the selling dealer.
IV. Gain is credited to the purchasing dealer.

A) I and IV.
B) II and III.
C) II and IV.
D) I and III.

Answer 60

Answer: D

Any loss as the result of a buy-in plus the accrued interest differential is payable to the purchasing dealer (i.e., it is borne by the seller). However, any gain is credited to the selling dealer (less the accrued interest differential).

Reference: 7.3.2.5 in the License Exam Manual.

Question 61

MSRB G-Rules
Question ID: 48571
Under MSRB Rule G-37, restrictions on municipal securities business due to political contributions include which of the following?

I. Competitive offerings.
II. Negotiated offerings.
III. Financial advisory work.

A) I, II and III.
B) II and III.
C) I and II.
D) I and III.

Answer 61

Answer: B

MSRB Rule G-37 deals with negotiated offerings and financial advisory work. The rule prohibits municipal firms from engaging in municipal securities business with an issuer for two years after any political contribution is made to an official of that issuer by the firm. It does not affect competitive offerings in which a firm is chosen as an underwriter based on lowest net interest cost.

Reference: 7.4.2.10 in the License Exam Manual.

Question 62

MSRB G-Rules
Question ID: 48705
Under MSRB Rule G-34, who is responsible for obtaining a CUSIP number for a new issue of municipal bonds?

A) MSRB.
B) SIC.
C) Underwriter.
D) Issuer.

Answer 62

Answer: C

MSRB rules require an underwriter (syndicate manager) to obtain CUSIP numbers for a new issue of municipal securities.

Reference: 7.4.2.9 in the License Exam Manual

Question 63

MSRB G-Rules
Question ID: 48759
Under MSRB rules, which of the following statements regarding underwritings are TRUE?

I. The spread must be disclosed on all competitive bid offerings.
II. The spread must be disclosed on all negotiated offerings.
IOII. Good faith deposits must be returned to syndicate members within 2 business days following settlement with the issuer.
IV. If the syndicate loses its bid, good faith deposits must be returned to syndicate members within two business days after the deposit is returned.

A) II and IV.
B) III and IV.
C) II, III and IV.
D) I and III.

Answer 63

Answer: C

In negotiated underwritings, the spread must be disclosed because potential conflicts of interest when the issuer works with only the underwriting firm to determine the underwriting agreement. Disclosure of the spread is not required in competitive offerings.

Reference: 7.4.2.8 in the License Exam Manual.

Question 64

MSRB G-Rules
Question ID: 48805
Under MSRB rules, which of the following information must be disclosed on customer confirmations?

I. Whether the security is a limited-tax general obligation bond.
II. The names of any persons, in addition to the issuer, who may be obligated with respect to debt service.
III. The taxable equivalent yield.
IV. Time of execution or a statement that it will be furnished on written request.

A) II, III and IV.
B) I, II and IV.
C) I and III.
D) II and III.

Answer 64

Answer: B

Unique tax features of municipal bonds must always be disclosed on the customer confirmation. The customer must also receive disclosure that the time of the trade is available on request and must be informed of any parties, other than the issuer, obligated for debt service. The tax equivalent yield computation is not required.

Reference: 7.4.2.4 in the License Exam Manual.

Question 65

MSRB G-Rules
Question ID: 49046
Under MSRB Rule G-37 regulating monetary contributions to political campaigns, municipal securities business includes:

competitive offerings.
negotiated offerings.
financial advisory work.
A) II and III.
B) I only.
C) I and III.
D) I, II and III.

Answer 65

Answer: A

MSRB Rule G-37 deals with negotiated offerings and financial advisory work. The rule prohibits municipal firms from engaging in municipal securities business with an issuer for two years after any political contribution is made to an official of that issuer by the firm or any of its associated persons. The rule does not impact competitive offerings where a firm is chosen as an underwriter based on lowest net interest cost.

Reference: 7.4.2.10 in the License Exam Manual.

Question 66

MSRB G-Rules
Question ID: 49047
If an associated person makes a political contribution to an issuer official that results in a prohibition, that firm may not engage in municipal securities business with that issuer for how many years following the contribution date?

A) Three years.
B) Five years.
C) Two years.
D) One year.

Answer 66

Answer: C

MSRB Rule G-37 imposes a 2-year prohibition on municipal business with an issuer if political contributions to an official of that issuer are made by a member firm.

Reference: 7.4.2.10 in the License Exam Manual.

Question 67

MSRB G-Rules
Question ID: 49048
Under MSRB rules, Form G-37 must be sent to the Board:

A) semiannually.
B) annually.
C) quarterly.
D) monthly.

Answer 67

Answer: C

Form G-37, which deals with information on political contributions made by dealers and their associated persons, must be filed quarterly.

Reference: 7.4.2.10 in the License Exam Manual.

Question 68

MSRB G-Rules
Question ID: 49076
Under MSRB Rule G-15, a confirmation must be sent or given to a customer in a DVP transaction on:

A) T.
B) T+1.
C) T+2.
D) S.

Answer 68

Answer: A

For DVP trades, a confirmation must be sent or given on trade date. This differs from the normal requirement to provide a confirmation at or before completion of the transaction.

Reference: 7.4.2.4 in the License Exam Manual.

Question 69

MSRB G-Rules
Question ID: 49090
MSRB Rule G-37 applies to political contributions made by which of the following groups?

A) All of these.
B) MFPs.
C) Municipal dealers.
D) Firm-controlled political action committees.

Answer 69

Answer: A

Rule G-37 applies to contributions made by MFPs, municipal dealers, and political action committees controlled by municipal dealers.

Reference: 7.4.2.10 in the License Exam Manual.

Question 70

MSRB G-Rules
Question ID: 49113
A customer buys a 4% GO bond on a 3.60 basis. The bond matures in eight years and is callable as follows:

10-01-07 at 103;
10-01-08 at 102;
10-01-09 at 101; and
at par beginning on 10-01-10.

Under MSRB rules, the yield on the customer’s confirmation should be computed to:

A) the 101 call price and date.
B) the 103 call price and date.
C) maturity.
D) the 102 call price and date.

Answer 70

Answer: B

With callable municipal bonds, the MSRB requires that a customer’s confirmation show the lower of YTM or YTC. As this bond is sold at a premium (basis is lower than the coupon), YTC is lower than YTM. When there are multiple call dates and prices, yield should be computed to the near-term in-whole call date and price.

Reference: 7.4.2.4 in the License Exam Manual.

Question 71

MSRB G-Rules
Question ID: 49181
Under MSRB rules, an account transfer must be completed within:

A) four business days of validation.
B) three business days of validation.
C) five business days of validation.
D) ten business days of validation.

Answer 71

Answer: A

Under MSRB rules, a firm has three business days to verify (validate) the positions in the account and another four business days after verification to effect the transfer.

Reference: 7.4.2.7 in the License Exam Manual.

Question 72

MSRB G-Rules
Question ID: 49193
A customer holding a municipal bond desires to trade that security in amounts below the minimum. This is acceptable if:

A) the municipal securities are short-term notes only.
B) the municipal securities are advance refunded.
C) the customer’s position was previously established as below the minimum and he wishes to liquidate the entire position with this single transaction.
D) the practice of trading municipal securities below the established minimum is not permissible.

Answer 72

Answer: C

If a broker/dealer determines that a customer’s position in the issue is already below the minimum denomination and that the entire position would be liquidated by the transaction, trading below minimum is acceptable.

Reference: 7.4.2.4.3 in the License Exam Manual.

Question 73

MSRB G-Rules
Question ID: 49194
In selling municipal securities to a customer that are below the minimum denomination, the broker/dealer must:

A) inform the customer that the quantity of securities being sold is below the minimum denomination for the issue and that this may adversely affect the liquidity of the position.
B) send an official statement to the customer highlighting the risks of this practice.
C) inform the customer that this practice is acceptable only if the customer has other securities that may be combined with those being sold to meet the minimum denomination.
D) ascertain whether the customer is below the income threshold permitting the purchase of municipal securities below the minimum denomination.

Answer 73

Answer: A

Customers must be made aware of the liquidity risk in purchasing below the minimum unless the customer has other securities from the issue that can be combined to reach the minimum denomination at or before the completion of the transaction.

Reference: 7.4.2.4.4 in the License Exam Manual.

Question 74

MSRB G-Rules
Question ID: 49195
If a broker/dealer receives an official communication to beneficial owners applicable to an issue of municipal securities being held in safekeeping along with a request to forward the communication to the owners, the broker/dealer is required to:

A) promptly retransmit official communication only if payment is included with the request.
B) make a reasonable effort to promptly retransmit the official communication to the parties for whom it is safekeeping the issue only if CUSIP numbers are provided.
C) post the official communication on an approved internet website and mail electronically, by first-class mail, or any other equally prompt means, the availability of the communication and that a paper copy may be made available upon request.
D) make an effort to retransmit the official communication; however, the broker/dealer is not in violation of any rule if it has done all it reasonably can to forward the communication.

Answer 74

Answer: D

If a broker/dealer receives an official communication to beneficial owners applicable to an issue of municipal securities that the broker/dealer has in safekeeping along with a request to forward the official communication to the applicable beneficial owners, the broker/dealer may use reasonable efforts to promptly retransmit the official communication to the parties for whom it is safekeeping the issue.

Reference: 7.4.2.4.5 in the License Exam Manual.

Question 75

MSRB G-Rules
Question ID: 49196
All of the following statements about official communication are true EXCEPT:

A) a broker/dealer is not required to send official communications to persons outside of the United States, although broker/dealers may voluntarily do so.
B) a broker/dealer may send official communications to the investment adviser for a beneficial owner, rather than to the beneficial owner, when the broker/dealer has on file a written authorization to do so.
C) a broker/dealer is required to provide duplication services for official communications if sufficient copies of official communications are not received.
D) in lieu of retransmitting official communications to beneficial owners who have indicated in writing that they do not object to the disclosure of their names and security positions, a broker/dealer may instead promptly provide a list of nonobjecting beneficial owners and their addresses.

Answer 75

Answer: C

A broker/dealer should promptly request, from the party requesting the forwarding of the official communication, the correct number of copies of the official communication. There is no requirement to provide copying services.

Reference: 7.4.2.4.5 in the License Exam Manual.

Question 76

MSRB G-Rules
Question ID: 49197
In addition to the normal interdealer trade reporting requirements submitted to the NSCC, Rule G-14 requires all of the following information EXCEPT:

A) transaction fees.
B) time of trade.
C) sell and buy side Executing Broker Symbols (EBSs).
D) agent or principal.

Answer 76

Answer: A

MSRB trade reporting requirements under Rule G-14 require that firms transmit the same trade record used by the NSCC for clearing purposes and also include the time of trade, sell and buy side Executing Broker Symbols (EBSs), and the type of trade, agency, or principal. The amount of commissions, markups and markdowns, or transactions fees is not a G- 14 reporting requirement.

Reference: 7.4.2.2 in the License Exam Manual.