56 terms

Series 7 MSRB rules

Series 7 MSRB "g" rules.
What does MSRB stand for?
Municipal Securities Rulemaking Board
3 Categories of MSRB rules include
(1) rules that provide consistent legal definitions of terms used int he business of trading municipal securities, (2) administrative rules that cover the organization and functions of the MSRB, and (3) general rules and regulations that describe MSRB policies.
Rule G-1
A bank that has a separately identifiable dept. or division engaged in municipal securities is classified as a municipal securities dealer and must comply with MSRB regulations. Also, any firm that provides research or advisory services for municipal securities is considered a dealer and must also register.

A separately identifiable division is one under the direct supervision of an officer of the bank responsible for the day-to-day conduct of municipal securities business.
Municipal securities-related activity includes
underwriting, trading, selling municipal securities or serving as an issuer's financial adviser.
Who qualifies as a municipal securities representative
Any person who gives financial advice to municipal securities issuers or investment advice to investors. Anyone who communicates with the public about municipal securities acts as a representative.
Rule G-2 and G-3
Those who must qualify by examination include: municipal securities principals, financial and operations principals, and municipal securities representatives.

A person must pass the Municipal Securities Representative Qualification Exam (Series 52) or the General Securities Representative Exam (Series 7) to be qualified as a municipal securities representative.

A person must pass the Municipal Securities Principal Qualification Exam (Series 53) in order to become a Municipal Securities Principal.

If a person fails a qualification exam, they cannot retake the exam for 30 days. If failed 3-or-more times, a six-month wait is imposed. FINRA adopted this rule.
Who is excluded from licensing requirements by the MSRB
Any person(s) acting in clerical or ministerial capacity who:
- read approved quotes;
- provide trade reports; or
- record or enter orders.
Is there an apprenticeship period and if so how long must it last for people(s) entering the securities industry
Yes, 90-days during which they cannot engage in any municipal securities business with the public.
Who can a municipal securities apprentice conduct business with
They may conduct business with other dealers but may not receive any commissions for such transactions (they can however receive a salary)
What happens if a representative hasn't passed the appropriate exams after the 180-day window is complete
He/she must stop performing all functions of a municipal representative
Rule G-6
MSRB requires municipal broker/dealers to maintain blanket fidelity bonds as mandated by the SRO to which a broker/dealer belongs.
How large must mandated fidelity bonds be as required by the MSRB rule G-6
It is dependent upon the SRO to which you belong, and varies based on your firm's size.
Which entity does the MSRB rule G-6 not affect
Rule G-7
A municipal securities dealer must obtain and keep on file specific information about its associated persons. Most of the required information is contained on the U-4 and U-5 forms.
What are some of the required information fields contained on the U-4 and U-5 forms
employment history, disciplinary actions, residence, and other various personal data
Rule G-10
Any time a municipal securities firm receives a written complain from a customer, the firm must enter the complaint in a complaint file, indicating what action, if any, the firm has taken. It must also deliver a copy of the MSRB's Investor Brochure to that customer.
Rule G-11
During the underwriting period, a syndicate must establish a priority for allocating orders and identify conditions taht might alter the priority.
Rule G-12
This rule outlines the uniform practices, for settling transactions between municipal securities firms. These practices include: regulations regarding settlement dates, which are the same for municipal securities firms as they are for the rest of the securities industry.

This also discusses good delivery requirements.
When do cash trades settle
On the trade date
When do regular way trades settle
On the third business day after the trade date (t+3)
What is rejected security form
When a buyer does not accept delivery of a security due to "good delivery requirements"
What is reclaimed form
When a buyer accepts the delivery of a security but then finds that the bonds are not in good delivery status.
When securities do not meet good delivery requirements what happens
The seller is still required to make the sale (the trade isn't canceled)
Bearer bonds deliver in
denominations of $1,000 and $5,000
Registered bonds are delivered in
multiples of $1,000 par value, with a maximum par value on any one certificate of $100,000
What is a mutilated certificate
A security delivered in not good delivery status unless the transfer agent or some other acceptable official of the issuer validates the security.

The issuer or a commercial bank must endorse mutilated coupons for them to be considered good delivery. Coupon bonds must have all unpaid coupons attached in proper order.
Municipal securities without legal opinions are
Not considered good delivery unless it is specified on the trade date that the transaction is ex-legal.
Rule G-13
Dealers can publish quotation only for bona fide bids or offers. Nominal quotes (informational only) are permissible if identified as such. No dealer participating in a joint account may distribute a quotation indicating more than one market for that security.
Rule G-15
Confirmations of trades must be sent or given to customers at or before a transaction's completion. Each confirm must include:
- broker/dealer's name, address, and phone #
- customer's name
- detailed description of the security including the issuer, interest rate and maturity, whether it is callable etc.
- trade date and time of execution
- settlement date
- CUSIP #, if any
- yield and dollar price
- amount of accrued interest
- extended principal amount
- total dollar amount
- whether the firm acted as broker or dealer (if broker the name of the person on the other side of the trade must be given, if requested, and the dollar amount of commission earned from both parties must be disclosed)
- dated date, if it affects the interest calculation and the first interest payment date
- level of registration of the security (fully, principal only, book entry)
- whether bonds are called or pre-refunded
- any other special fact about the security traded (e.g., escrowed to maturity, ex-legal trade, federally taxable, or odd denominations)
Rule G-16
Each municipal broker/dealer must be examined at least once every two calendar years to ensure that the firm is in compliance with MSRB regulations, SEC rules, and the Securities & Exchange Act of 1934.
Who examines the securities firms as-per MSRB regulations and why
The appropriate enforcement agency (e.g., FINRA, FDIC, Comptroller of the Currency, or FRB) because the MSRB does not enforce its own rules.
Rule G-17
Municipal securities dealers must deal fairly with everyone in transacting municipal securities business and must not engage in deceptive, dishonest, unfair, or manipulative practices.
Rule G-18
Dealers must try to obtain prices for customers that are reasonable and fairly related to the market. This rule also applies to broker's brokers, which regularly effect trades for the accounts of other municipal brokers and dealers.
Rule G-19
A municipal securities firm, through its representatives, must obtain extensive financial, personal, and investment information about a client to ensure suitable recommendations and transactions. A representative must have reasonable grounds when making recommendations based on this information.

A broker/dealer cannot make recommendations on municipal securities to a client if it hasn't obtained the customer's financial information, tax status, and investment objectives, even if the broker/dealer has reasonable grounds to believer that the recommendation is suitable for the customer.
Rule G-20
Municipal securities dealers cannot give gifts valued at more than $100 to any person in one year other than their employees.

Payments for services rendered, are allowed. Gifts of occasional meals or tickets to sporting events or concerts (not season passes) are permitted. Sponsorship of legitimate business functions is also permissible.
Rule G-21
Municipal securities firms must be truthful in their advertising. They must not publish advertisements that are false or misleading in regard to their services, skills, or products.
Who approves advertising before use and how
A firm's municipal or general securities principal must approve each advertisement before it is used in writing.
Can an advertisement of a new issue show the original reoffering price, even if it might have changed
Yes assuming the advertisement contains the sale date.
Rule G-22
Clients must be informed if a control relationship exists between a municipal firm and an issuer. A control relationship means the dealer or one of its officers is in a position to influence the issuer or is in a position to be influenced by the issuer.
What is required in order to enact a trade when a control relationship is present
Verbal disclosure is required before the trade is effected, with written disclosure following no later than at the time of the confirmation.
Rule G-23
If a firm acting in a financial advisory capacity wants to participate in the issue on which it has advised, it must get written consent form the issuer to submit a competitive bid.

For a negotiated bid, the advisory contract must be terminated in writing, and the issuer must give written consent.

The former financial adviser must tell the issuer of the possible conflict of interest and disclose to the issuer the source and anticipated amount of money received, if participating int he issue.

For a competitive bid, the advisory contract need not be terminated. The issuer, however, must consent to the underwriter's participation in writing.
Rule G-24
In the normal course of business, dealers gain access to confidential, nonpublic information about their customers. Municipal securities firms may not use this confidential information to solicit trades of municipal securities except with an issuer's express consent.
Rule G-25
Like other types of broker/dealers, municipal securities firms and their representatives may not misuse securities or money held for other people. They must not guarantee a customer against loss or share in the profits or losses of a customer's account, although joint accounts in a private capacity are allowed. Bona fide put options and repurchase agreements are not considered guarantees against loss.
Rule G-27
Each municipal securities firm must designate a principal to supervise the firm's representatives and must create and maintain a written supervisory procedures manual.

Every broker/dealer, but not bank dealers, must have a financial and operations principal (FinOp) who maintains the financial books and records.
When must the designated supervising principal for a firm approve something in writing
- the opening of new customer accounts
- every municipal securities transaction
- actions taken on customer complaints
- correspondence regarding municipal securities trades
Rule G-28
If a municipal securities dealer employee opens an accounts with another municipal securities firm, MSRB rules require the firm opening the account to notify the employer in writing and to send duplicate confirmations to the employer.

The firm opening the account must comply with any other requests the employer makes.
Rule G-29
Every municipal securities dealer's office must keep a copy of MSRB regulations so that it may provide a copy of these rules for review to any customer upon request.
Rule G-30
The markup or markdowns that municipal securities dealers charge must be fair and reasonable, taking into account all characteristics of trade such as:
- fair market value of securities at trade time
- total dollar amount of the transaction
- any special difficulty in doing the trade
- the fact that the dealer is entitled to a profit
Rule G-31
A municipal securities broker/dealer may not solicit business from an investment company on the basis of the broker/dealer's record of sales of the investment company's shares.
Rule G-32
When a new issue of municipal securities is delivered to a customer, a copy of the official statement must accompany or precede the delivery.

If in underwriting, the firm must disclose in writing to the customer the amount of the spread, the amount of any fee received if the firm acted as an agent in the sale, and the initial offering price for each maturity in the issue.
In a new municipal security offering what must be disclosed if the issue is still in underwriting (with respects to competitive and non-competitive bidding)
If in underwriting, the firm must disclose in writing to the customer the amount of the spread, the amount of any fee received if the firm acted as an agent in the sale, and the initial offering price for each maturity in the issue.

In a competitive bid the firm has no requirement to disclose the spread.
Rule G-33
Municipal securities dealers must calculate accrued interest when a municipal security trades and interest. Municipal bonds, like corporates, use a 360-day year with 30-day months.
Rule G-37
Prohibits municipal securities 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. In this context, municipal securities business refers to negotiated underwriting, not to competitive underwritings. The idea, is to limit large political contributions in return for being selected as underwriter for that issue.

Contributions of up to $250 per election are permitted by municipal finance professionals as long as these individuals are eligible to vote for the issuer official.
Rule G-39
Telemarketers calling on behalf of a firm may not call a person before 8:00am or after 9:00pm in the called person's time zone. The caller must disclose his name and the firm's name, the firm's telephone number or address, and the fact that he is calling to solicit the purchase of municipal bonds or investment services.

The requirements do not apply if the person called is an established customer. Calls made to other brokers or dealers are also exempt.
Rule G-41
Every broker, dealer, or municipal securities dealer must establish and implement an anti-money laundering compliance program reasonably designed to achieve and monitor ongoing compliance with the requirements of the Bank and Secrecy Act.
Rule G-42
Limits political contributions by advisors