Chapter 6 Practice Question Answers
- 1.Answer: D. Time of First Execution means the time the underwriter plans to execute its first transactions for the new issue. In general, Time of First Execution must be at least two business hours after all required information has been transmitted to the MSRB and DTC reporting facilities. However, the Time of First Execution may be designated on the business day following the day on which all required information has been transmitted, without regard to whether two business hours have elapsed.
- 2. Answer: A. Under MSRB Rule G-32, dealers are required to deliver a copy of the official statement to their customers of municipal securities transactions by no later than the settlement of the transaction. If an official statement is not being prepared, then the dealer must provide written notice to the customer explaining this with a copy of a preliminary official statement, if any. The underwriters’ obligation to deliver the final official statement to customers may be satisfied by submitting it to the EMMA website, as long as the underwriter advises the customer how to locate the document on EMMA and promises to deliver the official statement within one business day upon the customer’s request. An underwriter may not satisfy the delivery obligation in this way if the municipal security sold is a municipal fund security.
For a negotiated sale, the underwriter has an additional obligation to the customer. It must also disclose the underwriting spread, the amount of any fee it has received, and the initial offering price for each maturity in the offering.
- 3. Answer: C. Advance refunding is essentially a refinancing process where the issuer of refunding bonds seeks to lower its interest payments by paying off previously issued bonds with newly issued bonds. The new issues have a lower interest rate, allowing for savings to the issuer. An issuer may also advance refund existing bonds in order to be re