Chapter 6 Practice Question Answers
- 1. Answer: A. For municipal fund securities, a “sticker” is an amended portion of the official statement. A sticker must be sent through first class mail or through some other prompt means to the customer. The broker or dealer may deliver a “sticker,” or amended version, without including all portions of the official statement. But the broker or dealer must include a written statement describing which documents make up the complete official statement and a description of where the complete official document is available upon request.
- 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 customers explaining this, along 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 customers how to locate the document on EMMA and promises to deliver the official statement within one business day upon customers’ 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 customers. 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 advanc