Testimonial Tuesday: March 25, 2014 Edition

It appears you hit the nail on the head with the new exam prep for the Series 52. I passed on the first attempt. Continue reading


“It appears you hit the nail on the head with the new exam prep for the Series 52. I passed on the first attempt.”
-Michael Earl, Vienna, WV

Read more reviews here: Solomon Exam Prep Reviews

Solomon’s Online Exam Simulator

Check out a video overview of Solomon Exam Prep’s industry leading Online Exam Simulator. Continue reading

This is a video overview of Solomon Exam Prep’s industry leading Online Exam Simulator.

The Solomon Online Exam Simulator is an essential tool in studying for your FINRA, NASAA, or MSRB exam. Solomon Exam Simulators are updated on a daily basis and contain 1,000’s of high quality practice exam questions with detailed rationales.

To order exam prep materials please head to our main website http://solomonexamprep.com or give us a call at 503.601.0212.

Solomon Exam Prep Launches “Series 52 MSRB Municipal Securities Representative Qualification Exam” Study Program

Solomon Exam Prep is excited to announce the launch of the Solomon Exam Prep study program for the Municipal Securities Rulemaking Board’s Series 52 Municipal Securities Representative Qualification Exam. Continue reading

Solomon Exam Prep is excited to announce the launch of the Solomon Exam Prep study program for the Municipal Securities Rulemaking Board’s Series 52 Municipal Securities Representative Qualification Exam (https://solomonexamprep.com/series52/). Series 52 Exam Study Guide

Individuals who pass the Series 52 exam qualify to be a Municipal Securities Representative and may work in multiple capacities relating to municipal securities, including underwriting, sales, trading, advising, and consulting with issuers, research, investment advising, and communicating with public investors about municipal securities, including US government and agency securities.

Since November 7, 2011 when FINRA revamped the Series 7 General Securities Representative Examination by de-emphasizing non-sales activities and by reducing the number of municipal securities questions, in the context of municipal securities passing the Series 7 only qualifies a registered person to be involved in the purchase and sale of municipal securities to customers, a qualification called the Municipal Securities Sales Limited Representative. However, anyone who passed the Series 7 before November 7, 2011 is grandfathered into the Municipal Securities Representative category provided the individual has kept their Series 7 license current.

For representatives whose activities are limited solely to municipal fund securities (i.e. 529 College Savings Plans and Local Government Investment Pools), the MSRB says those who pass the Series 6 exam are a “Municipal Securities Representative qualified by virtue of being a Limited Representative – Investment Company and Variable Contracts Products.”

The Series 52 is a pre-requisite exam for the Series 53 Municipal Securities Principal Exam.

The Municipal Securities Representative Qualification Exam is written by the MSRB but it is administered by FINRA who charges $180 for the pleasure of taking the Series 52. The exam contains 115 questions, each worth 1 point. The individual is given 3 and one-half hours to complete the exam, and a minimum score of 70% is needed to pass.

The exam is broken down in to 4 distinct topic areas which are weighted differently:

Municipal Securities – 57%

U.S. Government, Federal Agency and Other Financial Instruments – 4%

Economic Activity, Government Policy and the Behavior of Interest Rates – 13%

Federal Legal Considerations – 26%

For more information and a complete break-down of the topics in the exam, visit http://www.msrb.org/Rules-and-Interpretations/Professional-Qualification.aspx

Exam Alert: MSRB Prohibits Municipal Dealers from Consenting to Changes to Authorizing Documents

Effective February 3, 2014, the Municipal Securities Rulemaking Board (MSRB) will amend one of its rules to help protect municipal bond investors from unexpected changes in bond authorizing documents. The amendments prohibit broker-dealers from agreeing to changes to authorizing documents when acting as an underwriter or remarketing agent, or acting as an agent for bondholders. Continue reading

Effective February 3, 2014, the Municipal Securities Rulemaking Board (MSRB) will amend one of its rules to help protect municipal bond investors from unexpected changes in bond authorizing documents. The amendments prohibit broker-dealers from agreeing to changes to authorizing documents when acting as an underwriter or remarketing agent, or acting as an agent for bondholders.

The rule allows for exceptions in certain situations. These situations include:

    • the authorizing document explicitly permits an underwriter to provide bond owner consent, and this was disclosed in the offering documents;
    • the broker-dealer owns the securities outside of its capacity as an underwriter or remarketing agent;
    • the securities are held by the remarketing agent due to a mandatory tender of the securities;
    • the bond owners have provided written consent; or
    • the underwriter provides consent on behalf of prospective purchasers, if the changes will not become effective until all current bondholders have provided consent.

The “authorizing document” refers to the trust indenture, resolution, ordinance, or other document under which the securities are issued.

Source: MSRB Enhances Protections for Investors Against Unexpected Changes to Bond Authorizing Documents

This alert applies to the Series 7, Series 52, and Series 53.

Exam Alert: MSRB requires BDs to report contractual price of inter-dealer transactions

Effective November 5, 2012, broker-dealers must report the contractual dollar price of inter-dealer transactions in municipal securities. Continue reading

Effective November 5, 2012, broker-dealers must report the contractual dollar price of inter-dealer transactions in municipal securities.  This information is reported in addition to the information currently reported for such transactions, which includes final money, par amount, and accrued interest.  The information is submitted to the Depository Trust and Clearing Corporation’s Real-Time Trade Matching System.  Note that these reporting requirements are different from those for customer trades – for customer trades, the broker-dealer must report a dollar price and yield.

This change was put in place to address situations where the MSRB Real-Time Transaction Reporting System would calculate incorrect dollar prices for trades of bonds with nonstandard par values.

This change had been announced previously, but the effective date had not yet been set.

Source: Reminder of Upcoming Changes to MSRB Transaction Reporting Requirements

This alert applies to the Series 7.

Exam Alert: MSRB requires price or yield information to accompany “NRO” designations

Effective November 1, 2012, the MSRB will prohibit broker-dealers from using the designation “not reoffered” or “NRO” in written communications about new issues of municipal securities, unless the broker-dealers include price or yield information on the securities. Continue reading

Effective November 1, 2012, the MSRB will prohibit broker-dealers from using the designation “not reoffered” or “NRO” in written communications about new issues of municipal securities, unless the broker-dealers include price or yield information on the securities.  This rule applies to any written communication sent at or after the time a municipal issuer accepts an underwriter’s terms for a new issue.

The designation “NRO” or “not reoffered” means that certain maturities of a new issue of municipal securities are not available to be reoffered to potential investors.  This occurs when the maturities are fully subscribed for or sold prior to the general reoffering of the issue.

Sources:

MSRB Receives Approval to Improve Price Transparency for “Not Reoffered” Municipal Securities

Glossary of Municipal Securities Terms

This alert applies to the Series 7.

Exam alert: SEC issues risk alert on “Pay-to-Play” practices

On August 31, 2012, the SEC issued a risk alert regarding compliance with MSRB rules. Specifically, the alert looks at failures to comply with Rule G-37, which prohibits a firm from doing business with a municipal issuer if a municipal finance professional of the firm donated money to an official of that issuer within the past two years. Continue reading

On August 31, 2012, the SEC issued a risk alert regarding compliance with MSRB rules.  Specifically, the alert looks at failures to comply with Rule G-37, which prohibits a firm from doing business with a municipal issuer if a municipal finance professional of the firm donated money to an official of that issuer within the past two years.  The alert expresses concerns about violations of the ban, as well as inadequate supervision, failure to file forms, and recordkeeping violations.

The alert identifies good practices implemented by brokers to ensure compliance with the rule.  These practices include training programs for municipal finance professionals, self-certification of compliance with the rule, surveillance of unreported political contributions, and restriction on political contributions (when permitted by state or local law).

Source: SEC Issues Risk Alert on “Pay-to-Play” Prohibitions Under MSRB Rules (SEC Release 2012-173)

This alert applies to the Series 24, Series 7, and Series 99.

Exam Alert: MSRB provides guidance on required disclosures and fair practices for municipal underwriters

The MSRB on July 18, 2012, released guidance regarding an interpretive notice on the application of Rule G-17. The interpretive notice takes effect on August 2, 2012. The guidance comes in the form of “practical considerations” provided by the MSRB to help explain and clarify certain provisions of the notice. Continue reading

The MSRB on July 18, 2012, released guidance regarding an interpretive notice on the application of Rule G-17.  The interpretive notice takes effect on August 2, 2012.  The guidance comes in the form of “practical considerations” provided by the MSRB to help explain and clarify certain provisions of the notice.

 

The MSRB guidance organizes the guidance into categories, and within each of these categories gives a number of “statements of principle” that reflect key policies from Rule G-17.  Then for each of these statements, the MSRB provides applicable information from the interpretive notice (if any), along with the “practical considerations.”  Since the “practical considerations” are new, but also require context, this alert will focus on them, organized by associated “statement of principle.”  For insight into changes caused by the interpretive notice, see this prior exam alert or the MSRB guidance.  Categories are italicized below, summarized statements of principle are underlined.

 

Statements and Representations

An underwriter must not misrepresent material information.

-Underwriters must have a reasonable basis for any assumptions underlying provided information.

-The less certain an underwriter is of its underlying assumptions, the more important it is to disclose its uncertainty.

-A request for proposal is subject to the rule, and “should not be treated as merely a sales pitch.”

-If an underwriter would be uncomfortable with an issuer relying on provided information, the underwriter should either refrain from providing the information or provide additional disclosures as to the reliability of the information.

-Underwriters must clearly distinguish opinion from fact.

An underwriter in a negotiated underwriting must not recommend against using a municipal adviser.

-An underwriter may not imply that the underwriter can provide that same services as a municipal adviser.

 

Fairness of Financial Aspects of an Underwriting

The underwriter’s compensation must be reasonable.

The price the underwriter pays to the issuer must be fair.

Profit-sharing arrangements with investors that purchase IPO shares may not be allowed, particularly if the investor resells the shares shortly after they purchase them.

-An arrangement can be inferred to exist based on a pattern of transactions, even without a written agreement.

-An underwriter should consider whether any such arrangement would result in an unfair price for the issuer.

An underwriter should not seek to be reimbursed for lavish expenditures made for the personal benefit of issuer personnel.

 

Required Disclosures to Issuers

An underwriter in a negotiated underwriting must disclose information about its role to the issuer.

-If the underwriter is operating in agency capacity (by working as a placement agent) rather than principal capacity, the underwriter does not need to state that the underwriter’s financial interests are independent of the issuer’s.

-If the underwriter is operating in agency capacity rather than principal capacity, the underwriter does not need to state that the underwriter lacks a fiduciary duty to the issuer.

-In offerings with no official statements, the underwriter does not need to disclose a duty to review the official statement.

An underwriter in a negotiated underwriting must disclose its actual and potential material conflicts of interest.

-An underwriter in a negotiated underwriting must disclose payments, values, credits, and other material conflicts of interest regardless of the complexity of the issue.

-Payments to third parties only need to be disclosed when they would cause a conflict of interest; routine business payments would not generally trigger the requirement.

-An underwriter should focus on giving a complete picture of conflicts of interest, rather than trying to organize their disclosure based on the categories provided by the notice.

If an underwriter in a negotiated underwriting recommends a complex form of financing to the issuer, the underwriter must disclose the material characteristics and risks of the financing.

-Not all negotiated underwritings involve a recommendation by the underwriter (i.e. when the issuer or a financial advisor has already decided on the form of financing and the underwriter merely executes the transaction).

-An underwriter must make the judgment of whether a form of financing is complex.  A relatively common financing structure or product may still be complex.

-As an issuer becomes more experienced with a complex financing structure or product, less disclosure may be necessary.  If an experienced employee of the issuer (in a relevant position) is replaced with a relatively inexperienced one, more disclosure may be necessary.

-The underwriter must tailor its disclosures to the specific issuer and the specific complex financing structure/product, rather than handing out a general form with various types of complex financing structures/products described.

-The underwriter may have a set of standardized descriptions of complex structures/products that it selects from and modifies as necessary to form the disclosure document provided to the issuer.

If an underwriter reasonably believes that an employee of the issuer is unfamiliar with a financing structure that it recommends, the underwriter must provide material information on that structure (regardless of whether a typical municipal securities professional would be familiar with the structure).

 

Manner and Timing of Providing Disclosures to Issuers

-Disclosures for a complex financing must not consist of “page after page of complex legal jargon in small print.”

-For complex financing involving a swap, the swap dealer must have reasonable basis to believe that a municipal client has an independent representative that can evaluate the transaction (including its risks, pricing, and appropriateness).

-The agreement among underwriters should designate a syndicate manager to give disclosures to the issuer (besides firm-specific conflict of interest disclosures).

-It may not always be feasible to strictly adhere to the timelines provided for disclosure.  The important thing is that the issuer is kept informed throughout the process.  The notice is not intended to cause technical violations as long as the underwriters act “in substantial compliance” with the timeframes and meet the “key objectives” for providing the disclosure.

 

Sources:

MSRB Provides Guidance to Underwriters on Implementation of New Obligations to State and Local Governments

Guidance on Implementation of Interpretive Notice Concerning the Application of MSRB Rule G-17 to Underwriters of Municipal Securities

 

This alert applies to the Series 7.

Exam Alert: MSRB establishes regulation of broker’s brokers and related dealers

Effective December 22, 2012, the MSRB will implement a new rule that imposes fairness obligations on both broker’s brokers and the dealers who interact with them. The MSRB will also put in effect related amendments and interpretive guidance. Continue reading

Effective December 22, 2012, the MSRB will implement a new rule that imposes fairness obligations on both broker’s brokers and the dealers who interact with them.  The MSRB will also put in effect related amendments and interpretive guidance.  For broker’s brokers:

-The new rule requires broker’s brokers to make a reasonable attempt to buy securities at a fair price and that requires them to sell securities at a fair price.

-The rule puts in place safeguards regarding the use of a “bid-wanted,” which is where a broker’s broker seeks out bids for a bond that a dealer wishes to sell.

-The new rule also requires broker’s brokers to establish and publicly disclose policies designed to ensure that the broker maintains their place as a market intermediary.

-Amendments to existing rules impose additional recordkeeping requirements.

 

For dealers who interact with broker’s brokers:

-The rule prohibits dealers from making “throw-away” bids (bids below the fair market value of a security) on a bid-wanted in order to shut other dealers out of the market.

-An interpretive guidance warns dealers who use broker’s brokers that the dealer retains the responsibility to ensure a fair price for their customers, and that they cannot rely on a bid-wanted to produce a fair price.

-The guidance advises against “screening” out other dealers when selling securities through a broker’s broker, unless the dealer has a legitimate reason to do so (one that is not anti-competitive).

-The guidance adds that a dealer should not assume that a customer values fast trade execution over getting a better price.

 

Source: MSRB Receives SEC Approval to Implement Measures to Strengthen Regulation of Broker’s Brokers

This alert applies to the Series 7.

Exam Alert: MSRB revises definition of sophisticated municipal market professional

Effective July 9, 2012, the MSRB will modify its definition of a sophisticated municipal market professional (SMMP), bringing an MSRB interpretive notice in line with the new FINRA suitability rule for institutional customers. Continue reading

Effective July 9, 2012, the MSRB will modify its definition of a sophisticated municipal market professional (SMMP), bringing an MSRB interpretive notice in line with the new FINRA suitability rule for institutional customers.  Specifically, the new notice will define an SMMP as an institutional customer that 1) the dealer has a reasonable basis to believe can independently evaluate investment risks and market value, and 2) affirms that it is using independent judgment when considering the dealer’s recommendations.  The revised definition permits natural persons with at least $50 million in assets to be considered institutional customers.  The revised definition eliminates a provision that requires a minimum investment of $100 million in municipal securities in order to be considered an institutional customer.

The MSRB notice also changes how Rule G-17 applies to transactions with SMMPs.  The Rule G-17 requires broker-dealers to deal fairly when engaged in municipal securities activities.  The rule has been interpreted to require a dealer to, prior to selling a security to a customer, disclose all material information known to the dealer about the security along with all material information reasonably accessible to the market from established industry sources.  Existing MSRB policy states that the requirement to disclose information from established sources is considered satisfied if the customer is an SMMP and the trade is not recommended by the dealer.  The new policy states that the requirement to disclose information from established sources is fulfilled if the customer is an SMMP, regardless of whether the trade is recommended.

Sources:

MSRB Receives SEC Approval on Revised Definition of Sophisticated Municipal Market Professional

MSRB Notice 2012-27

This alert applies to the Series 7.