Study Question of the Week: March 26, 2014 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, Series 51, Series 52, Series 53, and Series 99. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Study ? of the Week

Question (Relevant to the Series 7, Series 51, Series 52, Series 53, and Series 99): 

Sam, an agent, is passionate about politics. He lives in State A and works in State B. He wants to contribute money to some campaigns for public office in each state, but is also hoping to engage in municipal securities business with each state. Where can Sam make contributions?

Answers:

A. State A only

B. State B only

C. State A and State B

D. Neither State A nor State B

Correct Answer: A. State A only

Rationale: Agents are allowed to make contributions to candidates that they could vote for, up to $250 per election. Contributions to other candidates would result in bans from doing municipal securities business with the municipal issuer where the candidate is running for office.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Exam Alert: SEC Delays Compliance Date of Municipal Adviser Registration Rules, Responds to FAQs

The SEC has announced that compliance with the final municipal adviser registration rules will not be required until July 1, 2014. The SEC has also released interpretive guidance for the municipal adviser registration rules, in the form of responses to frequently asked questions. Continue reading

The SEC has announced that compliance with the final municipal adviser registration rules will not be required until July 1, 2014. This date is when the first set of advisers will be required to register under the rule.

The SEC has also released interpretive guidance for the municipal adviser registration rules, in the form of responses to frequently asked questions. The FAQs cover a wide range of topics, including the advice standard, various exemptions and exclusions, issuance of municipal securities, remarketing agent services, and more. The FAQs can be found here.

For more information on the municipal adviser registration rules, see our two prior exam alerts on the topic, here and here.

 

Sources:

SEC Release 2014-8: SEC Announces New Date for Compliance with Final Municipal Advisor Registration Rules

SEC Release 2014-7: Interpretive Guidance on Municipal Advisor Registration Rules

 

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

Exam Alert: Municipal Advisor Registration Rules Take Effect

On January 13, 2014, the SEC will put into effect new rules to require the ongoing registration of municipal advisers. A municipal adviser is defined as a person that either:

– gives advice to a municipal entity or obligated person regarding municipal securities, or

– solicits a municipal entity or obligated person.

The SEC has released a guide (http://www.sec.gov/info/smallbus/secg/muni-advisor-reg-secg.htm) on who is and is not required to register… Continue reading

On January 13, 2014, the SEC will put into effect new rules to require the ongoing registration of municipal advisers. A municipal adviser is defined as a person that either:

  • gives advice to a municipal entity or obligated person regarding municipal securities, or
  • solicits a municipal entity or obligated person.

The SEC has released a guide on who is and is not required to register – certain firms and professionals are exempt while acting in their regular capacity. The guide also specifies the filing requirements for municipal adviser registration.

See also our prior alert on this topic for additional information.

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

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: SEC Requires Municipal Advisers to Register

Effective January 13, 2014, the SEC will put into place permanent rules to require the ongoing registration of municipal advisers. A municipal adviser is defined as a person that either:

-gives advice to a municipal entity or obligated person regarding municipal securities, or

-solicits a municipal entity.

Municipal entities and their employees are not considered municipal advisers. Continue reading

Effective January 13, 2014, the SEC will put into place permanent rules to require the ongoing registration of municipal advisers. A municipal adviser is defined as a person that either:

– gives advice to a municipal entity or obligated person regarding municipal securities, or

– solicits a municipal entity.

Municipal entities and their employees are not considered municipal advisers.

An “obligated person” essentially refers to an entity that is obligated to repay some or all of the amount borrowed in a municipal securities offering. For example, a non-profit university or non-profit hospital could be an obligated person if they borrow from the proceeds a municipal securities offering and are then legally required to pay back what they borrowed.
Note that certain entities are exempt from the registration requirement if they provide advice while acting in their regular capacity. This exemption applies to underwriters, registered investment advisers, registered commodity trading advisors, attorneys, engineers, banks, accountants, and swap dealers. For more details, see the SEC release.

Source: SEC Press Release 2013-185: SEC Approves Registration Rules for Municipal Advisors
This alert applies to the Series 7 and Series 52.

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 identifies good due diligence practices for municipal securities underwriters

On March 19, 2012, the SEC staff released a risk alert that reminds firms acting as underwriters for municipal securities of their due diligence and supervisory obligations under current rules. The alert then identifies specific examples of effective due diligence practices. Continue reading

On March 19, 2012, the SEC staff released a risk alert that reminds firms acting as underwriters for municipal securities of their due diligence and supervisory obligations under current rules.  The alert then identifies specific examples of effective due diligence practices.  Practices identified include:

-Clear explanation of regulatory requirements and firms’ expectations: detailed written policies and procedures that make clear how to conduct due diligence and include relevant rules and guidance

-Commitment committees: firm-wide, senior level committees that provide an additional step of review for various underwritings

-Diligence checklists: checklists to record which due diligence steps have been taken

-Due diligence memoranda: memos prepared by public finance bankers that describe any due diligence concerns and provide a review of the final official statement

-Outlines for due diligence calls: outlines prepared by underwriters’ counsel or issuer’s counsel that address disclosure concerns identified during due diligence calls

-On-site examination activities: on-site examinations to check the issuer’s fiscal prospects

-Recordkeeping checklists: checklists to make sure records of due diligence activities are made and properly stored

Source: SEC Release 2012-48

This alert applies to the Series 7, Series 79, Series 24, and Series 62.

Exam Alert: MSRB requires underwriters of municipal securities to provide additional disclosure

Effective August 2, 2012, the Municipal Securities Rulemaking Board (MSRB) will require underwriters of municipal securities to provide additional disclosures to issuers (state and local governments) and abide by other requirements. The changes apply to negotiated underwritings, but not to competitive underwritings. Continue reading

Effective August 2, 2012, the Municipal Securities Rulemaking Board (MSRB) will require underwriters of municipal securities to provide additional disclosures to issuers (state and local governments) and abide by other requirements.  The changes apply to negotiated underwritings, but not to competitive underwritings.  An underwriter must disclose the following:

-Details regarding the underwriter’s role, including that the underwriter has different financial interests than the issuer and that the underwriter does not have a fiduciary duty to the issuer

-The conditions of the underwriter’s compensation

-Any actual or potential material conflicts of interest – the interpretive notice specifically identifies the following potential conflicts of interest: third-party payments, profit-sharing with investors, and credit default swaps

-If recommending complex municipal securities transactions/products, all associated material financial risks, characteristics, incentives, and conflicts of interest

Additional requirements are as follows:

-All representations to the issuer must be accurate, truthful, and complete, with no omission or misrepresentation of material information.

-When drafting any issuer disclosure documents, the underwriter must have a reasonable basis for any representations it makes.

-The underwriter must pay a fair and reasonable price to the issuer.

-The underwriter may not recommend that the issuer not retain a municipal advisor.

This Exam Alert applies to the Series 7 Exam.

Sources:

MSRB Notice 2012-25

MSRB Establishes New Protections for State and Local Governments that Issue Bonds