Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/76

Click to flip

76 Cards in this Set

  • Front
  • Back
All of the following enforce MSRB rules EXCEPT the:
a. Comptroller of the Currency
b. FINRA
c. MSRB
d. SEC
C
The MSRB has no enforcement power. The SEC and FINRA enforce municipal regulations for broker-dealers. The Comptroller of the Currency, FRB, and FDIC enforce municipal regulations for dealer banks. The MSRB establishes its rules but has no enforcement powers. (10-10)
A broker-dealer that is an MSRB member firm sells bonds to one of its customers. If the broker-dealer is NOT a member of the syndicate, the firm is entitled to the:
a. Total takedown
b. Additional takedown
c. Syndicate expenses
d. Concession
D
A broker-dealer that is not a member of the syndicate selling part of a new issue of municipal bonds is entitled to the concession. A member of the syndicate is entitled to the additional takedown plus the concession, which is also known as the total takedown. (10-8)
Where would bid limitations for a new municipal bond issue be found?
a. Official Statement
b. Indenture
c. Notice of Sale
d. Syndicate Agreement
C
The Notice of Sale is published by the issuer. It announces the issuer's intention to sell an issue and invites securities firms to compete for the issue. All information pertaining to the bidding would be contained in the Notice of Sale. (10-2)
NOTICE OF SALE (S7) : The advertisement used by a municipal issuer announcing its intention to sell a new issue and inviting municipal underwriters to enter bids for the issue.
Who prepares the syndicate agreement for a municipal underwriting?
a. Counsel for the issuer
b. Counsel for the underwriters
c. Financial officer of the syndicate
d. Issuer
B
The underwriter's counsel is an attorney who represents the interest of the underwriters. His duties may include negotiating the underwriting agreement, reviewing the issuer's bond resolution , and reviewing the official statement. (10-3)
INVESTMENT BANKER (S7) An investment banker assists corporations in issuing new securities to the public and provides advice relating to securities transactions, mergers, and acquisitions. Also known as an underwriter.
INDENTURE (S7) : A written agreement under which bonds are issued, setting forth the maturity date, interest rate, and other terms. It is the contract executed by the issuer and trustee (who acts for the bondholders). Also known as a Deed of Trust or Bond Resolution.
A broker-dealer that is an MSRB member firm sells bonds to one of its customers. If the broker-dealer is a member of the syndicate, the firm is entitled to the:
a. Takedown less the concession
b. Additional takedown plus the management fee
c. Total takedown less the management fee
d. Total takedown
D
A member of the syndicate is entitled to the additional takedown plus the concession, which is also known as the total takedown. Only the syndicate manager is entitled to the management fee. A broker-dealer that is not a member of the syndicate selling part of a new issue of municipal bonds is entitled to the concession. (10-8)
A legal opinion issued by a municipal bond attorney will state all of the following EXCEPT:
a. Interest is exempt from federal income taxes
b. Information about maturities, coupon rates, and call features if the bond is callable
c. A statement that the bond constitutes a legal and binding debt of the issuing municipality
d. A guarantee by the bond attorney that the interest will be paid when due
D
A legal opinion will state all of the items listed except a guarantee by the bond attorney that the interest will be paid when due. (10-3)
LEGAL OPINION (S7) : The written opinion of bond counsel which attests to the fact that the municipal issue was legally authorized and issued, and to the tax status of the interest. See also: Qualified Legal Opinion; Ex-Legal.
Which of the following municipal bonds would require a feasibility study to determine the issuer's ability to pay interest when due?
a. A special tax bond
b. A general obligation bond
c. A revenue bond
d. A revenue anticipation note
C
A feasibility study is made by a qualified expert to determine if revenues of a project will be sufficient to pay interest when due. A revenue bond which is backed by the earning power of a specific project, such as tolls from bridges, tunnels, or turnpikes, would require a feasibility study by qualified experts to determine if the revenue generated will be sufficient to pay the interest on the bonds. A special tax bond is secured by a special tax, such as a gasoline tax, and would not require a feasibility study. A general obligation bond is backed by the "full faith, credit, and taxing power" of the issuing municipality and would not require a feasibility study. A revenue anticipation note (short-term security) is considered a general obligation security. (10-2)
FEASIBILITY STUDY (S7) : A study done for a proposed municipal revenue issue to determine the feasibility of the project estimating the service needs, construction costs, and future revenues and expenses.
REVENUE BOND (S7) : A bond issue that is secured by a pledge of the revenues of a specific project.
SPECIAL TAX BOND (S7) : A municipal revenue bond that is secured by a pledge of a specific, special tax. It is not a general obligation since it is limited to a specific tax source.
When setting prices for a competitive municipal bid, the underwriter will consider all of the following EXCEPT:
a. Call premiums
b. Maturity
c. Good faith deposit
d. Coupon rates
C
When presenting a bid to an issuer, the underwriter will include a check as a good faith deposit. This serves as a partial payment for the issue if the underwriter's bid is accepted. It is not a factor when calculating the bid. (10-7)
GOOD FAITH DEPOSIT (S7) : The amount of funds that accompany a syndicate's bid for a new municipal issue.
MSRB rules apply to all of the following EXCEPT:
a. Salespeople
b. Firms
c. Underwriters
d. Issuers
D
Municipal Securities Rulemaking Board (MSRB) rules apply to all of the parties listed except municipal bond issuers. The MSRB does not have the power to regulate municipal bond issuers. (10-9)
MUNICIPAL SECURITIES RULEMAKING BOARD (MSRB) (S7) : The self-regulatory organization of the municipal securities industry. Created in 1975, it has primary responsibility for development of rules and regulations to govern the activities of municipal securities dealers.
All of the following are true about a good faith deposit EXCEPT that it is:
a. Applied against payment for the issue
b. Returned to unsuccessful bidders
c. Lost if the syndicate fails to carry out the provisions of the underwriting agreement
d. Returned to the winning syndicate to cover any loss incurred in the subsequent sale of the issue
D
All of the statements are true regarding a "good faith" deposit except it is returned to the winning syndicate to cover any loss incurred in the subsequent sale of the issue. Bidding syndicates make a "good faith" deposit to indicate their sincerity. Losing syndicates will have their deposit returned. The issuer will retain the deposit of the winning syndicate to insure performance. When the bonds are sold, the deposit is deducted from the amount due from the underwriter. The "good faith" deposit usually represents 1% to 2% of the total dollar amount of the bonds being offered. (10-7)
Which two of the following are prohibited activities of an apprentice until she becomes a qualified municipal securities representative?
I. Selling municipal securities to another municipal securities dealer
II. Selling municipal securities and receiving commissions
III. Discussing the purchase and sale of municipal securities with the investing public
IV. Discussing the purchase and sale of municipal securities with broker-dealers
a. I and III
b. I and IV
c. II and III
d. II and IV
C
During the 90-day apprenticeship period, the apprentice is not permitted to discuss the purchase or sale of municipal securities with the investing public. However, the apprentice may discuss the purchase or sale of municipal securities with other municipal securities dealers. The apprentice may sell municipal securities but, again, only to other municipal securities dealers and may not receive commissions or compensation based on sales. Regular salary or bonuses are the only compensation permitted. (10-10)
Three-month and six-month Treasury bills are auctioned by the Federal Reserve Board:
a. Daily
b. Weekly
c. Monthly
d. Annually
B
Three-month and six-month Treasury bills are sold at public auctions each Monday. (10-12)
A syndicate letter used in the formation of a municipal syndicate account will contain all of the following EXCEPT:
a. The account manager
b. The member participation
c. The reoffering yields
d. The duration of the account
C
A syndicate letter is used to form a syndicate (group of underwriters) to bid on a new municipal issue. It would be sent by the syndicate manager and would include each member's participation, the type of account and its duration, the priority of orders, and the amount of thegood faith deposit. The reoffering yields would not be determined until after the syndicate was formed and was ready to submit its bid. The reoffering yields would be determined by market conditions including current supply, demand, and existing yields on similar outstanding bonds. (10-7)
SYNDICATE LETTER (S7) : An invitation to participate in an underwriting syndicate that details the rules of the syndicate.
REOFFERING (S7) : The yield at which a municipal new issue will be offered to the public based on current market conditions.
All of the following municipal bond transactions take place in the secondary market EXCEPT:
a. Submitting an offer to sell bonds to a sinking fund
b. A tax swap
c. Two municipal securities broker-dealers purchasing a block of bonds jointly
d. The placing of a designated order
D
All of the choices listed take place in the secondary market except the placing of a designated order. A designated order is an order directed to a syndicate manager by an institutional account designating two or more members of the underwriting account to receive credit for that order. This order is placed directly with the syndicate manager during the order period prior to the release of the bonds for secondary trading. (10-9)
DESIGNATED ORDER (S7) : An order given to a municipal syndicate which designates one or more members to receive credit for the sale. The order is generally from an institutional investor
A new municipal underwriting is shown as 1/8 + 1/4. What is the discount to a member?
a. $1.25
b. $2.50
c. $3.75
d. $5.00
D
In a new municipal securities offering, a member of the syndicate will receive a discount, from the public offering price, equal to the total takedown. The total takedown is broken into two parts, theconcession and the additional takedown. A member is entitled to both and would therefore receive a discount of 3/8 point ($3.75 per $1,000). A nonmember of the syndicate would buy bonds less the concession ($1.25 per $1,000). (10-8)
POINT (S7) : An incremental unit measure of value.
Stock: 1 point=$1.
Bond: 1 point=$10 (1% of Par).
Index or Average: A statistical amount not directly translatable into dollar terms.
A revenue bond's indenture will include which of the following?
I. The legal opinion
II. A rate covenant
III. The maturity feature
IV. Reoffering yields
a. I and II only
b. I and III only
c. I, II, and III only
d. I, II, III, and IV
C
A revenue bond's indenture would include the legal opinion, the rate covenant, and the maturity feature. A rate covenant is the agreement of the municipality to maintain rates that are charged to customers for the use of a facility at a sufficient level to pay debt service. Reoffering yields are not found in the indenture of the revenue bond. Reoffering yields are the rates at which the syndicate bidder will offer the bonds to the public, after buying the bonds from the municipality. (10-7, 8-12)
INDENTURE (S7) : A written agreement under which bonds are issued, setting forth the maturity date, interest rate, and other terms. It is the contract executed by the issuer and trustee (who acts for the bondholders). Also known as a Deed of Trust or Bond Resolution.
REOFFERING (S7) : The yield at which a municipal new issue will be offered to the public based on current market conditions.
All of the following would be governed by MSRB rules EXCEPT:
a. Fickleburg School District, an issuer of general obligation bonds
b. Mimi Mee, head of the municipal finance department of BigDog Brokerage
c. Eighth National Bank, which underwrites Fickleburg's GO issues
d. E-Nuff, an online broker-dealer that accepts only unsolicited orders for municipal bonds
A
The rules of the Municipal Securities Rulemaking Board apply to MSRB members and their associated persons. Members include broker-dealers and bank dealers that engage in municipal securities sales, trading, underwriting, or financial advice to issuers. MSRB rules do NOT apply to municipal issuers. (10-9)
The spread for a new municipal bond issue is as follows:
Manager's fee: 1/4
Additional Takedown: 3/8
Concession: 3/8
A syndicate member who sold $25,000 of bonds would be entitled to:
a. $62.50
b. $93.75
c. $187.50
d. $250.00
C
A member of the syndicate is entitled to receive the total takedown (concession plus additional takedown). The member would therefore receive 3/4 or $7.50 per $1,000 face value for a total of $187.50 ($7.50 x 25). (10-8)
Relative to 13-week and 26-week Treasury bills, which of the following are TRUE?
I. They are auctioned weekly.
II. They are issued at a discount.
III. Noncompetitive tenders receive the lowest price of the competitive tenders that are awarded.
IV. Noncompetitive tenders are awarded before competitive tenders.
a. I and II only
b. II and III only
c. I, II, and III only
d. I, II, III, and IV
D
13-week and 26-week T-bills are auctioned weekly and are issued (and traded) at a discount. Noncompetitive tenders are awarded first, but the price they will pay (the lowest accepted price of the competitive tenders) cannot be determined until after the competitive tenders are awarded. (10-12)
Relating to a new municipal issue, the legal opinion:
a. Insures the legality of the syndicate
b. Attests to the validity of the issue
c. Is approved by the MSRB
d. Attests to the issuer's ability to meet debt service
B
All municipal issues must have a legal opinion written by a qualified bond counsel (law firm). It will state that the interest is free from federal tax and that the issue is valid and legal. (10-3)
LEGAL OPINION (S7) : The written opinion of bond counsel which attests to the fact that the municipal issue was legally authorized and issued, and to the tax status of the interest. See also: Qualified Legal Opinion; Ex-Legal.
BOND COUNSEL (S7) : The attorney or law firm who reviews the legal documents pertaining to a municipal new issue and who writes the legal opinion. See also: Legal Opinion.
All of the following statements are TRUE regarding an official statement for a new issue of municipal securities EXCEPT:
a. Issuers do not have to make an official statement available
b. If one is prepared, an official statement must be filed with the SEC prior to the offering
c. An official statement provides purchasers of the new issue with detailed financial information about the issue
d. If an official statement is prepared, MSRB rules require that it be sent out to customers at or prior to settlement date
B
Municipal issuers are exempt from the full disclosure and prospectus requirements of the Securities Act of 1933. They cannot be required to prepare an Official Statement by the SEC, MSRB, or any other regulatory body. If one is prepared, it does not have to be filed with any regulatory body. The issuer will usually provide an official statement because the underwriting syndicate wishes to provide information to prospective investors and thereby help market the issue. (10-1)
OFFICIAL STATEMENT (S7) : A disclosure document prepared for a new municipal issue by or for the issuer. It contains a complete description of the issue and financial details about the issuer. MSRB rules require that a copy of the official statement be given to each purchaser of a new issue, if one has been prepared.
A municipal trader would do all of the following EXCEPT:
a. Request bids
b. Accept bids
c. Commit to underwritings
d. Negotiate settlement dates in the secondary market
C
A trader is not involved in underwritings of new issues. (10-2)
Relating to a secondary market municipal joint account, which of the following would not apply?
a. Order period
b. Account agreement
c. Good faith deposit
d. Takedown and concession
C
Both new issue and secondary joint accounts act according to an account agreement which will contain takedown and concession. An order period will also be used for both. Good faith deposits relate only to a new issue, since that is the amount that the syndicate gives to the issuer along with the bid. (10-7)
A 1/2 point dealer's concession in a municipal bond equals:
a. $ .05 on a $1,000 par value bond
b. $ .50 on a $1,000 par value bond
c. $5.00 on a $1,000 par value bond
d. $50.00 on a $1,000 par value bond
C
A 1/2 point dealer's concession would be the equivalent of 1/2 of 1% of the par value. This would be the dollar equivalent of $5.00 on a $1,000 par value bond. (10-8)
T-bills purchased at the weekly auction will have a settlement date on the:
a. Next business day
b. Fifth business day
c. Monday following the auction
d. Thursday following the auction
D
The auction for 13- and 26-week T-bills is held each Monday. Settlement is on Thursday of the same week. (10-12)
For a competitive offering of municipal securities, an issuer's right to reject any and all bids received will normally be contained in the:
a. Official Statement
b. Notice of Sale
c. Underwriting Agreement
d. Legal Opinion
B
The Notice of Sale for a municipal bond offering will normally contain a provision stating that the issuer retains the right to reject any and all bids if it is considered to be in its best interest to do so. This is done to protect the issuer from being obligated to accept an unsuitable bid. (10-3)
On a new municipal issue, what must be sent to a purchaser?
I. Confirmation
II. Copy of the indenture
III. Official statement
IV. List of syndicate members
a. I and III only
b. I and IV only
c. II and IV only
d. I, II, III, and IV
A
MSRB rules require that a copy of the official statement be sent to each purchaser of a new issue. A confirmation must be sent on every transaction whether on a new issue or on a secondary market trade. A copy of the indenture and a list of syndicate members do not have to be sent. (10-1, 12-30)
On a when issued municipal bond transaction, the interim confirmation would show which of the following?
a. Settlement date
b. Final money amount
c. Accrued interest amount
d. Capacity in which the broker-dealer acted
D
A bond trades when issued (WI) because a final settlement date has not been established. Without a settlement date, accrued interest cannot be calculated and therefore the final money amount cannot be calculated. The broker-dealer must disclose the capacity (principal or agent) in which it acted. (10-9)
WHEN ISSUED (WI) (S7) : The shortened form of when, as, and if issued indicating a conditional transaction in a security authorized for issuance but not as yet actually issued.
PRINCIPAL (S7)
(1) The face value or par value of a debt instrument.
(2) A transaction in which a security firm buys or sells for its own account (vs. agent). See also: Dealer.
(3) A person within a securities firm with supervisory responsibilities.
(4) In general, a person's capital or the amount invested.
AGENT (S7) : A securities firm acting on behalf of a client. The agent acts as intermediary between buyer and seller, undertaking no financial risk, and charging a commission (vs. Principal). See also: Broker.
All of the following will be found in the Official Notice of Sale EXCEPT:
a. Call provisions if any
b. The name of the bond counsel writing the legal opinion
c. The date, time, and place of sale where the bidding procedure will take place
d. The bond rating
D
All of the items listed would be found in the Official Notice of Sale except the bond ratings. (10-2)
The managing underwriter of a new municipal issue has an obligation to provide:
I. An Official Statement to all selling members
II. An Official Statement to all purchasers of the issue
III. The names of the syndicate members to all purchasers of the issue
a. I and II only
b. I and III only
c. II and III only
d. I, II, and III only
A
The managing underwriter of a new municipal issue has an obligation to provide an Official Statement to other dealers upon request and to all purchasers of the issue. The managing underwriter does not have to provide the names of the syndicate members to all purchasers of the issue. The Official Statement is a voluntary document which need not be created by the issuer. However, if created, the above rules apply. (10-1)
OFFICIAL STATEMENT (S7) : A disclosure document prepared for a new municipal issue by or for the issuer. It contains a complete description of the issue and financial details about the issuer. MSRB rules require that a copy of the official statement be given to each purchaser of a new issue, if one has been prepared.
The City of Phoenix, Arizona has published an advertisement stating that it is willing to accept bids for the sale of $20,000,000 Sewer Revenue Bonds. The advertisement is called:
a. An Official Statement
b. An indenture
c. An Official Notice of Sale
d. A tombstone ad
C
An advertisement announcing the request for bids for the sale of a municipal bond issue by a municipality is called an Official Notice of Sale. (10-2)
When a manager of a municipal underwriting syndicate determines the priority of orders to be allocated, the orders would include all of the following EXCEPT:
a. Group net
b. Designated
c. Member takedown
d. Opening purchase
D
An opening purchase is an order to establish an option position and is not related to municipals. The priority of orders in a municipal syndicate becomes important when marketing the bonds. If the offering is oversubscribed, low priority orders may not get filled. The typical priority of orders from the highest to the lowest is as follows:
1. Pre-sale
2. Group net
3. Designated
4. Member takedown
(10-9)
Rules and terms concerning the bidding procedure of a new municipal bond coming out on a competitive basis would be found in the:
a. Official Statement
b. Official Notice of Sale
c. Preliminary Prospectus
d. Agreement Among Underwriters
B
Prospective underwriters could find out about the bidding procedures for a municipal bond in the Official Notice of Sale. When a municipality wants to solicit bids on a competitive bidding basis, it will publish (usually in the Daily Bond Buyer) the Official Notice of Sale. Usually, general obligation bonds are sold on a competitive basis. (10-2)
Which of the following municipal issues would most likely be brought to market as a negotiated issue?
a. General Obligation Bond
b. Special Tax Bond
c. School District Bond
d. Industrial Development Revenue Bond
B
Revenue issues are generally brought to market as negotiated issues. (10-2)
Where would a listing of the allocation of bonds for a new municipal issue be found?
a. Notice of Sale
b. Underwriting Agreement
c. Account Summary Report
d. Official Statement
C
After the sale of a new issue, the syndicate manager must distribute a summary of the account to the members of the syndicate. This summary statement will include the allocation of bonds. (10-11)
The manager of a new issue municipal syndicate wants to allocate securities in a different manner than specified in the syndicate agreement. He may do this if he:
a. Notifies the SEC
b. Amends the syndicate agreement
c. Is prepared to justify the change to the syndicate members
d. Assumes any losses incurred by the syndicate members
C
The syndicate manager is permitted to change the priority of orders if in his opinion it is in the syndicate's best interest. He must be able to justify the change to the syndicate members. (10-9)
A syndicate manager in the sale of a new municipal bond issue would normally allocate bonds in which of the following orders of priority?
I. Member orders
II. Orders for the benefit of the syndicate account
III. Designated orders
a. I, II, and III
b. III, II, and I
c. II, III, and I
d. III, I, and II
C
Orders for bonds are usually allocated in the following order of priorities:
1. Pre-sale orders
2. Syndicate (group account) net, which are orders at a net price for the members of the account on a pro-rata basis
3. Designated orders
4. Member orders
In this question, pre-sale orders, which is the first priority, is not mentioned. The next priority would be orders for the benefit of the account (syndicate), designated orders, and individual member orders. (10-9)
PRE-SALE ORDER (S7) : An order placed for a municipal new issue with a syndicate prior to the time the syndicate actually wins the issue. This type of order is usually given the highest priority by the syndicate.
Which of the following new bond issues would most likely be purchased through competitive bidding?
a. Corporate bonds
b. General obligation bonds
c. High yield bonds
d. Revenue bonds
B
Of the choices given, the issue that would most likely be purchased through competitive bidding would be general obligation bonds. This is usually the method by which most general obligation bonds are sold. Corporate and revenue bonds are usually sold on a negotiated basis and income bonds are usually issued when a corporation that is in bankruptcy is being reorganized. (10-2)
The MSRB does all of the following EXCEPT:
a. Regulate municipal securities dealers
b. Regulate municipal securities salesmen
c. Regulate municipal securities advertising
d. Regulate municipal securities issuers
D
The MSRB has the power to regulate broker-dealers, their personnel, and their communications with the public. It does not, however, have the power to regulate municipal issuers. (10-9)
When preparing a bid for a new municipal issue, the underwriting syndicate would first determine the:
a. NIC
b. Reoffering yields
c. Bid price
d. Coupon rates
B
To profit from the underwriting, the syndicate must be able to sell the bonds to the public. The syndicate will first determine the yields it believes will be necessary to sell the bonds. (10-7)
A correspondence used in detailing the terms of a municipal syndicate is called the:
a. Offering Notice
b. Bond Buyer New Issue Worksheet
c. Syndicate Agreement
d. Official Notice of Sale
C
A syndicate is a group of dealers formed to bid on a new issue. The syndicate is formed by means of a syndicate letter (syndicate agreement) which will explain how the syndicate will operate. (10-7)
The bond counsel for a new municipal revenue bond issue may render a qualified legal opinion under which TWO of the following situations?
I. The issuer does not have clear title to the property.
II. Construction of a competing facility may cut projected revenue flow.
III. The underwriting syndicate has not provided information that the MSRB requires.
IV. The project could potentially impact a national historic site.
a. I and III
b. I and IV
c. II and III
d. II and IV
B
When situations exist that could create potential problems for a proposed facility, the bond counsel will render a qualified legal opinion. These situations would include I and IV in that both would subject the issuer to potential legal action. Whereas II and III do not deal with the legality, validity, enforceability, or tax-exempt status of the issue. (10-3)
A bond counsel would issue an unqualified legal opinion for a municipal bond issue to state that:
a. The issuer has defaulted on previous issues of bonds
b. The official statement has not been filed with the SEC
c. The bonds are very risky and are not a qualified investment for some investors
d. There are no limitations or pending lawsuits that hinder the issuance of the bonds
D
A bond counsel would render an unqualified legal opinion if there were no situations in existence that could adversely effect the legality of the issue. (10-3)
When an issuer is computing net interest cost, the premium for a new issue of bonds is:
a. Divided by the number of bond years
b. Added to the underwriter's profit
c. Subtracted from the total interest cost to the issuer
d. Added to the total interest cost to the issuer
C
Net interest cost is a calculation to determine the bid that would yield the lowest cost to the issuer over the life of the bond issue. If the issuer sells the bonds at a premium, the amount of the premium is subtracted from the total amount of interest that must be paid. If the issuer sells the bonds at a discount, the amount of the discount is added to the total interest that must be paid. (10-7)
NET INTEREST COST (NIC) (S7) : The average weighted coupon rate for a new municipal issue. For a competitive issue the issuer may request that the syndicates submit their bids in the form of an NIC. The lowest NIC bid will be awarded the issue. See also: True Interest Cost.
The largest portion of the underwriting spread in a new municipal securities issue would be the:
a. Commission
b. Additional takedown
c. Concession
d. Total takedown
D
The largest portion of the underwriting spread in a municipal securities issue would be the total takedown, which is made up of the additional takedown plus the concession. (10-8)
ADDITIONAL TAKEDOWN (S7) : A portion of the underwriting spread for a municipal issue defined as total takedown less concession.
In a new municipal issue, what is a group order?
a. An order placed by 3 or more members
b. An institution purchasing bonds from a syndicate
c. All members will benefit from the order
d. A dealer buying for a group of investors
C
There are four types of orders that can be placed with a syndicate.
1. A pre-sale order is any order placed before the syndicate actually purchases the issue from the issuer.
2. A group order is when all members of the syndicate share in the profit.
3. A designated order is usually placed by a large institution which designates two or more members to receive credit for the sale.
4. A member order is any order placed by members for their customers. (10-9)
In a municipal bond underwriting, the difference between what the issuer receives and the production is known as the:
a. Manager's fee
b. Total takedown
c. Concession
d. Spread
D
The spread in a municipal bond underwriting is the gross profit earned by the syndicate. It is the difference between the amount the issuer receives for the bonds and the production (public offering price for the bonds). The takedown is the discount given to syndicate members by the manager of the syndicate on any bonds sold. The concession is a trade discount given to dealers who are not members of the syndicate. For example, a syndicate member may take down bonds at par minus 5/8 and sell them to the public at par, making a 5/8 point profit. The dealer who is not a member of the syndicate may buy the bonds at par minus 1/4 point concession and sell them to the public at par, making a 1/4 point profit. (10-8)
Which of the following parties states that a municipality can legally issue bonds?
a. FINRA
b. The MSRB
c. The SEC
d. The bond counsel
D
The bond counsel writes the legal opinion. It states that the interest is exempt from federal taxation and that the issue is valid and legal. Prior to giving an opinion as to the validity and tax exemption of the issue, the bond counsel would examine all federal, state, and local legislation to be sure that the issue meets all requirements. (10-3)
Which of the following is not required on a bid form for a competitive municipal issue?
a. Authorized signature
b. Reoffering yields
c. Coupon
d. NIC
B
Reoffering yields relate to the sale of bonds by the winning syndicate. They do not relate to the issuer and need not be included on the bid form. (10-7)
All of the following are responsible for the enforcement of Municipal Securities Rulemaking Board rules EXCEPT:
a. The Securities and Exchange Commission
b. FINRA
c. The Federal Reserve Board
d. The New York Stock Exchange
D
The New York Stock Exchange is not involved with the enforcement of MSRB rules. The Securities and Exchange Commission does enforce the rules of the MSRB. The Federal Reserve Board, Comptroller of the Currency, and Federal Deposit Insurance Corporation are all involved with the enforcement of MSRB rules because they are involved in the regulation of banks. FINRA also enforces the rules of the MSRB. It is important to note that the MSRB has no enforcement power. (10-10)
If a municipal issuer publishes an Official Notice of Sale, this indicates the offering will be made:
a. Through a private placement
b. On a negotiated basis
c. On a competitive basis
d. Available to the general public through a prospectus
D
A Notice of Sale is published by an issuer inviting syndicates to bid for a new issue. This would indicate the offering will be made on a competitive basis. A Notice of Sale would not be used if the issue is sold on a negotiated basis or through a private placement. (10-2)
A municipal securities representative may do all of the following EXCEPT:
a. Sell municipal securities
b. Trade municipal securities
c. Act as an investment adviser to municipal issuers
d. Supervise other municipal securities representatives
D
A municipal securities representative may engage in all of the activities listed except supervise other representatives. This can be done only by a principal. (10-10)
According to MSRB rules, a new municipal securities representative, during the first 90 days of employment, may:
a. Advise a customer
b. Advise an investment company
c. Determine a customer's investment objectives
d. Discuss bond prices with other municipal securities professionals
D
According to MSRB rules, the only activity listed that a new representative may engage in for the first 90 days of employment is discuss bond prices with other municipal securities professionals. (10-10)
Which of the following statements are true regarding a new municipal issue?
I. Member orders will receive priority over designated orders.
II. There is usually a period of time allowed for the accumulation of orders.
III. Syndicate procedures must be disclosed to potential purchasers.
IV. Pre-sale orders receive the highest priority.
a. II and IV only
b. III and IV only
c. I, II, and IV only
d. I, II, III, and IV
A
Pre-sale orders receive the highest priority and a period of time must be allowed for the accumulation of orders. Member orders do not receive priority over designated orders and syndicate procedures do not have to be disclosed to potential purchasers. (10-9)
A registered representative who fraudulently violates an MSRB rule can be disciplined by:
I. The MSRB
II. FINRA
III. The NYSE
IV. The SEC
a. I and III only
b. I and IV only
c. II and III only
d. II and IV only
D
Both the SEC and FINRA may discipline a registered representative employed at a broker-dealer for fraudulent securities activities. The MSRB has no enforcement power. (10-10, 1-13, 9-12)
))A member of a municipal new issue syndicate is entering an order for an accumulation account being used for a unit investment trust that the firm underwrites. This order must be entered as a(n):
a. Pre-sale order
b. Related portfolio order
c. Contingency order
d. AON order
B
MSRB rules require a syndicate member to disclose to the syndicate an order for a unit investment trust or an accumulation account to be used for a unit investment trust. The disclosure is accomplished by entering the order as a related portfolio order. (10-11)

RELATED PORTFOLIO ORDER (S7) : An order placed by a syndicate member on behalf of a Unit Investment Trust it sponsors.
A type of new municipal issue sale where the underwriter is appointed by the issuer is a(n):
a. Eastern Account
b. Western Account
c. Negotiated Issue
d. Competitive Issue
C
For a negotiated issue, the underwriter is appointed by the issuer. Eastern and Western accounts are types of syndicates formed by underwriters. (10-2, 9-4)

NEGOTIATED ISSUES (S7) : A new issue where the issuer appoints an underwriter rather than having a number of underwriters compete for the issue. See: Competitive Issue.
Which of the following types of securities may a municipal securities representative sell?
I. Municipal bonds
II. Government bonds
III. Corporate bonds
IV. Municipal unit investment trusts
a. I only
b. I and III only
c. I and IV only
d. I, II, III, and IV
A
A municipal securities representative may sell municipal bonds. The municipal securities representative, according to the MSRB, is not properly licensed to sell government bonds, municipal unit investment trusts, or any type of corporate securities. (10-11)
A municipal bond counsel will do all of the following EXCEPT:
a. Prepare the legal opinion
b. Validate the issue
c. Examine the Treasury arbitrage restrictions so that the issuer will not violate any tax laws
d. Set the underwriting concession
D
The bond counsel will not determine the underwriting concession. This will be determined by the underwriting syndicate. (10-3, 10-7)
Where are the priority provisions for allocating bonds listed for a new municipal bond offering?
a. Official statement
b. Underwriters agreement
c. Offering circular
d. Settlement letter
B
The priority provisions of how bonds will be allocated to members of the municipal bond syndicate will be indicated in the underwriters agreement (syndicate letter). The usual priority of orders is pre-sale, group net, designated, and member orders at the takedown. (10-9)
The public pays par to buy a new issue of bonds. However, the issuer only receives $990 per bond. The $10 difference is known as the:
a. Manager's fee
b. Production
c. Total takedown
d. Underwriting spread
D
The underwriting spread is the difference between the price paid to the issuer (bid) and the price the bonds are sold to the public (production). (10-8)
To calculate the total interest cost to the issuer for a competitive bid, the syndicate would need:
I. The total par value of the offering
II. The maturity schedule and coupon rates
III. Whether the bid includes any discounts or premiums
IV. The dated date for the bonds
a. I and II only
b. III and IV only
c. I, II, and III only
d. I, II, III, and IV
D
When computing a competitive bid, the broker-dealer must calculate the total interest cost to the issuer. To calculate total interest cost, the coupon (interest rate), par value, maturity schedule, amount of any discount or premium, and dated date are required. (10-7)
In a municipal underwriting, a syndicate member who sold bonds received an additional takedown of 3/8 and a concession of 1/2. This amount is known as the:
a. Total underwriting spread
b. Total takedown
c. Manager's fee
d. Production
B
A member of a new issue municipal syndicate receives the total takedown which is composed of the concession plus the additional takedown. The chart shown below details the breakdown for a new municipal issue. (10-8)
The calculation used by issuers to award bonds that takes into account the time value of money is known as:
a. Net interest cost
b. True interest cost
c. Level debt service
d. Flow of funds
B
Both TIC (True Interest Cost) and NIC (Net Interest Cost) are methods used in competitive bids for both serial or term issues. The MSRB has no authority to approve a specific bidding method. TIC differs from NIC in that it takes the time value of money into consideration. (10-7)

TRUE INTEREST COST (TIC) (S7) : A calculation used when bidding on a new municipal issue, that takes into account the time value of money. It is also known as the Canadian Method. See also: Net Interest Cost.

NET INTEREST COST (NIC) (S7) : The average weighted coupon rate for a new municipal issue. For a competitive issue the issuer may request that the syndicates submit their bids in the form of an NIC. The lowest NIC bid will be awarded the issue. See also: True Interest Cost.
Relative to a new municipal issue, who appoints the bond counsel?
a. Issuer
b. Underwriters
c. Bondholders
d. MSRB
A
Appointing a bond counsel is the responsibility of the issuer. (10-3)
The role of the MSRB is to do all of the following EXCEPT:
I. Formulate rules for the municipal securities industry
II. Interpret its rules for broker-dealers and dealer-banks
III. Inspect member firms at least once each year
IV. Enforce its rules when violations occur
a. I and II only
b. III and IV only
c. I, II, and III only
d. I, II, III, and IV
A
The MSRB was formed as the rulemaking body for the municipal securities industry. It formulates and interprets rules in the areas of recordkeeping, qualification, and business conduct. However, the MSRB does not enforce its rules or inspect members for compliance with the rules. Enforcement and inspection is done by the SEC and FINRA for brokerage firms and by the FRB, FDIC, and the Office of the Comptroller of the Currency for dealer banks. Also, the MSRB does not set commissions rates or regulate new issues (municipals are exempt from new issue regulations). (10-9)
Under MSRB rules, all of the following must be retained for a specific time period EXCEPT:
a. Customer confirmations
b. Written customer complaints
c. Issuers' official statements
d. Customer related correspondence
C
Copies of official statements need not be retained since the MSRB does not have the authority to regulate issuers and therefore cannot require the preparation of an official statement. (10-9)
Which of the following is not used to determine the winning bid in a competitive bond offering?
a. Reoffering Yields
b. Bond years
c. NIC
d. TIC
A
Reoffering yields are based on the price paid by purchasers and are not a part of the underwriters bid. Bond years are calculated by multiplying the number of $1,000 par value bonds by the years to maturity. When the bond years of each maturity are multiplied by the respective coupon rate and then totaled, the result is the net interest cost for this issue. NIC and TIC are used to determine the cost of the bid to the issuer. (10-7)
A person hired by a municipal dealer must be registered:
a. Within 90 days of his date of hire
b. Within 90 days of the end of the apprenticeship period
c. Before effecting a transaction with a customer
d. Before effecting a transaction with another dealer
C
A person must qualify as a municipal representative prior to effecting a transaction with a customer. To become qualified, the individual must pass a qualifying exam and serve a 90 day apprenticeship. There is no requirement that the person be registered in a specific time period after hire, however, the person may only act as an apprentice for a maximum of 180 days. (10-10)
Which of the following would NOT apply to underwritings of municipal securities?
a. Eastern or Western accounts
b. Negotiated or competitive deals
c. Firm commitment or all-or-none basis
d. Primary or secondary offerings
D
Offerings of municipal securities are not registered with the SEC. They are conducted on a competitive or negotiated basis. Syndicate liability may be divided (Western account) or undivided (Eastern account). The offering may be conducted as a firm commitment, all or none, or best efforts underwriting. (10-1, 9-1)
The resolution for a revenue bond would contain all of the following EXCEPT:
a. Insurance covenant
b. Provisions to provide financial reports
c. Additional bonds covenant
d. Amount of the good faith deposit
D
The bond resolution or indenture contains the covenants, flow of funds provision, and provisions to provide financial reports. The amount of the good faith deposit would be found in the Notice of Sale and Syndicate Letter. (10-2, 8-12)
An apprentice at a municipal securities firm is not permitted to:
a. Trade with another municipal securities firm
b. Accept an unsolicited order from a customer
c. Request a bid from his firm's trader
d. Give a bid to another municipal securities firm
B
Prior to being registered as a municipal securities representative, an individual must serve as an apprentice for a minimum of 90 days. An apprentice may function as a representative in all activities except contact with the public and being compensated on the basis of transactions (receive commissions). The apprentice may execute transactions with other firms, but not with customers, even if they are unsolicited. (10-10)
The purchase of a new issue prior to settlement with the issuer can best be described as:
a. A subject or workout transaction
b. A when issued transaction
c. A seller's option contract
d. A violation of the Securities Act of 1933
B
When issued refers to new issue transactions in securities prior to settlement with the issuer. The purchase or sale of new issue securities prior to registration may be a violation of the 1933 Act. (10-9)
Pursuant to the bid form for a new municipal issue, it:
I. Is used for a competitive sale
II. Is used for a negotiated sale
III. Will contain the proposed interest rate
IV. Will contain the price the bidder will pay for the issue
a. I and III only
b. II and III only
c. I, III, and IV only
d. II, III, and IV only
C
Negotiated issues do not require a bid form since the underwriter is appointed. The bid form will contain the interest rate proposed by the bidder as well as the price the bidder will pay. (10-7, 10-2)
A municipal dealer must disclose the syndicate's priority of orders to a client:
a. On the final confirmation
b. Only if the information is not in the Official Statement
c. In discretionary accounts only
d. Only if the customer requests the information
D
The priority of orders must be disclosed to any client who requests it. The priority of orders will not be shown in the Official Statement or on the customer's confirmation. (10-9)
On a proposed new municipal issue, which of the following documents would the issuer send to a prospective bidder?
I. Notice of Sale
II. Preliminary Official Statement
III. Syndicate Agreement
IV. Bid Procedures
a. I and III only
b. II, III, and IV only
c. I, II, and IV only
d. I, II, III, and IV
C
The issuer would send all documents which the prospective bidder would require to enter a bid. The syndicate agreement is used by the firms that join together to bid on an issue and is therefore not provided by the issuer. (10-2)