Ch3: Municipal Securities Offerings & Disclosure Requirements

Official statement →

the disclosure document for municipal securities

The Bond Buyer is

an online newspaper that publishes what municipalities are issuing bonds, the $ value of muni bonds coming to market in the next 30 days, the placement ratio, and lists the GO and Revenue (Revdex) muni price indicies

The EMMA (___) website is for

Electronic Municipal Market Access website is for secondary market muni trading, and has trade data and disclosure statements for the muni bonds

Negotiated Underwriting:

the municipality hires an underwriter of their choice

Competitive Bid Underwriting:

the municipality sends a notice to underwriters and interested syndicates submit their Net interest cost (NIC) and True interest cost (TIC), and the lowest cost syndicate bid gets it

What is the order in which underwriters distribute bonds?

to pre-sale, group, designated, then member buyers

If a new issue is difficult to sell, the syndicate may

adjust the reoffering scale by increasing the yields on the issue

The _ is the agreement among underwriters

syndicate letter

True or false: An underwriter is allowed to advise a municipal issuer on the timing and structure of its offering without becoming a financial advisor.

true, an underwriter is allowed to advise a municipal issuer on the timing and structure of its offering without becoming a financial advisor

Do syndicates have to take on financial liability to buy any unsold bonds?

yes

Syndicates get the __ $

underwriting spread

Syndicates act as __, meaning they…

principals, meaning they buy the bonds from the issuer

A syndicate member, also called a __, is a…

co-mangager, is a junior participant in an offering of securities, often less than 15% of the overall offering.

The …, or …, runs the order book for a new municipal issuer.

senior underwriter, or underwriting manager, runs the order book for a new municipal issuer

Selling Group =

extra firms who act as agents to help sell and have no liability for unsold bonds

The selling group gets __$

only selling concessions

Western style account =

divided account

Eastern style account =

undivided account, each firm has a “take down” which is proportional to their participation percentage of the remaining unsold bonds

The Bond Contract includes the … and …

Trust indenture and the flow of funds statement

Flow of funds statement:

how money flowing into the municipality will be distributed in connection with the bond

Net revenue pledge flow of funds statement:

money coming in will pay for operations and maintenance first, then interest expense (pay bond holders)

Official statements are/aren’t legally required and include …

official statements aren’t legally required and include terms, description, tax status, etc

The Legal Opinion is made by the … and gives … → either … or …

made by the bond counsel (lawyers hired by the municipality) and gives their opinion whether the bond’s tax status is legal for the municipality to issue. Either qualified or non-qualified

A Legal Opinion is/isn’t legally required, and investors want a bond that is Qualified or Non-qualified?

isn’t legally required, want non-qualified

MSRB rules apply to

dealers, advisors, and anyone selling, trading, underwriting, or advising on municipal securities, but not to municipal issuers themselves

The MSRB is a … with the authority to … enforced by…

self regulatory organization with authority to regulate the entities involved in underwriting and selling munis, not issuers, enforced by FINRA for securities firms and by the Federal Reserve, Comptroller of the Currency, and the FDIC for banks

Muni bonds are/are not subject to the registration requirements of the 1933 Act but are/aren’t subject to its antifraud rules, so they must …

are not subject to registration rules, are subject to antifraud, so they must disclose material information on their official statement if they have one

The Securities Exchange Act of 1934 includes

insider trading provisions and prohibits practices such as guarantees against loss in the sale of securities.

MSRB Rule G-17 requires

municipal securities dealers to deal fairly with issuers in municipal underwritings

MSRB rules apply to … but not … such as …

municipal securities but not investment company securities such as muni bond funds, muni mutual funds or unit investment trusts.

FINRA's code of arbitration handles

monetary disputes

In the event of a reverse stock split, all open orders on a broker-dealer's books will be …

cancelled, regardless of whether they are sitting above or below the market.

A financial advisor to a municipality cannot participate as …, and the advisory relationship must …

a syndicate or selling group member in either a competitive or negotiated offering of municipal securities, and must be documented by a written agreement.

True or false: Underwriters can give limited advice (timing, structure) without becoming municipal advisors because that advice is part of normal underwriting.

true

Sophisticated Municipal Market Professionals (SMMPs) are

investors capable of independently evaluating risks and is not involved in advising issuers

A control person …

directs a company's management and policies but does not provide advisory services for municipal securities issues

The municipal advisor …

provides advice to issuers on financing options and long‑term planning, has fiduciary duty to the issuer, is compensated through advisory fees, gives ongoing or compensated advice beyond normal underwriting, and must register with the SEC and MSRB (and FINRA only if doing broker‑dealer activities).

Who must approve a new municipal securities account?

A designated principal, either a General Securities Principal (Series 24) or a Municipal Securities Principal (Series 53).