Series 86 and 87 Research Analyst Exam

Correct: Under MSRB Rule G-27, every dealer must establish, maintain, and enforce written supervisory procedures (WSPs) that are reasonably designed to achieve compliance with MSRB rules and applicable federal securities laws. These procedures must be tailored to the firm’s specific business model and must be updated whenever there are changes in the rules or the firm’s operations to ensure they remain effective and relevant. Incorrect: The suggestion that WSPs are standardized templates is incorrect because MSRB rules require procedures to be specific to each firm’s unique business activities. The idea that they are only updated after enforcement actions or serve as historical records of failures is false, as WSPs are proactive compliance tools required by rule. Finally, WSPs cannot grant discretionary authority to waive regulatory disclosure requirements, as antifraud and disclosure rules are mandatory regardless of the investor’s status. Takeaway: Written supervisory procedures must be tailored to a firm’s specific business and updated regularly to ensure ongoing compliance with MSRB and federal regulations.

Correct: Under the PATH Act of 2015, the definition of qualified higher education expenses for 529 plans was expanded to include the purchase of computer technology, peripheral equipment, and internet access. These items are qualified as long as they are used primarily by the plan beneficiary while enrolled at an eligible post-secondary school. Unlike room and board expenses, which require at least half-time enrollment, computer-related expenses do not have a specific minimum enrollment threshold beyond being enrolled at an eligible institution. Incorrect: The assertion that full-time enrollment is required is incorrect; while room and board expenses require the student to be enrolled at least half-time, other qualified expenses like books and computers do not have this specific restriction. The claim that equipment must be a mandatory condition of enrollment is a common confusion with the rules for the American Opportunity Tax Credit (AOTC), but it does not apply to 529 plan distributions. Finally, if a distribution is qualified, it is exempt from both federal income tax and the 10% penalty; the penalty only applies to the earnings portion of non-qualified distributions. Takeaway: Computers and related technology are qualified education expenses for 529 plans when used by a beneficiary at an eligible post-secondary institution, regardless of whether they are a mandatory requirement for enrollment.

Correct: Under MSRB Rule G-3, a Municipal Fund Securities Limited Principal (Series 51) is required to supervise activities related specifically to municipal fund securities (such as 529 plans). To qualify for the Series 51, an individual must already be qualified as either a General Securities Principal (Series 24) or an Investment Company/Variable Contracts Products Principal (Series 26). The Series 51 is a specialized qualification that bridges the gap between general principal registrations and the specific regulatory requirements of the municipal securities market. Incorrect: The suggestion that a Series 26 registration alone is sufficient is incorrect because municipal fund securities are governed by MSRB rules, which require a specific municipal principal qualification. The claim that the Series 51 is only available to Series 24 holders is false, as Series 26 holders are also eligible. There is no 90-day grace period for principal qualification in this context; the individual must be properly qualified before engaging in the supervision of the municipal fund securities business. Takeaway: A Series 51 qualification is a mandatory supplemental registration for Series 24 or Series 26 principals who intend to supervise municipal fund securities business specifically.

Correct: Under FINRA Rule 2241, research analysts are required to maintain independence and objectivity in their research reports. When analyzing the impact of macroeconomic factors such as interest rates and GDP on a specific company, the analyst must use data and assumptions that reflect their own honest, independent belief. Utilizing independent, third-party macroeconomic data and documenting the rationale for these inputs ensures that the research is not improperly influenced by the investment banking relationship or the subject company’s desire to facilitate a capital raise. This approach upholds the integrity of the capital markets and fulfills the analyst’s fiduciary-like duty to provide unbiased information to the investing public. Incorrect: Adopting a hybrid approach that uses client-provided sensitivity models fails the requirement for independent analysis, as the analyst is essentially outsourcing a critical part of the valuation to an interested party. Delaying the publication of a report specifically to avoid impacting a client’s capital raise is a violation of the principle that research should be distributed in a timely and objective manner, and it suggests that the research department is being managed to benefit investment banking interests. Incorporating biased internal projections with equal weighting to consensus data is misleading, as it gives unearned legitimacy to an outlier forecast (3.5% vs 1.2%) solely to appease a client, which compromises the analyst’s professional integrity. Takeaway: Research analysts must prioritize objective macroeconomic data and independent modeling over client-driven narratives to ensure compliance with FINRA Rule 2241 regarding independence and objectivity.

Correct: The antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and related MSRB rules require that all communications with the public be fair, balanced, and not misleading. For municipal fund securities, which are exempt from the Investment Company Act of 1940, the primary mechanism for investor protection is the full and accurate disclosure of all material facts, including investment risks and the fact that these securities are not federally guaranteed. Incorrect: Registering the plan under the Investment Company Act of 1940 is incorrect because Section 2(b) of that Act specifically exempts municipal fund securities from such registration. Claiming that SIPC protects against market fluctuations is a violation of industry rules, as SIPC only provides limited protection against the insolvency of a broker-dealer. Restricting the delivery of the official statement is incorrect because MSRB rules generally require that the official statement be provided to customers to ensure they have the information necessary to make an informed investment decision. Takeaway: Investor protection in the municipal fund securities market is primarily achieved through the rigorous application of antifraud provisions and the mandatory disclosure of all material facts to prevent deceptive practices.

Correct: MSRB Rule G-27 (Supervision) requires that every broker, dealer, and municipal securities dealer establish, maintain, and enforce Written Supervisory Procedures (WSPs). These procedures must be reasonably designed to achieve compliance with MSRB rules and applicable federal securities laws. Specifically, the WSPs must designate at least one qualified municipal securities principal (or municipal fund securities principal) to be responsible for the supervision of the firm’s municipal securities activities, which includes the mandatory review and written approval of the opening of each customer account. Incorrect: The requirement to submit WSPs to the MSRB for prior certification is incorrect, as the MSRB is a rulemaking body and does not perform individual firm manual approvals; enforcement and examinations are handled by FINRA or bank regulators. Delegating principal-level approval to a registered representative, regardless of experience, is a violation of Rule G-27, which requires a qualified principal to perform these duties. Maintaining only general guidelines is insufficient because Rule G-27 specifically mandates that WSPs must be detailed enough to address the specific activities of the firm, including the designation of responsible personnel for account opening. Takeaway: MSRB Rule G-27 requires firms to maintain Written Supervisory Procedures that specifically designate a qualified principal to review and approve the opening of each municipal fund securities account.

Correct: Under MSRB Rule G-21 (Advertising) and Rule G-17 (Conduct of Municipal Securities and Municipal Advisory Activities), all communications with the public must be fair and balanced. For municipal fund securities like 529 plans, advertisements must specifically include a statement advising investors to consider their home state’s tax benefits. This aligns with the antifraud provisions of Section 10(b) of the ’34 Act, which prohibit the omission of material facts necessary to make statements not misleading. Incorrect: The requirement for approval by a General Securities Principal is insufficient, as municipal fund securities communications specifically require approval by a Municipal Fund Securities Limited Principal (Series 51) or a Municipal Securities Principal (Series 53). Relying on the issuer’s official statement does not exempt a dealer from the responsibility to ensure their own promotional materials are not misleading. Furthermore, the MSRB does not require the pre-filing of advertisements for approval; rather, it mandates internal principal approval and adherence to fair-dealing standards. Takeaway: Municipal fund security communications must include specific disclosures regarding state-tax benefits and be approved by a qualified municipal principal to satisfy antifraud and fair-dealing requirements.

Correct: Under MSRB Rule G-27, a Series 51 Principal is responsible for the supervision of municipal fund securities activities, which includes ensuring compliance with Rule G-17 (Fair Dealing) and Rule G-19 (Suitability). Furthermore, the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 apply to municipal securities. These rules collectively require that all material facts, including the potential loss of state-level tax benefits when purchasing an out-of-state 529 plan, be disclosed to investors to prevent deceptive practices. Incorrect: Option B is incorrect because while Section 2(b) of the Investment Company Act of 1940 exempts state entities, it does not exempt the broker-dealer from MSRB conduct rules or antifraud provisions regarding fair disclosure. Option C is incorrect because SIPC protects against the insolvency of a broker-dealer, not the market risk or investment performance of securities. Option D is incorrect because municipal securities are ‘exempted securities’ under Section 3(a)(2) of the Securities Act of 1933 and do not require SEC registration. Takeaway: A Series 51 Principal must ensure that written supervisory procedures address the disclosure of state-specific tax implications to comply with MSRB fair dealing and federal antifraud requirements.

Correct: MSRB Rule G-21(f) explicitly requires that each advertisement be approved in writing by a municipal securities principal or a general securities principal prior to its first use. In the context of municipal fund securities (such as 529 plans), a Municipal Fund Securities Limited Principal (Series 51) is specifically qualified to provide this written approval. The rule does not provide an exception for ‘event collateral’ or ‘informational handouts’ if they meet the definition of an advertisement. Incorrect: The requirement for principal approval is not contingent on the presence of performance data; all advertisements require prior approval. The $100 gift limit under Rule G-20 is a separate regulatory requirement and does not dictate the approval process for advertising materials under Rule G-21. Furthermore, the MSRB does not require advertisements to be filed on the EMMA system, and Rule G-21(f) mandates approval ‘prior to first use’ rather than a retrospective or post-distribution review. Takeaway: Under MSRB Rule G-21(f), all municipal fund security advertisements must receive written approval from a qualified principal before they are initially distributed to the public.

Correct: MSRB Rule G-32 requires that a broker, dealer, or municipal securities dealer selling a municipal security to a customer must deliver the official statement to the customer by no later than the settlement of the transaction. For municipal fund securities like 529 plans, this obligation remains critical to ensure investor protection and transparency. Furthermore, the underwriter has specific filing requirements on Form G-32 via the Electronic Municipal Market Access (EMMA) system to provide the market with necessary data regarding the offering. Incorrect: Relying solely on the access equals delivery model is incorrect because MSRB Rule G-32 specifically requires delivery to the customer for municipal securities, which differs from certain corporate securities regulations. Filing complaints with the SEC does not rectify the underlying disclosure failure or satisfy the delivery requirements of Rule G-32. There is no 45-day grace period for delivery failures; the firm must ensure the document reaches the customer by settlement regardless of the delivery method’s initial failure. Takeaway: Municipal Fund Securities Principals must ensure that official statements are delivered to customers by settlement and that all regulatory filings on EMMA are completed accurately to comply with disclosure and antifraud rules.

Correct: When a company adopts a new accounting standard using the modified retrospective transition method, it does not restate prior-period financial statements, which creates a lack of comparability between the current and previous years. To provide an accurate assessment of organic growth and operational performance, a research analyst must perform a bridge analysis. This involves using the mandatory disclosures that reconcile the current period’s results under the new standard back to what they would have been under the previous standard. This process isolates the accounting-driven impact from the actual economic performance of the business, ensuring that valuation multiples and growth rates are not artificially inflated by reporting changes. Incorrect: Relying solely on management-provided pro forma statements is insufficient because these are non-GAAP measures and may lack the transparency or standardization required for a rigorous independent valuation. Focusing exclusively on cash flow from operations is a common misconception; while cash is less subjective than accruals, changes in revenue recognition rules often lead to significant changes in the classification of contract assets and liabilities, which directly impact the working capital section of the cash flow statement and can still obscure underlying trends. Projecting an accounting-driven margin expansion into a terminal value calculation is a fundamental error in financial modeling, as it treats a one-time reporting shift as a permanent improvement in the company’s economic profitability and competitive position. Takeaway: To maintain analytical integrity during accounting rule changes, analysts must use reconciliation disclosures to normalize data and ensure that valuation models reflect economic reality rather than reporting artifacts.

Correct: Under MSRB Rule G-17 (Fair Dealing) and Rule G-19 (Suitability), a municipal securities dealer has an obligation to ensure that any recommended investment strategy or pool structure is suitable for the client. For an LGIP intended for short-term operating funds, capital preservation is paramount. If derivatives are used for hedging, the dealer must ensure these instruments do not compromise the liquidity needs of the participants and that all risks are fully disclosed to the participating local agencies. Incorrect: Relying solely on a client’s legal counsel is insufficient because the dealer has an independent regulatory duty to perform suitability and fair dealing assessments. Recommending high-yield bonds for a pool meant for short-term operating funds is generally unsuitable as it prioritizes yield over capital preservation. Suggesting that SEC-registered funds exempt a dealer from MSRB antifraud provisions is legally incorrect; MSRB rules and the antifraud provisions of the Securities Exchange Act of 1934 apply to the conduct of the dealer regardless of the underlying fund assets. Takeaway: Municipal fund security principals must ensure that the pool’s investment policy and structure align with the participants’ specific liquidity and risk objectives while adhering to MSRB fair dealing and disclosure requirements.

Correct: Under MSRB Rule G-17, municipal securities dealers are required to deal fairly with all persons and must not engage in any deceptive or unfair practice. This includes the obligation to disclose all material facts about a transaction, including potential conflicts of interest. An affiliation between the broker-dealer and the transfer agent of a municipal fund security (like a 529 plan) is a material fact that must be disclosed to the customer at or before the time of trade, as it could reasonably be seen to influence the dealer’s recommendation. Incorrect: Option b is incorrect because the ministerial nature of a transfer agent’s work does not waive the requirement to disclose a corporate affiliation that creates a conflict of interest. Option c is incorrect because while delivering the official statement is required, it does not absolve the dealer of its independent duty under MSRB rules to disclose material conflicts during the sales process. Option d is incorrect because the duty to disclose material conflicts of interest is not contingent upon the transfer agent holding an underwriting role; the affiliation itself is the trigger for disclosure. Takeaway: Municipal securities dealers must disclose all material conflicts of interest, including corporate affiliations with service providers like transfer agents, to satisfy MSRB fair dealing and disclosure requirements.

Correct: Under MSRB rules and federal antifraud provisions, underwriters have a duty to ensure that disclosure documents, including the official statement and marketing materials, do not contain material misstatements or omissions. As a supervisor, the Series 51 Principal must ensure that any identified material discrepancy, such as a change in fees which impacts investor returns, is corrected across all platforms before the offering proceeds to maintain compliance with MSRB Rule G-17 on fair dealing and Rule G-21 on advertising. Incorrect: Allowing the distribution of inaccurate marketing materials violates MSRB advertising rules even if the official statement is corrected. Filing a complaint with the MSRB is inappropriate as the primary responsibility for ensuring accurate disclosure in an offering the firm is underwriting rests with the underwriter’s due diligence process. Treating fee changes as secondary is a violation of antifraud provisions, as fees are material information that a reasonable investor would consider important in making an investment decision. Takeaway: A municipal fund securities principal must ensure that all offering and promotional materials are consistent and accurately reflect all material information discovered during the due diligence process to comply with fair dealing and antifraud requirements.

Correct: Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 prohibit the use of any manipulative or deceptive device in connection with the purchase or sale of any security. This includes the omission of material facts, such as compensation or incentives that might bias a representative’s recommendation. Even though municipal securities are exempt from the registration requirements of the 1933 Act, they are fully subject to the antifraud provisions of the 1934 Act. Incorrect: One option incorrectly suggests that antifraud provisions only apply to issuers, but Section 10(b) applies to ‘any person.’ Another option claims that exempt securities are not subject to the 1934 Act’s antifraud rules; however, while municipal securities are exempt from registration, they are never exempt from antifraud oversight. The final incorrect option suggests that antifraud rules only cover credit quality, whereas they actually cover any material misrepresentation or omission that could mislead an investor. Takeaway: Antifraud provisions under the Securities Exchange Act of 1934 apply to all persons and all securities, including municipal fund securities, prohibiting the omission of material facts in connection with a sale.

Correct: Under MSRB Rule G-28, when a municipal securities professional opens an account at another dealer, the opening firm must provide written notice to the employer and follow any instructions provided by that employer. Additionally, MSRB Rule G-27 requires a municipal securities principal to review and approve the opening of each customer account in writing to ensure suitability and compliance with internal and external regulations. Incorrect: The approach involving a client waiver is incorrect because MSRB rules do not allow for a client to bypass employer notification requirements for associated persons. The approach involving SIPC is incorrect because SIPC does not handle conflict of interest notifications or clearing periods for account openings; its role is related to firm insolvency. The approach of only maintaining internal records is incorrect because it fails to satisfy the affirmative regulatory requirement to notify the employer and obtain necessary approvals. Takeaway: Opening an account for an employee of another municipal dealer requires formal notification to the employer and principal approval to mitigate conflicts of interest and ensure regulatory oversight.

Correct: Under MSRB Rule G-17 regarding fair dealing and Rule G-19 regarding suitability, a representative must provide a balanced view of different investment vehicles. Coverdell ESAs have a strict $2,000 annual contribution limit per beneficiary and income phase-outs, whereas 529 plans have much higher limits and no federal income phase-outs. However, ESAs often allow for a wider array of self-directed investments compared to the static or age-based portfolios in 529 plans. Disclosing these material differences is essential for the client to make an informed decision based on their specific financial situation and investment preferences. Incorrect: Prioritizing 529 plans based on an assumed exemption is incorrect because municipal fund securities are subject to rigorous MSRB suitability and disclosure rules. Recommending a UTMA as a tax-equivalent to a 529 plan is a misrepresentation, as UTMAs are taxable accounts and do not offer federal tax-free withdrawals for education. Focusing only on state tax parity ignores critical factors like contribution limits and income restrictions that directly impact the suitability of a Coverdell ESA for high-net-worth individuals. Takeaway: Principals must ensure representatives disclose the distinct trade-offs between contribution limits, investment flexibility, and income restrictions when comparing 529 plans to alternative education savings vehicles.

Correct: According to the Securities Exchange Act of 1934 and MSRB rules, a bank can avoid registering the entire institution as a municipal securities dealer by establishing a Separately Identifiable Department or Division (SIDD). A SIDD must be a unit of the bank that performs all municipal securities activities, is supervised by a designated municipal securities principal, and maintains separate books and records that are readily accessible for examination by regulatory authorities. Incorrect: Establishing a legally distinct subsidiary is a different corporate structure than a SIDD and involves different regulatory implications. Requiring all bank employees to be qualified is unnecessary and contradicts the purpose of a SIDD, which is to isolate municipal activities to a specific group. A SIDD is fully permitted to engage in the sale and distribution of municipal fund securities, including 529 plans, provided it meets the definition and supervisory requirements. Takeaway: A SIDD allows a bank to isolate its municipal securities activities within a specific, supervised unit that maintains its own records, preventing the entire bank from being regulated as a municipal securities dealer.

Correct: Under MSRB Rule G-27, a Municipal Fund Securities Limited Principal (Series 51) or a General Securities Principal (Series 24) is responsible for the review and written approval of the opening of each customer account. This process ensures that the firm complies with MSRB Rule G-8 regarding books and records, which requires collecting specific customer data to facilitate suitability determinations and regulatory oversight. Incorrect: Retrospective reviews after 30 days are insufficient as the Principal must approve the account opening itself. Automated systems can assist in the process but cannot replace the regulatory requirement for a Principal’s approval. Delegating Principal-level approval duties to a non-licensed registered representative, regardless of their experience or internal training, is a violation of MSRB supervisory rules. Takeaway: A Municipal Fund Securities Limited Principal must provide written approval for the opening of every customer account to ensure all regulatory data is captured and supervisory standards are met from the outset of the relationship or transaction history. Any delegation of this responsibility to non-principals is prohibited under MSRB rules regardless of the account’s value or the representative’s tenure at the firm. This ensures a consistent standard of investor protection across all municipal fund security transactions and account maintenance activities within the broker-dealer’s operations. This oversight is critical for maintaining the integrity of the municipal securities market and protecting the interests of retail investors in 529 plans and ABLE programs.

Correct: Revenue bonds are backed by specific user fees, tolls, or lease payments generated by the facility they finance. Because they do not pledge the taxing power or the ‘full faith and credit’ of the municipality, they are typically not subject to the statutory or constitutional debt limits that apply to general obligation bonds. Additionally, revenue bonds generally do not require voter approval and can be issued by various authorized political entities, such as authorities, commissions, or special districts. Incorrect: The suggestion that revenue bonds are subject to the same debt limits as general obligation bonds is incorrect, as the lack of a tax pledge is what distinguishes their legal treatment. The claim that they must be issued by an entity with taxing power is false; in fact, many revenue bond issuers (like bridge or airport authorities) have no taxing power at all. Finally, the distinction between state and local agencies regarding debt limit exemptions is inaccurate, as the exemption generally applies to the type of security (revenue-backed) rather than the level of the issuing entity. Takeaway: Revenue bonds are generally exempt from statutory debt limits and voter referendums because they are self-supporting obligations funded by specific project revenues rather than general taxes.

Correct: Brokers’ brokers serve as intermediaries between dealers and institutional investors. Their primary role is to facilitate the purchase and sale of municipal securities on an agency basis, ensuring that the identity of the parties involved remains confidential. This anonymity is crucial for dealers who do not want to reveal their inventory positions or trading strategies to the broader market, which is a key component of maintaining market stability and privacy in large-block transactions. Incorrect: The centralized public repository for official statements and disclosures is the Electronic Municipal Market Access (EMMA) system, not a brokers’ broker. Brokers’ brokers specifically avoid taking principal positions or maintaining an inventory of securities to remain neutral and avoid conflicts of interest; taking principal positions is the role of a dealer or market maker. Regulatory bodies like the MSRB set rules and standards, but they do not act as the communication channel for specific trade executions or provide brokerage services. Takeaway: Brokers’ brokers provide anonymity and liquidity in the municipal market by acting as agents for other dealers without taking principal positions or maintaining inventory.

Correct: The bond attorney’s fundamental role is to deliver a legal opinion that confirms the issuer is legally authorized to issue the securities and that the bonds are valid and binding obligations. Additionally, the attorney renders an opinion on the federal (and sometimes state) tax-exempt status of the interest paid on the bonds, which is critical for the marketability of municipal securities. Incorrect: Conducting financial audits and guaranteeing debt service coverage is the responsibility of independent auditors and feasibility consultants, not the bond attorney. While the bond attorney may assist in drafting parts of the official statement, the primary responsibility for the accuracy of financial projections lies with the issuer and the financial advisor. Suitability certifications are the responsibility of the broker-dealer’s registered representatives and compliance department, not the bond attorney. Takeaway: The bond attorney provides the essential legal validation of the issuer’s authority and the tax-exempt status of the municipal bond interest.

Correct: MSRB Rule G-23 establishes a clear boundary to prevent conflicts of interest. It prohibits any broker, dealer, or municipal securities dealer that is acting as a financial advisor to an issuer for a particular issue of municipal securities from acting as an underwriter or placement agent for that same issue. This prohibition applies regardless of whether the issuer consents to the arrangement, as the conflict between the duty to provide unbiased advice and the desire to earn underwriting fees is considered irreconcilable in negotiated transactions. Incorrect: The suggestion that issuer consent or sophisticated status allows for this dual role is incorrect; while this was partially true under older versions of the rule, current MSRB regulations removed the ‘disclosure and consent’ exception for negotiated underwritings to protect issuers. Disclosure in the official statement is a general requirement for many conflicts but does not override the specific prohibition in Rule G-23. There is no ‘cooling-off’ period of 180 days that would allow a firm to switch from advisor to placement agent on the same specific issue; the prohibition is transaction-specific. Takeaway: MSRB Rule G-23 prohibits a firm from acting as both financial advisor and underwriter/placement agent on the same municipal security issue to ensure the integrity of the advice provided to the issuer.

Correct: Moral obligation bonds are municipal securities issued by a state or local agency that are backed by the ‘moral obligation’ of the state to cover debt service if revenues are insufficient. A key feature is that the state legislature is not legally required to appropriate the funds; however, there is usually a statutory mechanism where a state official (like the governor) must notify the legislature of a deficiency in the debt service reserve fund to initiate the appropriation process. Incorrect: General obligation bonds are backed by the full faith, credit, and taxing power of the issuer, not a non-binding appropriation. Double-barreled bonds are backed by both a specific revenue source and the full faith and credit of the issuer, making the tax backing a legal requirement rather than a moral one. Lease rental bonds are typically paid from lease payments made by a public agency using the facility, and while they often depend on annual appropriations, they do not specifically utilize the ‘moral obligation’ reserve fund replenishment mechanism described in the scenario. Takeaway: Moral obligation bonds rely on a non-binding legislative appropriation to replenish debt service reserves, distinguishing them from the legal mandates of general obligation debt.

Correct: In municipal securities trading, a workable indication is a non-binding estimate provided by a dealer that indicates a price at which they might be willing to buy or sell; it is used to gauge interest and facilitate negotiations without the immediate obligation of a firm bid. An ‘all or none’ (AON) qualification is a specific instruction from the seller that the entire block must be sold in one transaction, prohibiting partial fills. This requires the representative to locate a counterparty willing to take the entire $5 million position. Incorrect: A firm bid is a binding commitment to trade at a specific price, which contradicts the representative’s statement that the price was subject to change. All or none (AON) is not a regulatory default; it is a specific qualifier that must be explicitly stated and communicated to potential buyers. Evaluations are typically third-party price estimates for non-traded bonds rather than dealer-provided indications. Partial fills are strictly prohibited by an AON qualifier, and such a qualifier does not force a dealer to act as a principal or guarantee immediate execution. Takeaway: Workable indications allow for non-binding price discovery, while ‘all or none’ qualifiers ensure that large municipal blocks are executed in their entirety without fragmentation.

Correct: A double-barreled bond is a municipal security backed by both a specific revenue source (like toll bridge fees) and the full faith and credit of the issuer. This dual-source pledge typically results in a higher credit rating than a standard revenue bond. While it involves a general obligation pledge, it is primarily self-supporting, which helps the issuer manage its debt profile while providing the enhanced security requested by the council. Incorrect: Moral obligation bonds (option b) are not legally enforceable; they represent a non-binding pledge by a state to consider an appropriation, which does not provide the same level of security as a double-barreled bond. Pure revenue bonds (option c) rely only on project income and do not include the secondary taxing power pledge required to enhance the credit rating as specified. Limited tax general obligation bonds (option d) are backed by taxes but are subject to a maximum tax rate, and they do not primarily rely on project revenues, which contradicts the scenario’s goal of using bridge tolls. Takeaway: Double-barreled bonds combine the features of revenue and general obligation bonds to provide enhanced credit security through a primary revenue source and a secondary taxing power pledge.

Correct: Revenue bonds, such as those for housing or utilities, are generally self-liquidating and are paid from the specific revenues generated by the project they finance. In the case of housing revenue bonds, the source of payment is the mortgage interest and principal payments from the homeowners or rental income from multi-family units. Unlike General Obligation (GO) bonds, they are not backed by the full faith, credit, and taxing power of the issuer. Incorrect: General Obligation bonds are typically subject to statutory or constitutional debt limits and require voter approval, whereas revenue bonds usually are not. Ad valorem taxes (property taxes) are the primary source of payment for GO bonds, not revenue bonds. While double-barreled bonds do exist and combine revenue and taxing power, a standard housing revenue bond is not automatically double-barreled unless specifically structured with a secondary tax pledge. Takeaway: Revenue bonds are distinguished from General Obligation bonds by their reliance on project-specific income streams and their general exemption from statutory debt limits and voter approval requirements.

Correct: Under MSRB Rule G-34, for any new issue that is eligible for depository services, the underwriter must apply for depository eligibility. This application must be made as soon as possible, but no later than one business day after the date of the award. This ensures that the securities can be settled efficiently through book-entry systems, which is the standard for the municipal market and a requirement for most public offerings. Incorrect: Delaying the closing for physical delivery is contrary to the industry standard of book-entry settlement and does not address the regulatory requirement to seek eligibility. Re-structuring as a private placement to avoid CUSIPs is an inappropriate response to a technical eligibility hurdle and does not fulfill the underwriter’s obligations for a public offering. Filing a waiver based on revenue complexity is not a standard procedure, as most municipal securities are expected to be depository-eligible unless they fail specific technical criteria that cannot be remedied through the standard application process. Takeaway: Underwriters are regulatory obligated under MSRB Rule G-34 to apply for depository eligibility promptly to facilitate efficient book-entry settlement for new municipal issues.