Series 50 cheat sheet

MSRB Rule G-42(b) imposes a federal fiduciary duty on a municipal advisor toward its municipal entity client; the duty has two components: duty of care and duty of loyalty.

The fiduciary duty runs to the municipal entity client only; no fiduciary duty is owed to an obligated person, although Rule G-17 fair dealing obligations still apply to all parties.

Duty of loyalty requires the advisor to act in the client's best interest, avoid self-dealing, and eliminate or mitigate conflicts; disclosure alone does not cure a conflict that compromises objectivity.

Duty of care requires professional competence, reasonable diligence, and a reasonable basis for each recommendation, including evaluation of alternatives, costs, and material risks.

Rule G-42(c) requires written disclosure of all actual or potential conflicts of interest, including compensation arrangements, affiliate relationships, and other business with the issuer, before or at the time of engagement.

Rule G-42(d) prohibits recommending that a client issue municipal securities or enter a municipal financial product without a reasonable basis to believe the recommendation is suitable for that client.

MSRB Rule G-20 caps gifts or gratuities given to any person in connection with municipal securities or advisory business at $100 per person per year.

MSRB Rule G-37 pay-to-play applies to municipal advisors: a contribution to an official of a municipal entity the advisor is engaging or seeking to engage triggers a two-year ban on compensated advisory business with that entity.

Rule G-37 de minimis contribution limits are $250 per election for candidates the contributor may vote for and $150 per election for other covered officials.

Rule G-42(d) requires the municipal advisory relationship to be documented in writing before or at the time of engagement; the writing must identify the client, the date, the services, the fees, and the conflict disclosures.

If a client will not sign a written agreement, the advisor must still maintain records of the engagement, including evidence of the client's authorization and the terms actually agreed.

The engagement writing must state whether the advisor acts as a fiduciary, describe the scope of services, and disclose whether the advisor or an affiliate has a control-person relationship with the issuer.

Compensation payable only upon completion of a transaction is a conflict of interest that must be disclosed in writing and managed so that advice stays objective.

Rule G-8(a)(xvi) requires municipal advisors to make and keep records of engagements, including engagement agreements, offering documents, analyses, and client communications.

A recommendation must be supported by contemporaneous documentation: the analysis performed, alternatives compared, assumptions used, and the information received from the client.

Conflict disclosures must be updated in writing when a new actual or potential conflict arises during the advisory relationship.

Rule G-44 written supervisory procedures must cover advisory activities, including review of the substance of advice delivered to clients.

General obligation bonds are secured by the issuer's full faith and credit, are typically repaid from ad valorem taxes, and frequently require voter authorization.

Revenue bonds are payable solely from identified revenue streams (utility rates, tolls, hospital revenues) and carry rate covenants and additional bonds tests instead of a taxing pledge.

In conduit or private activity financings, proceeds are loaned to a private or nonprofit borrower that services the debt; the municipal issuer generally has no repayment obligation.

Interest on municipal bonds is excluded from gross income under IRC Section 103, subject to arbitrage rebate, private activity volume caps, and yield restriction rules.

Arbitrage rebate requires the issuer to pay excess earnings on nonpurpose investments to the U.S. Treasury unless a spending exception applies; computations occur at least every five years and at final maturity.

Rule 15c2-12 requires the underwriter, for issues of $1,000,000 or more, to obtain a written undertaking that the issuer will file annual financial information and event notices with EMMA.

Current refundings redeem bonds within 90 days of issuance; tax-exempt advance refundings were generally prohibited for bonds issued after 2017.

Debt service coverage ratio equals pledged revenues divided by annual debt service; the indenture's additional bonds test sets the minimum ratio for issuing new parity debt.

TEFRA requires a public hearing and approval for most private activity bonds; qualified 501(c)(3) bonds are exempt from the TEFRA hearing requirement.

Municipal financial products under MSRB rules are municipal derivatives, guaranteed investment contracts, and investment strategies recommended to a municipal entity or obligated person.

Municipal entities are special entities under the Commodity Exchange Act; a swap dealer must have a reasonable basis to believe the entity has an independent representative before entering a swap.

An interest rate swap exchanges fixed and floating payments to change the effective interest cost or duration of municipal debt; it adds counterparty, basis, and termination risk.

A cap requires the purchaser to pay a premium and pays the purchaser when a floating index exceeds the strike; a floor works in reverse; a collar combines a purchased cap and a sold floor.

A swaption grants the right, but not the obligation, to enter into a swap on specified terms at a future date.

Guaranteed investment contracts and investment agreements must satisfy yield restriction and arbitrage rebate rules because they are investments of bond proceeds.

Rule G-42(d) requires a reasonable basis for recommending a municipal financial product, including analysis of risks, costs, and available alternatives relative to the client's objectives.

Treasury Regulation Section 1.148-4(h) qualified hedge rules allow specified hedge payments to be taken into account in computing bond yield if identification requirements are met.

Derivative risks that must be evaluated include counterparty credit and collateral posting, rating triggers, termination payments, appropriation risk, and remarketing risk on variable rate debt.

Exchange Act Rule 15Ba1-1 defines a municipal advisor as a person that advises a municipal entity or obligated person on municipal financial products or the issuance of municipal securities, or solicits such persons on behalf of another.

Registration is accomplished by filing Form MA with the SEC and Form A-12 with the MSRB; advisory business may not begin until registration is effective.

SEC Rule 15Ba1-8 requires books and records to be preserved for five years, with the first two years maintained in an easily accessible place.

Section 975 of the Dodd-Frank Act created the municipal advisor regulatory regime and authorized fiduciary and conduct duties later codified in MSRB Rule G-42.

Rule 15c2-12 obligates underwriters to obtain continuing disclosure undertakings and to reasonably determine that the issuer will comply; the 2018 and 2020 amendments expanded listed events.

Excluded from the municipal advisor definition are underwriters acting as such, registered investment advisers, attorneys, accountants and engineers performing their traditional professional services, and members of an issuer's governing body.

MSRB Rule G-42 governs advisor conduct: fiduciary duty, fair dealing, conflict disclosure, documented engagements, and suitability of recommendations.

MSRB Rule G-17 prohibits fraudulent, deceptive, or manipulative acts and requires disclosure of conflicts, compensation, and the scope of services actually provided.

Anti-fraud liability arises under Section 10(b) and Rule 10b-5 of the Exchange Act in addition to the MSRB conduct rules.

Form MA is the SEC registration form for the firm; Form MA-I is filed for each natural person who provides municipal advisory services on the firm's behalf.

Form MA must be amended annually within 90 days after the firm's fiscal year end, and promptly upon specified events such as disciplinary actions or changes in control.

MSRB Form A-12 registers the firm and its associated persons with the MSRB; fees and consents to service of process accompany the filing.

Series 50 is the representative-level qualification; Series 54 is the principal-level qualification required for municipal advisor principals.

Rule G-44 requires written supervisory and compliance policies, designation of a Chief Compliance Officer with authority to administer them, and review of their effectiveness at least annually.

The annual compliance review under Rule G-44 must be documented in writing and must address identified deficiencies and the remediation taken.

Records subject to MSRB G-8 and G-9, including engagement agreements, disclosures, analyses, recommendations, and compliance reviews, must be retrievable and retained for the required periods.

Rule G-44 also requires that supervisory procedures address the review of recommendations and communications before or after delivery to clients, with evidence of that review.

Material changes to the business, such as adding municipal financial product advice, require updates to written supervisory procedures and corresponding training.