MSRB Rules and Federal Securities Law Governing Municipal Fund Securities
Legal framework
Municipal fund securities are municipal securities under MSRB Rule D-12. They are exempt from Securities Act registration under Section 3(a)(2) and from Exchange Act registration, but antifraud provisions apply: Section 17(a) of the Securities Act and Section 10(b) and Rule 10b-5 of the Exchange Act. The MSRB regulates dealers under Exchange Act Section 15B, subject to SEC oversight. FINRA rules do not override MSRB rules for municipal securities.
Core MSRB rules
Know these: G-17 fair dealing, G-19 suitability, G-30 prices and commissions, G-8 and G-9 records, G-20 gifts, G-27 supervision, G-37 political contributions, and G-45 municipal fund securities reporting. Rule G-21 governs advertising of municipal securities; marketing of 529 plans must be fair and not misleading.
Federal tax law
IRC Section 529 governs qualified tuition programs; Section 529A governs ABLE. Qualified withdrawals are tax-free; nonqualified withdrawals are taxed and may incur a 10% penalty. State tax treatment varies.
Traps
Do not say 529 interests must be registered under the Securities Act. Do not apply FINRA Rule 2210 instead of MSRB G-21 without checking. Do not assume MSRB rules cover issuers; they cover dealers. Do not confuse the 10% federal penalty with state recapture.
Worked example: A dealer advertises 'state tax deduction guaranteed.' That is likely a G-17 and G-21 violation because state benefits vary and can be recaptured.