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Series 54 study materials
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Series 54 practice questions

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Question 1Regulatory Framework and Supervision of Municipal Fund Securities Activities

The MSRB writes rules for the municipal securities market. With respect to interests in a state-sponsored 529 college savings plan, MSRB rules apply directly to which party?

  1. The parent who opens the account
  2. The beneficiary named on the account
  3. The broker-dealer that distributes plan interests to the public Correct answer.
  4. The state agency that sponsors the plan

Explanation

Interests in 529 plans are municipal fund securities, and MSRB rules govern the conduct of brokers, dealers, municipal securities dealers, and municipal advisors. The state sponsor acts as an issuer and is not subject to MSRB rules, and retail investors are outside the MSRB's regulatory reach.

Question 2Regulatory Framework and Supervision of Municipal Fund Securities Activities

Which of the following is a municipal fund security for purposes of MSRB rules?

  1. An interest in a corporate 401(k) plan
  2. A share of a money market mutual fund
  3. An interest in a state-sponsored 529 savings plan Correct answer.
  4. A U.S. Treasury bill

Explanation

Municipal fund securities include interests in 529 college savings plans, ABLE programs, and local government investment pools, all of which are issued by or on behalf of governmental entities. Mutual fund shares and Treasury obligations are not municipal securities.

Question 3Regulatory Framework and Supervision of Municipal Fund Securities Activities

A newly formed firm intends to advise local governments on the structure and timing of bond offerings for a fee. Before conducting that business, the firm must first:

  1. Obtain a state insurance producer license
  2. Be elected to the MSRB board of directors
  3. Register with the SEC as a municipal advisor by filing Form MA Correct answer.
  4. Join FINRA as a broker-dealer member

Explanation

Federal law requires a person that provides municipal advisory services for compensation to register with the SEC before engaging in that business, using Form MA. Separate MSRB registration follows the SEC registration.

Question 4Regulatory Framework and Supervision of Municipal Fund Securities Activities

Which examination must an individual pass to be qualified as a municipal advisor principal?

  1. Series 63
  2. Series 24
  3. Series 6
  4. Series 54 Correct answer.

Explanation

The MSRB qualification rules designate the Series 54 as the principal-level examination for municipal advisors. Principal registration is required for individuals who supervise municipal advisory activities.

Question 5Regulatory Framework and Supervision of Municipal Fund Securities Activities

Which examination qualifies an individual to be registered as a municipal advisor representative?

  1. Series 7
  2. Series 54
  3. Series 65 Correct answer.
  4. Series 52

Explanation

MSRB qualification rules require municipal advisor representatives to pass the Series 65 examination. The Series 54 is the principal-level examination, and the Series 52 is the municipal securities representative examination used at dealers.

Question 6Regulatory Framework and Supervision of Municipal Fund Securities Activities

A municipal advisory firm registers with the SEC using which form?

  1. Form ADV
  2. Form BD
  3. Form MA Correct answer.
  4. Form U4

Explanation

Municipal advisor firms apply for registration with the SEC on Form MA, which elicits information about the firm's business, affiliations, and disciplinary history. Form BD is used by broker-dealers and Form ADV by investment advisers.

Question 7Regulatory Framework and Supervision of Municipal Fund Securities Activities

An unregistered firm files Form MA and hires three individuals to provide advice to municipal entity clients. What filing is required for each of those individuals?

  1. A Form BD amendment
  2. A Form MA-I Correct answer.
  3. A Form ADV Part 2B brochure supplement
  4. A Form U5

Explanation

Form MA-I must be submitted for each natural person who will serve as a municipal advisor representative, providing the SEC with background and disciplinary information. Form MA covers the firm itself, not its individual advisory personnel.

Question 8Regulatory Framework and Supervision of Municipal Fund Securities Activities

Under MSRB Rule G-20, the annual limit on gifts given to a person in connection with municipal securities or municipal advisory business is:

  1. $100 per person per year Correct answer.
  2. $500 per person per year
  3. $250 per person per year
  4. No limit, provided the gift is disclosed

Explanation

Rule G-20 prohibits giving gifts with a value exceeding $100 per person per year in relation to the business of the recipient's employer. Occasional meals and entertainment remain permissible when not so frequent or extensive as to raise an appearance of improper influence.

Question 9Regulatory Framework and Supervision of Municipal Fund Securities Activities

MSRB recordkeeping rules generally require a municipal advisor to preserve required records for:

  1. Five years in original form
  2. One year
  3. Three years, with the first two years in an easily accessible place Correct answer.
  4. Six years, with the first two years in an easily accessible place

Explanation

MSRB recordkeeping rules require records to be preserved for three years, and the most recent two years of records must be maintained in a place that is easily accessible to regulators. Longer retention periods belong to other regulatory regimes.

Question 10Regulatory Framework and Supervision of Municipal Fund Securities Activities

A registered municipal advisor representative must complete the Regulatory Element of continuing education:

  1. By December 31 of each calendar year Correct answer.
  2. Once every three years
  3. Once every two years, measured from the firm's fiscal year end
  4. Only when the firm changes its chief compliance officer

Explanation

The Regulatory Element of the MSRB continuing education program is completed annually on a calendar-year basis, with December 31 as the deadline. It is a standardized, regulator-developed requirement completed by each registered person.

Question 11Regulatory Framework and Supervision of Municipal Fund Securities Activities

Which statement best describes the Firm Element of continuing education for a municipal advisory firm?

  1. It must be completed once every two years
  2. It is administered by the MSRB using a standardized curriculum
  3. It is developed by the firm based on a needs analysis and delivered annually Correct answer.
  4. It applies only to principals, not to representatives

Explanation

The Firm Element is the firm's own training program, built from an annual needs analysis of the firm's business and the registered persons' responsibilities, and delivered at least annually. The firm must document its plan and the training provided.

Question 12Regulatory Framework and Supervision of Municipal Fund Securities Activities

MSRB Rule G-44 requires a municipal advisor to:

  1. Maintain minimum net capital of $100,000
  2. Adopt written supervisory procedures reasonably designed to achieve compliance with applicable rules Correct answer.
  3. Obtain MSRB approval of its marketing materials before first use
  4. Employ at least three registered principals

Explanation

Rule G-44 requires each municipal advisor to establish a supervisory system and written supervisory procedures reasonably designed to achieve compliance with MSRB rules and applicable federal securities laws. The rule does not impose capital, staffing-minimum, or pre-clearance requirements.

Question 13Regulatory Framework and Supervision of Municipal Fund Securities Activities

Under MSRB Rule G-44, a municipal advisor must designate an individual to serve as its:

  1. Chief compliance officer Correct answer.
  2. Pay-to-play compliance monitor
  3. Independent compliance auditor
  4. Municipal securities principal

Explanation

Rule G-44 requires the municipal advisor to designate a chief compliance officer who is responsible for administering the firm's compliance policies and procedures. The designation and contact information must be reported to regulators.

Question 14Regulatory Framework and Supervision of Municipal Fund Securities Activities

Under MSRB Rule G-42, a municipal advisor owes its municipal entity client:

  1. A duty of best execution on any securities it recommends
  2. Only the duties specified in the written engagement letter
  3. A fiduciary duty, including duties of care and loyalty Correct answer.
  4. A suitability obligation identical to that of a broker-dealer

Explanation

Rule G-42 imposes a fiduciary duty on municipal advisors toward their municipal entity clients, comprising a duty of care and a duty of loyalty, including the obligation to disclose and manage conflicts. The duty arises from the rule and is not limited by the terms of the engagement letter.

Question 15Regulatory Framework and Supervision of Municipal Fund Securities Activities

A municipal advisor discovers that an affiliate will receive a fee from a law firm if a particular financing proceeds. Under MSRB Rule G-42, the advisor should:

  1. Resign from the engagement and report the arrangement to the MSRB
  2. Disclose the arrangement to the issuer orally before the pricing date
  3. Disclose the conflict in writing to the client Correct answer.
  4. Keep the arrangement confidential because it is an internal matter

Explanation

Rule G-42 requires full and fair written disclosure of all conflicts of interest, including those arising from affiliate compensation. If a conflict cannot be reasonably managed, the advisor must decline or terminate the engagement.

Question 16Regulatory Framework and Supervision of Municipal Fund Securities Activities

An employee of a municipal advisory firm wants to contribute to the reelection campaign of a city council member who votes on bond authorizations. Under MSRB Rule G-37, the contribution avoids triggering the two-year business ban if the contributor:

  1. Gives no more than $100 in total during the year
  2. Is entitled to vote for that official and gives no more than $250 per election Correct answer.
  3. Gives no more than $500 per election
  4. Is not personally involved in the firm's work for that issuer

Explanation

Rule G-37 permits a de minimis contribution of up to $250 per election to an official for whom the contributor is entitled to vote, without triggering the two-year ban on compensated business with that issuer. Any larger contribution by a covered associate can disqualify the firm.

Question 17Regulatory Framework and Supervision of Municipal Fund Securities Activities

A municipal advisor distributes a brochure describing its advisory services. The firm must ensure the material:

  1. Is filed with and cleared by the MSRB before distribution
  2. Contains a performance track record covering at least five years
  3. Is approved by each issuer client before distribution
  4. Is fair and not misleading and is supervised under the firm's written procedures Correct answer.

Explanation

Advertisements by municipal advisors must be based on principles of fair dealing and must not be misleading, and the firm's supervisory procedures must provide for review of the material. There is no MSRB pre-clearance requirement and no mandated performance history.

Question 18Regulatory Framework and Supervision of Municipal Fund Securities Activities

A municipal advisor that is not a broker-dealer is reviewing which obligations apply to it. Which statement is accurate?

  1. It must deliver a written confirmation to the issuer for each financing it advises on
  2. It is exempt from recordkeeping rules because it never holds customer funds
  3. It must comply with Rule G-42 when advising clients and with Rule G-37 on political contributions Correct answer.
  4. It must make suitability determinations under Rule G-19 for retail purchasers

Explanation

Rules G-42 and G-37 expressly reach municipal advisors and govern their fiduciary and disclosure duties and their political contribution activity. Confirmation delivery and suitability determinations are dealer obligations tied to effecting securities transactions.

Question 19Regulatory Framework and Supervision of Municipal Fund Securities Activities

A municipal advisor representative does not complete the Regulatory Element by the deadline. The consequence is that:

  1. The firm may continue the person's activities if a principal consents in writing
  2. The person's qualification is permanently revoked and the qualifying examination must be retaken
  3. The registration is deemed inactive until the requirement is completed Correct answer.
  4. The MSRB automatically imposes a monetary fine on the firm

Explanation

A registered person who fails to complete the Regulatory Element by the deadline is designated inactive and may not engage in municipal advisory activities until the requirement is satisfied. The person may resume activities upon completion without retaking the qualification examination.

Question 20Regulatory Framework and Supervision of Municipal Fund Securities Activities

A state agency that sponsors and issues interests in a 529 plan asks whether MSRB supervision and recordkeeping rules apply to the agency. The correct answer is:

  1. No, but only if the plan is sold through a single dealer
  2. Yes; all activity involving municipal fund securities is covered
  3. Yes, but only with respect to its recordkeeping obligations
  4. No; MSRB rules do not apply to issuers Correct answer.

Explanation

MSRB rules govern brokers, dealers, municipal securities dealers, and municipal advisors. Issuers of municipal fund securities, including state plan sponsors, are not subject to those rules regardless of how the plan is distributed.

Question 21Regulatory Framework and Supervision of Municipal Fund Securities Activities

A municipal advisory firm's covered associate contributes $1,000 to the campaign of a governor who appoints the board of an authority that issues bonds. Under MSRB Rule G-37, the firm:

  1. May proceed if the contribution is disclosed on its next quarterly filing
  2. Is permanently barred from all business with that issuer
  3. May proceed if the contributor is promptly reassigned away from that issuer's business
  4. May not receive compensation for municipal advisory services from that issuer for two years after the contribution Correct answer.

Explanation

Rule G-37 prohibits a municipal advisor from providing advisory services for compensation to an issuer for two years after a covered associate makes a contribution to an official with influence over the issuer's selection of advisors. Internal reassignment or disclosure does not cure the prohibition.

Question 22Regulatory Framework and Supervision of Municipal Fund Securities Activities

Which person is excluded from the definition of municipal advisor and therefore is not required to register in that capacity?

  1. A broker-dealer serving as underwriter for the city's planned bond issue Correct answer.
  2. A firm paid to advise a county on the terms of a proposed lease financing
  3. A consultant paid to advise a school district on selecting an underwriter for a bond sale
  4. A firm paid a contingent fee to advise a city on the structure and timing of a bond issue

Explanation

The federal definition of municipal advisor excludes brokers, dealers, and municipal securities dealers acting as underwriters of a particular issue. Advising issuers on structure, timing, selection of underwriters, or financing terms for compensation is municipal advisory activity requiring registration.

Question 23Regulatory Framework and Supervision of Municipal Fund Securities Activities

A principal learns that a representative advised a school district on a bond refunding without a written engagement that disclosed a referral fee arrangement. The most appropriate supervisory response is to:

  1. Wait for the MSRB to identify the deficiency during its next examination
  2. Require written disclosure and documentation, and assess whether procedures need improvement Correct answer.
  3. Terminate the representative's registration without further inquiry
  4. Take no action because the representative holds an individual registration

Explanation

A principal is responsible for reasonably supervising municipal advisory activities, which includes remediating deficiencies, requiring written conflict disclosure, and evaluating whether the firm's written supervisory procedures need strengthening. Individual registration does not transfer that responsibility to the representative.

Question 24Regulatory Framework and Supervision of Municipal Fund Securities Activities

A firm's municipal advisor principal is also its designated chief compliance officer. This arrangement is:

  1. Permitted only if the MSRB approves the combined role in writing
  2. Prohibited because the roles must be held by different individuals
  3. Permitted if the individual is qualified and the firm's procedures address the combined role Correct answer.
  4. Permitted only if the individual is an attorney licensed in the firm's home state

Explanation

The rules require a designated chief compliance officer and qualified principal supervision but do not require that the roles be held by separate people or that the compliance officer be an attorney. The firm's written procedures should address how a combined role is carried out.

Question 25Regulatory Framework and Supervision of Municipal Fund Securities Activities

Which statement about MSRB rulemaking authority is accurate?

  1. MSRB rule changes must be approved by the SEC before taking effect Correct answer.
  2. The MSRB may adopt rules directly regulating issuers of municipal securities
  3. MSRB rules take effect upon Board adoption without review by the SEC
  4. The MSRB has no authority to bring disciplinary actions against municipal advisors

Explanation

The MSRB is a self-regulatory organization whose proposed rule changes must be filed with and approved by the SEC before they become effective. The MSRB enforces its rules against municipal advisors, but it has no authority over issuers.

Question 26Regulatory Framework and Supervision of Municipal Fund Securities Activities

A municipal advisory firm hires an individual to provide advisory services to municipal entity clients. The firm must report information about that individual to the SEC on which form?

  1. Form ADV
  2. Form MA-W
  3. Form G-37
  4. Form MA-I Correct answer.

Explanation

Form MA-I is the form on which a municipal advisor reports identifying and disciplinary information about each associated person who provides municipal advisory services. The firm's own registration is filed on Form MA, and the two filings operate together: the firm registers and each covered individual is reported under it.

Question 27Regulatory Framework and Supervision of Municipal Fund Securities Activities

A registered municipal advisory firm decides to stop providing municipal advisory services and wishes to terminate its registration. Which form does it file with the SEC?

  1. Form MA-I
  2. Form U5
  3. Form MA-W Correct answer.
  4. Form MA

Explanation

Form MA-W is the uniform form used to withdraw from municipal advisor registration. Form MA is the registration application and the vehicle for amendments, so a firm that wants off the register must file Form MA-W rather than an amended Form MA.

Question 28Regulatory Framework and Supervision of Municipal Fund Securities Activities

Which of the following interests is a municipal fund security?

  1. An interest in a state-sponsored 529 savings plan Correct answer.
  2. A share of a corporate bond mutual fund
  3. A share of a money market fund that invests only in commercial paper
  4. A U.S. Treasury note held in a state's general fund

Explanation

Municipal fund securities are municipal securities that represent an interest in a fund or pool sponsored by a state or local government, and interests in 529 savings plans, ABLE programs, and local government investment pools are the standard examples. Mutual fund shares are securities issued by a registered investment company, and Treasury notes are direct federal obligations.

Question 29Regulatory Framework and Supervision of Municipal Fund Securities Activities

A firm is engaged by a city to advise on the structure, timing, and terms of an upcoming general obligation bond sale. Under Exchange Act Section 15B, the firm is acting as:

  1. a custodian bank
  2. an underwriter
  3. a transfer agent
  4. a municipal advisor Correct answer.

Explanation

Providing advice to a municipal entity about the structure, timing, terms, and similar matters of a municipal securities issuance is the core municipal advisory activity described in Section 15B. An underwriter purchases or sells the issuer's securities rather than advising on how the issuance should be designed.

Question 30Regulatory Framework and Supervision of Municipal Fund Securities Activities

Which federal statute amended Exchange Act Section 15B to give the MSRB rulemaking authority over municipal advisors?

  1. The Securities Act of 1933
  2. The Sarbanes-Oxley Act of 2002
  3. The Investment Company Act of 1940
  4. The Dodd-Frank Wall Street Reform and Consumer Protection Act Correct answer.

Explanation

The Dodd-Frank Act added municipal advisors to Exchange Act Section 15B, the provision under which the MSRB writes rules for the municipal securities market. Section 15B is also the source of the registration requirement administered by the SEC.

Question 31Regulatory Framework and Supervision of Municipal Fund Securities Activities

Under MSRB qualification rules, which examination must an individual pass to be designated as a municipal advisor principal?

  1. Series 65
  2. Series 50
  3. Series 7
  4. Series 54 Correct answer.

Explanation

The Series 54 is the Municipal Advisor Principal qualification examination, which covers supervision and the regulatory framework applicable to municipal advisory firms. The Series 50 qualifies an individual as a municipal advisor representative, and the Series 65 is an investment adviser law examination.

Question 32Regulatory Framework and Supervision of Municipal Fund Securities Activities

Which of the following is a municipal financial product for purposes of the municipal advisor definition?

  1. A U.S. Treasury bond
  2. A residential mortgage loan
  3. A guaranteed investment contract Correct answer.
  4. A corporate equity security

Explanation

Municipal financial products include municipal derivatives, guaranteed investment contracts, and investment strategies, which is why advice on those matters can make a person a municipal advisor even without a securities issuance. Corporate equities, Treasury obligations, and mortgage loans fall outside that definition.

Question 33Regulatory Framework and Supervision of Municipal Fund Securities Activities

A registered municipal advisor must file its annual Form MA update with the SEC within how many days after the end of its fiscal year?

  1. 180 days
  2. 60 days
  3. 30 days
  4. 90 days Correct answer.

Explanation

SEC Rule 15Ba1-2 requires a registered municipal advisor to file an annual updating amendment to Form MA within 90 days after the end of its fiscal year. Interim amendments driven by changed facts are due on a shorter timeline.

Question 34Regulatory Framework and Supervision of Municipal Fund Securities Activities

A registered municipal advisor relocates its principal office, and shortly afterward its chief compliance officer resigns. How long does the firm have to amend its Form MA after learning that the filed information is no longer accurate?

  1. 30 days Correct answer.
  2. 10 days
  3. 90 days
  4. One year

Explanation

SEC Rule 15Ba1-2 requires prompt amendment of Form MA when previously filed information becomes inaccurate, with a 30-day outer limit after the firm knows of the change. The 90-day window applies only to the annual updating amendment after fiscal year end.

Question 35Regulatory Framework and Supervision of Municipal Fund Securities Activities

A firm registered as an investment adviser under the Investment Advisers Act advises a city on how to structure and price a new bond issue, and the advice is not investment advice about a securities portfolio. Is the firm excluded from municipal advisor registration?

  1. No, because investment advisers may never advise governmental entities
  2. Yes, because the firm is already regulated by the SEC
  3. Yes, because investment adviser registration covers all advice given to governments
  4. No, because the exclusion applies only to advice given in an investment adviser capacity Correct answer.

Explanation

The investment adviser exclusion from the municipal advisor definition applies only to the extent a person provides advice in its capacity as a registered investment adviser. Advice on the structure and pricing of a bond issuance is not investment advice about a portfolio, so the exclusion does not reach it and registration is required.

Question 36Regulatory Framework and Supervision of Municipal Fund Securities Activities

A law firm advises a city on the authorization of a bond issue and related tax questions, giving legal advice in the ordinary course of practicing law. The firm's activity is:

  1. activity excluded from the municipal advisor definition Correct answer.
  2. solicitation of municipal securities business on behalf of the firm
  3. municipal advisory activity requiring registration
  4. underwriting activity requiring dealer registration

Explanation

Attorneys who provide legal advice in the ordinary practice of law are excluded from the municipal advisor definition, so no registration is required for that legal work. The exclusion does not cover activities outside legal advice, such as soliciting municipal securities business.

Question 37Regulatory Framework and Supervision of Municipal Fund Securities Activities

An underwriter wants to rely on the independent registered municipal advisor exemption from municipal advisor registration in a negotiated transaction. What must the underwriter generally obtain?

  1. An opinion of counsel that the bonds are tax-exempt
  2. A copy of the issuer's most recent audited financial statements
  3. A verbal confirmation from the issuer's chief financial officer that it has an advisor
  4. A written statement that the issuer is represented by an independent registered MA Correct answer.

Explanation

The independent registered municipal advisor exemption allows an underwriter to avoid municipal advisor registration only where the municipal entity is represented by its own independent registered municipal advisor and provides a written representation that it will rely on that advisor's advice. Oral assurances do not satisfy the condition.

Question 38Regulatory Framework and Supervision of Municipal Fund Securities Activities

A nonprofit hospital with outstanding conduit revenue bonds asks a firm to advise it on the terms of a proposed refunding. The hospital is the obligated person on those bonds. The firm is:

  1. outside the definition because a state authority issued the original bonds
  2. acting as an underwriter of the refunding bonds
  3. not a municipal advisor because the hospital is not a governmental entity
  4. acting as a municipal advisor because the hospital is an obligated person Correct answer.

Explanation

The municipal advisor definition covers advice given to or on behalf of an obligated person with respect to the issuance of municipal securities, and a conduit borrower such as a hospital is an obligated person. The identity of the nominal issuer does not remove the advice from coverage.

Question 39Regulatory Framework and Supervision of Municipal Fund Securities Activities

A state treasurer's office that administers a direct-sold 529 plan hires a firm to advise on whether to restructure the plan's fee schedule and investment lineup. Which statement is accurate?

  1. The firm is an underwriter of the plan and is subject only to Rule G-45
  2. The firm is a municipal advisor to a municipal entity, so MSRB rules apply Correct answer.
  3. The firm is excluded because 529 plan interests are not securities
  4. The firm is an investment adviser to a mutual fund and MSRB rules do not apply

Explanation

Interests in a state-sponsored 529 savings plan are municipal fund securities, and the state agency that issues them is a municipal entity. A firm advising that agency on the plan's structure is a municipal advisor subject to MSRB municipal advisor rules, including the fiduciary duty and supervision requirements.

Question 40Regulatory Framework and Supervision of Municipal Fund Securities Activities

The antifraud prohibitions of Exchange Act Section 15B(c) apply to which of the following?

  1. Only persons registered with FINRA
  2. Only issuers of municipal securities
  3. Only brokers and dealers
  4. Brokers, dealers, and municipal advisors Correct answer.

Explanation

Section 15B(c)(1) makes it unlawful for any broker, dealer, or municipal advisor to use manipulative, deceptive, or other fraudulent devices in connection with municipal securities. Municipal advisors were added to the provision by the Dodd-Frank Act.

Question 41Regulatory Framework and Supervision of Municipal Fund Securities Activities

MSRB Rule G-17 imposes a fair-dealing obligation, including a prohibition on deceptive, dishonest, or unfair practices. Which parties are subject to Rule G-17?

  1. Issuers of municipal securities
  2. Brokers, dealers, and municipal advisors Correct answer.
  3. Brokers and dealers only
  4. Municipal advisors only

Explanation

The MSRB amended Rule G-17 so that its fair-dealing standard applies to municipal advisors as well as to brokers and dealers. The rule reaches conduct in dealings with customers and with municipal entity clients, regardless of whether a written agreement exists.

Question 42Regulatory Framework and Supervision of Municipal Fund Securities Activities

Which statement about SEC oversight of a registered municipal advisor is accurate?

  1. The SEC may examine only broker-dealers, not municipal advisors
  2. The SEC may examine the advisor's books and records without a subpoena Correct answer.
  3. The SEC may examine municipal advisors only after obtaining a subpoena
  4. The SEC must give one year's notice before any examination

Explanation

Section 15B and SEC Rule 15Ba1-5 give the SEC examination and inspection authority over registered municipal advisors, who must make required records available. No subpoena or advance notice of the kind described is a precondition for a routine examination.

Question 43Regulatory Framework and Supervision of Municipal Fund Securities Activities

The MSRB finds that a registered municipal advisor has violated MSRB rules. What may the MSRB do?

  1. Only issue a private warning letter to the firm
  2. Nothing, because only the SEC may sanction municipal advisors
  3. Refer the matter exclusively to state securities regulators
  4. Censure, fine, suspend, or bar the firm, subject to SEC review Correct answer.

Explanation

The MSRB is a self-regulatory organization with disciplinary authority over the municipal advisors it regulates, and it may impose sanctions including censure, fine, suspension, or bar. Its disciplinary determinations are subject to review by the SEC.

Question 44Regulatory Framework and Supervision of Municipal Fund Securities Activities

Which of the following is a municipal entity for purposes of the municipal advisor rules?

  1. A private university that issues bonds through a state authority
  2. A federal agency that guarantees municipal bonds
  3. A state authority created to administer a 529 college savings program Correct answer.
  4. A publicly traded corporation that pays state income tax

Explanation

A municipal entity is a state, political subdivision, or municipal corporate instrumentality, and an authority created to issue municipal fund securities such as 529 plan interests fits that description. A conduit borrower such as a private university is an obligated person rather than a municipal entity.

Question 45Regulatory Framework and Supervision of Municipal Fund Securities Activities

A bank, as defined for purposes of the municipal advisor rules, provides advice to a city about a bond issue. Which statement is accurate?

  1. The bank must register as a municipal advisor before advising the city
  2. The bank is excluded only if it also is registered as a broker-dealer
  3. The bank is excluded when it acts in its capacity as a bank Correct answer.
  4. The bank is a municipal advisor because all advice to issuers is covered

Explanation

SEC Rule 15Ba1-1 excludes a bank from the municipal advisor definition when it provides advice in its capacity as a bank. The exclusion is capacity-based and does not extend to affiliates or to activities conducted outside the bank role.

Question 46Regulatory Framework and Supervision of Municipal Fund Securities Activities

A newly formed firm has a single engagement: advising one city on one bond refunding. It has no other municipal clients and no securities business. Must the firm register as a municipal advisor?

  1. Yes, because the municipal advisor definition contains no de minimis exception Correct answer.
  2. No, because the firm is paid a flat fee rather than a contingent fee
  3. No, because one engagement is too small to require registration
  4. No, because the engagement involves only a refunding rather than a new issue

Explanation

The municipal advisor definition turns on the nature of the advice provided, not the size, number, or profitability of engagements, and there is no de minimis threshold in Section 15B or the SEC rules. A single covered engagement requires registration unless a specific exclusion applies.

Question 47Regulatory Framework and Supervision of Municipal Fund Securities Activities

A firm advises a state agency that administers an ABLE program on the terms under which program interests will be offered. Which statement is accurate?

  1. The interests are municipal fund securities and the firm is a municipal advisor Correct answer.
  2. The interests are not securities because they are sold only to state residents
  3. The firm is an investment adviser because ABLE accounts hold mutual funds
  4. The firm is outside MSRB jurisdiction because ABLE programs are federal

Explanation

MSRB Rule D-12 treats interests in ABLE programs as municipal fund securities, and the state agency that offers them is a municipal entity. A firm advising that agency on the offering is a municipal advisor subject to MSRB rules.

Question 48Regulatory Framework and Supervision of Municipal Fund Securities Activities

A municipal advisory firm ceases operations and transfers its books and records to its former compliance officer for safekeeping. Which statement is accurate?

  1. The records must be retained only if the firm had a signed written engagement agreement with each client
  2. The records must remain available for the rest of the retention period and be produced on request Correct answer.
  3. The records may be destroyed as soon as the firm files its withdrawal on Form MA-W
  4. The records must be kept at the firm's former principal office to remain valid

Explanation

MSRB Rule G-9 requires records to be preserved for the balance of the applicable retention period after a firm ceases business, and the records remain subject to inspection by the SEC and the MSRB during that time. Closing the business does not accelerate the destruction timetable.

Question 49Regulatory Framework and Supervision of Municipal Fund Securities Activities

A municipal advisor is engaged to advise a city on a bond issue and, in the same engagement, on selecting a swap counterparty for a related hedge. Which statement is accurate?

  1. The advisor owes no fiduciary duty for either piece of advice if the engagement is oral
  2. The fiduciary duty applies only to the bond advice because derivatives are not municipal securities
  3. The advisor may treat the swap advice as a non-advisory service if it charges a separate fee
  4. The fiduciary duty covers advice on both municipal financial products and the bond issuance Correct answer.

Explanation

MSRB Rule G-42 imposes a fiduciary duty on advice provided with respect to municipal financial products as well as with respect to the issuance of municipal securities, and municipal derivatives are municipal financial products. Accordingly, the duty covers both components of the engagement.

Question 50Regulatory Framework and Supervision of Municipal Fund Securities Activities

An unqualified individual at a municipal advisory firm drafts written advice to an issuer, and the firm's municipal advisor principal reviews and approves the draft before delivery. Is this permissible under MSRB rules?

  1. No, because individuals providing municipal advisory services must be qualified representatives Correct answer.
  2. Yes, because a principal's review cures the lack of individual qualification
  3. Yes, if the issuer agrees in writing to the arrangement
  4. Yes, because only the firm, not individuals, must be qualified

Explanation

MSRB Rule G-3 requires that individuals who provide municipal advisory services on behalf of a firm be qualified as municipal advisor representatives before engaging in that activity. A principal's review of the output is a supervisory safeguard but does not substitute for the individual's own qualification.