Municipal Securities

Municipal securities fall into two categories: 1) municipal bonds issued by states, cities, counties and other governmental entities to raise money to build roads, schools and a host of other projects for the public good; and 2) municipal fund securities. Municipal bonds are typically sold in minimum increments of $5,000, pay interest on a semi-annual basis, and have maturities that range from less than one year to 30 years. Municipal fund securities include 529 Savings Plans, which are established by states to provide a way for investors to pay for qualified education expenses, and ABLE Programs, which are savings accounts for individuals with disabilities and their families. Municipal bond and municipal fund security investments may offer tax advantages to certain investors.

A FINRA member that engages in municipal securities business or municipal advisory activities must register with the Securities and Exchange Commission (SEC) and Municipal Securities Rulemaking Board (MSRB) and its registered representatives must be properly qualified. Municipal securities broker-dealers and municipal advisors are subject to SEC and MSRB rules. Rules for municipal securities broker-dealers include, but are not limited to, the following:

• Fair Dealing – Municipal broker-dealers must deal fairly with all persons and not engage in any deceptive, dishonest, or unfair practice.
• Suitability – Firms recommending a municipal securities transaction must have reasonable grounds for believing that the securities are suitable for the customer. This belief should be based on information available from the security’s issuer or any other source, as well as all facts known about the customer.
• Disclosures – Firms must disclose all material facts surrounding a municipal securities transaction before or at the time of trade. Unlike suitability, this obligation exists whether or not the trade is recommended.
• Pricing – Firms must trade with customers at fair and reasonable prices, considering all relevant factors. Part of this is making sure the price bears a reasonable relationship to the security’s prevailing market price.
• Supervision – Firms must supervise their municipal securities business, and must have a supervisory system that is reasonably designed to achieve compliance with applicable rules and regulations.

In addition to Fair Dealing and Supervision, rules for municipal advisors include, but are not limited to, the following:

• Standards of Conduct – Under the Securities Exchange Act of 1934, municipal advisors are deemed to owe a fiduciary obligation to their municipal entity clients. MSRB rules define the specific conduct requirements of municipal advisors with respect to their fiduciary obligations.

The MSRB's Electronic Municipal Market Access system (EMMA) can be an excellent tool to help you gather information for suitability, disclosures, and pricing of municipal securities.

The SEC’s Office of Municipal Securities provides guidance on municipal advisor registration and municipal securities disclosure requirements.

FINRA is responsible for examining FINRA members that are municipal securities dealers or municipal advisors and for enforcing MSRB rules. In addition, FINRA administers the professional qualifications program for the MSRB. This includes the following qualification exams:

• Series 50 - Municipal Advisor Representative Examination
• Series 51 - Municipal Fund Securities Limited Principal Qualification Examination
• Series 52 - Municipal Securities Representative Qualification Examination
• Series 53 - Municipal Securities Principal Qualification Examination
• Series 54 - Municipal Advisor Principal Exam

Contact FINRA

FINRA's Fixed Income Regulation (FIR) staff provides broker-dealers, attorneys, registered representatives, investors and other interested parties with guidance relating to FINRA’s enforcement of MSRB rules.

FIR staff contacts:
Cynthia Friedlander and Bonnie Bowes
FINRA, Fixed Income Regulation
1700 K Street, NW
Washington, DC 20006
(202) 728-8000