Targeted Examination Request

May 2009


RE: Municipal Underwritings and Municipal Derivative Instruments


The Strategic Programs Group of FINRA’s Enforcement Department is conducting an inquiry regarding municipal underwritings and municipal derivative instruments. For the purposes of this letter, the phrase “municipal derivative instruments” includes, but is not limited to, the following instruments when entered into or used by a municipal entity: interest rate swaps, interest rate caps, floors and collars, options on swaps, basis swaps, forward delivery contracts, structured notes, and total return swaps. This request is for documentation and information for the time period July 1, 2006 to March 30, 2009 (“the review period”):


  1. An Excel spreadsheet in electronic format containing the following information about all municipal underwritings in which the Firm participated in any fashion where the issuer also utilized one or more municipal derivative instruments associated with the underwriting. Your response should include the following columns:

    1. Name of issuer;
    2. CUSIP;
    3. Role(s) played by Firm (underwriter, advisor, etc.);
    4. Date of the underwriting;
    5. Total value of offering;
    6. If the Firm acted as an underwriter to the transaction, indicate whether such a role was a result of competitive bid or negotiation;
    7. Underwriting compensation earned by Firm, if applicable;
    8. Type of municipal derivative instrument(s) related to underwriting;
    9. Notional principal value of municipal derivative instrument(s);
    10. Municipal derivative instrument(s) provider;

  2. With respect to each responsive underwriting identified in Item 1, answer the following questions;

    1. Did the Firm recommend the use of a municipal derivative instrument? If not, please identify the entity making said recommendation;
    2. Indicate whether the municipal derivative instrument provider was selected by negotiation or competitive bid?
    3. Describe the Firm’s role in the selection process, including an explanation as to whether the Firm recommended or introduced the municipal derivative instrument provider;
    4. Describe any review, analysis or due diligence performed by the Firm in connection with the municipal derivative instrument;
    5. Is the municipal derivative instrument provider affiliated with the Firm or persons associated with the Firm? If so, describe the nature of the affiliation;
    6. Describe each item of compensation or other things of value earned by the Firm with respect to the municipal derivative instrument(s). The description should include the type of compensation, the amount and the source of the compensation;

  3. For each responsive underwriting identified in Item 1, provide an electronic copy of the official statement that was in effect during the review period;

  4. Copies of all underwriting agreements and any amendments thereto between the Firm and any issuers identified in Item 1;

  5. Copies of all agreements and amendments thereto between the Firm and any issuers identified in Item 1 that concern or relate to the municipal derivative instrument;

  6. Copies of all agreements between the Firm and any of the municipal derivatives instrument providers identified in Item 1;

  7. Copies of all presentation materials, marketing materials, scripts, PowerPoint presentations, advertising and sales literature concerning or referring to the underwritings or municipal derivative instruments identified in Item 1;

  8. Copies of each type of municipal issuer communication, not provided in response to Item 7, that disclosed or discussed the risks associated with the municipal underwritings or municipal derivative instruments identified in Item 1;

  9. Copies of all complaints and arbitration / litigation claims relating to, referring to, or concerning the underwritings or municipal derivative instruments identified in Item 1 received during the review period. Please also provide a copy of the Firm’s response; and

  10. All Written Supervisory Procedures addressing municipal underwritings and / or municipal derivative instruments.