Municipal securities, or "munis," are 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. Municipal securities pay a specified amount of interest (usually semiannually) and return the principal to you on a specific maturity date. Most municipal securities are sold in minimum increments of $5,000 and have maturities that range from short term (2 – 5 years) to very long term (30 years).
A firm that engages in municipal securities business or municipal advisory activities must register with the Municipal Securities Rulemaking Board (MSRB). Municipal securities firms are subject to MSRB rules, which cover issues that include, but are not limited to, the following:
- Suitability - Firms recommending municipal securities 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 and risks 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 they must have adequate policies and procedures in place for monitoring the effectiveness of their supervisory systems.
Rules for municipal advisors include, but are not limited to, the following:
- Fair Dealing - Municipal advisors must deal fairly with all persons and not engage in any deceptive, dishonest, or unfair practice.
- 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
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
FINRA's Office of General Counsel (OGC) staff provides broker-dealers, attorneys, registered representatives, investors and other interested parties with interpretative guidance relating to FINRA’s rules. Please see FINRA OGC Interpretative Guidance for more information.