Municipal Fund Securities

Qualification Requirements for Broker-Dealers and Associated Persons

FIRM REGISTRATION REQUIREMENTS

SEC: Firms that effect transactions in municipal fund securities generally are required to register as a broker, dealer or municipal securities dealer (“broker-dealers”) with the Securities and Exchange Commission (SEC).  The SEC has prepared a Compliance Guide to the Registration and Regulation of Brokers and Dealers, which provides guidance with respect to registering with the SEC.

MSRB: In addition, broker-dealers effecting transactions in municipal fund securities must meet certain prerequisites under MSRB rules prior to engaging in any municipal securities activities.  These broker-dealer registration requirements are described in the Dealer Registration/Professional Qualifications section of this web site.

FINRA: Broker-dealers that are members of FINRA must meet certain additional requirements established by NASD.  These requirements, as well as other issues of concern to member broker-dealers, are described in the 529 College Savings Plans section of the NASD web site.  

Bank Regulators: Banks that have registered with the SEC as municipal securities dealers should contact their respective bank regulators (Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation or Office of Thrift Supervision) to ensure compliance with any requirements imposed by such agencies.

SIPC COVERAGE, FIDELITY BONDING & NET CAPITAL REQUIREMENTS

FINRA member firms that effect transactions in municipal fund securities must become a member of the Securities Investor Protection Corporation (SIPC).  In addition, MSRB Rule G-6 requires that such firms meet NASD's fidelity bonding requirement. Further, firms must meet the net capital requirements established by the SEC under Exchange Act Rule 15c3-1. 

ELECTRONIC MAIL CONTACT

Each broker-dealer must appoint an electronic mail contact under MSRB Rule G-40 to serve as its official contact person for purposes of communicating with the MSRB. The electronic mail contact, who must be either a municipal securities principal (Series 51) or municipal fund securities limited principal (Series 51), must be appointed by means of MSRB Form G-40.

FIRM NUMERICAL REQUIREMENTS FOR CERTAIN PRINCIPALS  

Municipal Securities Principals/Municipal Fund Securities Limited Principals – Broker-dealers effecting transactions in municipal securities generally are required under MSRB Rule G-3 to have at least two municipal securities principals (Series 53).  However, any FINRA member firm that conducts a general securities business and any other broker-dealer having fewer than 11 persons engaged in municipal securities activities need have only one municipal securities principal (Series 53).  Broker-dealers whose municipal securities activities are limited exclusively to municipal fund securities may count any municipal fund securities limited principal (Series 51) toward this numerical requirement.  

Financial and Operation Principals – Broker-dealers must have at least one financial and operations principal (including its chief financial officer), except: (i) any municipal securities dealer that is a bank or a separately identifiable department or division of a bank under MSRB Rule G-1; (ii) any broker-dealer meeting the requirements of Exchange Act Rule 15c3-1(a)(2)(iv), (v) or (vi); and (iii) any broker-dealer meeting the exemption set forth in Exchange Act Rule 15c3-1(b)(3).  

LICENSING REQUIREMENTS FOR INDIVIDUALS  

MSRB Rule G-3 requires individuals who undertake certain tasks with respect to municipal fund securities to be licensed, as described below. Further information on these licensing requirements is set forth in the Dealer Registration/Professional Qualifications section of this web site.

Representatives – Municipal securities representatives (Series 52), general securities representatives (Series 7) and investment company/variable contracts limited representatives (Series 6) may:  underwrite, trade or sell municipal fund securities; provide financial advisory or consultant services to issuers of municipal fund securities; and undertake research, investment advice or any other activities involving communication with public investors with respect to municipal fund securities.  

Apprenticeship for new representatives – an individual who for the first time becomes a representative (e.g., a municipal securities, general securities or investment company/variable contracts limited representative) is required to serve an apprenticeship.  The apprenticeship period lasts at least 90 days, during which the individual may not transact any business with the public with respect to, and may not be compensated for transactions in, municipal securities (including municipal fund securities), regardless of whether the individual has passed the appropriate licensing examination.  

Municipal Securities Principals – Municipal securities principals (Series 53) may manage, direct or supervise:  all activities of representatives; the processing, clearance, and safekeeping of municipal fund securities; and the maintenance of records with respect to such activities. A municipal securities principal may undertake these responsibilities with respect to all types of municipal securities, including municipal fund securities.
 

Prerequisite for taking Series 53 examination – an individual seeking to qualify as a municipal securities principal (Series 53) also must be qualified as a municipal securities representative (Series 52) or general securities representative (Series 7).

Municipal Fund Securities Limited Principals – Municipal fund securities limited principals (Series 51) may undertake all actions required or permitted under any MSRB rule to be taken by a municipal securities principal (Series 53), but solely with respect to activities related to municipal fund securities. 

Prerequisite for taking Series 51 examination – an individual seeking to qualify as a permanent municipal fund securities limited principal (Series 51) also must be qualified as a general securities principal (Series 24) or investment company/variable contracts limited principal (Series 26).

Municipal Securities Sales Principals – Municipal securities sales principals (Series 9/10) may supervise sales to and purchases from customers of municipal fund securities.  A municipal securities sales principal cannot be counted toward a broker-dealer's numerical requirements for municipal securities/municipal fund securities limited principals.  

Prerequisite to becoming a municipal securities sales principal – an individual seeking to qualify as a municipal securities sales principal (Series 9/10) must also be qualified as a general securities representative (Series 7) or a municipal securities representative (either Series 52 or Series 6 by virtue of the individual’s municipal fund securities activities).  

Financial and Operations Principals – Financial and operations principals (Series 27) may: approve, prepare and supervise the preparation of financial reports required to be filed with the SEC or any other self-regulatory organization; supervise the maintenance of related books and records; supervise compliance with applicable financial responsibility rules; and supervise the maintenance of processing, clearance and safekeeping functions.

 

Municipal Fund Securities: Introduction, Product Information, Qualification Requirements, Securities Regulation, Information for Investors, Links to Other Resources