Issuing Municipal Securities – Series 7 Exam
- April 1, 2025
- Posted by: 'FINRA Exam Mastery'
- Category: Finance
🟦 Issuing Municipal Securities – Series 7 Exam
Key knowledge for success on exam day—and beyond.
When studying for the Series 7 exam, understanding the issuance of municipal securities is essential. Municipal securities are a core product category you must master, especially regarding how they are issued, marketed, and regulated.
Here’s a clean, exam-focused breakdown:
🏛 What Are Municipal Securities?
Municipal securities are debt instruments issued by:
- State governments
- Local governments (cities, counties)
- Government agencies or authorities (such as water districts or transportation agencies)
✅ Purpose: To finance public projects like schools, highways, hospitals, and infrastructure.
✅ Main Types:
- General Obligation (GO) Bonds – backed by the full taxing power of the issuer
- Revenue Bonds – backed by income from specific projects (e.g., toll roads, utilities)
📋 How Municipal Securities Are Issued
There are two main issuance methods tested on the Series 7:
| Method | Description |
|---|---|
| Competitive Bidding | Municipality invites firms to submit sealed bids. The lowest interest cost wins. |
| Negotiated Offering | Municipality negotiates terms directly with a chosen underwriter (common for revenue bonds). |
Competitive bids are standard for GO bonds, while negotiated offerings are typical for revenue bonds.
🧾 Important Issuance Documents
You need to recognize these for the exam:
- Official Statement (OS) – Disclosure document for investors (similar to a prospectus)
- Notice of Sale – Used in competitive bidding; invites underwriters to bid
- Legal Opinion – Statement from a bond counsel confirming tax-exempt status and legal validity
- Preliminary Official Statement (POS) – Draft version of the OS used to gauge interest
📜 Key Regulations and Agencies
Municipal securities are exempt from SEC registration, but they are regulated by:
- MSRB (Municipal Securities Rulemaking Board) – Creates rules for dealers and advisors
- FINRA – Enforces MSRB rules for broker-dealers
- Municipal Advisors – Must be registered and comply with fiduciary standards
Remember: Municipal advisors help issuers but cannot underwrite bonds.
💬 Terms You Must Know
| Term | Meaning |
|---|---|
| Syndicate | Group of underwriters who share risk during issuance |
| Takedown | Portion of the spread earned by syndicate members |
| Concession | Portion earned by selling group members |
| Scale | Yields by maturity used in competitive offerings |
📚 How It Appears on the Series 7 Exam
Expect questions like:
- Identifying whether an offering is competitive or negotiated
- Understanding the role of the official statement
- Recognizing the legal opinion’s importance
- Applying MSRB rules to real-world scenarios
Scenario-based questions are common, testing your ability to analyze issuance steps and participants.
🎯 Final Tip
Municipal securities may seem intimidating, but mastering the issuance process, key documents, and basic regulatory structure will cover most Series 7 exam questions on this topic.
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