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Investor Education

Information for Municipal Securities Investors

The Municipal Securities Rulemaking Board was created by Congress in 1975 to make rules regulating the municipal securities activities of brokers, dealers and municipal securities dealers ("dealers"). The Board is composed of 15 members who are divided into three equal categories -- persons representing bank dealers, securities firms and the public.

The MSRB is subject to oversight by the Securities and Exchange Commission, and its rules must be approved by the Commission. It is financed by fees and assessments paid by securities firms and banks engaged in municipal securities activities.

Rules Protecting the Investor

The main purpose of the Board's rules is to protect investors who buy or sell municipal securities. Toward that end, the Board has adopted rules that require dealers to deal fairly with investors.

When a dealer recommends a municipal security to an investor, the Board's rules specifically require that the recommendation be suitable to the investor's financial situation and investment objectives. Advertisements about municipal securities must not be false or misleading.

In addition, before selling a municipal security to an investor, the dealer must share with the investor all material information about the security necessary for the investor to make an informed investment decision. The investor should consider all relevant features of the security, including its yield, tax status and call or put features.

The dealer must buy and sell a municipal security at a fair and reasonable price, based on its best judgment of the security's fair market value. No dealer may guarantee an investor against a loss on an investment in a municipal security.

After buying or selling a municipal security, a dealer must send a written confirmation to the investor containing the identities of the parties to the transaction, a description of the security, the date of the sale, the security's price and yield, the capacity in which the dealer is acting, the existence of any call or put features and the availability of specific information about those features. The dealer also must provide the purchaser of a new issue municipal security with a copy of the official statement if one is prepared by the issuer.

The Board's rules apply to municipal securities only. They do not apply to unit investment trusts, bond funds or other, similar investment programs issued by investment companies. Municipal securities generally are defined as direct obligations issued by a state, county, city or any of their political subdivisions, such as a school district or a housing authority.

Investor Disputes with Dealers

An investor who has a dispute with a dealer should try to resolve it with the sales representative or the representative's supervisor. If the dispute cannot be resolved, the investor may file a claim with the National Association of Securities Dealers' arbitration program for possible restitution of an unfair monetary loss. Information about the NASD's arbitration program may be obtained by writing to the NASD at 1735 K Street, N.W., Washington, D.C., 20006, Attn: Dispute Resolution. The investor also may file a complaint with the regulatory agency that examines the dealer for compliance with Board rules.

Complaints. An investor who believes a dealer has been unfair or that Board rules or federal securities laws have been violated may file a complaint with the

Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549

Complaints also may be filed with the appropriate agency listed below:

For securities firms:

National Association of Securities Dealers, Inc.
1735 K Street, NW
Washington, DC 20006
Attn: Surveillance Department

For state banks that are not members of the Federal Reserve Board:

Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Attn: Securities Analyses Unit
Division of Bank Supervision

For state banks that are members of the Federal Reserve Board:

Federal Reserve Board
20th and C Streets, NW
Washington, DC 20551
Attn: Securities Regulation Department
Division of Banking Supervision and Regulation

For national banks:

Office of the Comptroller of the Currency
250 E Street, SW
Washington, DC 20219
Attn: Office of Chief National Bank Examiner
Capital Markets

These agencies examine dealers for compliance with Board rules and federal securities laws.

Anyone who wishes to communicate with the MSRB or obtain a copy of its rules may contact the: Municipal Securities Rulemaking Board

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