Glossary of Municipal Securities Terms

Second Edition (January 2004)

N

NABL – See:  NATIONAL ASSOCIATION OF BOND LAWYERS.

NASD – A self-regulatory organization, formerly known as the National Association of Securities Dealers, Inc., that enforces MSRB rules applicable to the municipal securities activities of its member broker-dealers, administers the MSRB’s professional qualification examinations and handles arbitration proceedings relating to municipal securities for its member broker-dealers and for dealer banks.  NASD also adopts rules governing the conduct of its members with respect to most types of securities other than municipal securities.  Compare:  APPROPRIATE REGULATORY AGENCY.

NAST – See:  NATIONAL ASSOCIATION OF STATE TREASURERS.

NATIONAL ASSOCIATION OF BOND LAWYERS (NABL) – A professional organization of bond counsel and other public finance lawyers organized to provide education in the law relating to municipal securities, a forum for the exchange of ideas as to law and practice, and advice and comment with respect to legislation, regulations, rulings and other action or proposals relating to municipal securities.

NATIONAL ASSOCIATION OF SECURITIES DEALERS – See:  NASD.

NATIONAL ASSOCIATION OF STATE TREASURERS (NAST) – An association of state treasurers organized to promote ethical standards, provide for continuing education and exchange of ideas, develop standards of excellence, create and promote policy guidelines, and provide advice and comment on federal legislative and regulatory matters.  See:  COLLEGE SAVINGS PLAN NETWORK.

NATIONAL FEDERATION OF MUNICIPAL ANALYSTS (NFMA) – An organization of municipal analysts that provides education for professionals in the municipal securities industry and serves as a forum to promote improved industry practices.

NATIONAL INSTITUTIONAL DELIVERY SYSTEM (NIDS) – A system for the electronic transmission of a confirmation from a broker-dealer to an institutional investor, the transmission of an affirmation of that confirmation by the investor, and the automatic book-entry settlement of the transaction.  The system is also known as the “Institutional Delivery” or “I.D.” system.  MSRB rules require that electronic comparisons be used on certain transactions between broker-dealers and institutional customers.

NATIONALLY RECOGNIZED MUNICIPAL SECURITIES INFORMATION REPOSITORY (NRMSIR) – An entity designated by the SEC to receive final official statements, material event notices and annual financial information under Rule 15c2-12.  Compare:  STATE INFORMATION DEPOSITORY.  See:  CONTINUING DISCLOSURE; RULE 15c2-12.

NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) – A rating organization designated by the SEC as being nationally recognized.  See: FITCH RATINGS; MOODY’S INVESTORS SERVICE, INC.; RATING AGENCY; STANDARD & POOR’S.

NATIONAL SECURITIES CLEARING CORPORATION (NSCC) – A clearing corporation.  See:  CLEARING CORPORATION; DEPOSITORY TRUST AND CLEARING CORPORATION.

NEGATIVE ARBITRAGE – Investment of bond proceeds and other related funds at a rate below the bond yield.

NEGATIVE CARRY – See:  CARRYING COST.

NEGATIVE COVENANT – See: COVENANT.

NEGOTIATED SALE – The sale of a new issue of municipal securities by an issuer directly to an underwriter or underwriting syndicate selected by the issuer.  A negotiated sale is distinguished from a sale by competitive bid, which requires public bidding by the underwriters.  Among the primary points of negotiation for an issuer are the interest rate, call features and purchase price of the issue.  The sale of a new issue of securities in this manner is also known as a negotiated underwriting.  Compare:  COMPETITIVE SALE.

NET CAPITAL RULE – An SEC regulation that requires broker-dealers to maintain “net capital” (net worth adjusted by certain deductions for illiquid assets and reserves against possible market losses on securities positions) such that the liabilities incurred by the broker-dealer (its “aggregate indebtedness”) does not exceed a certain percentage of the broker-dealer’s net capital or of a specified percentage of the aggregate of transactional moneys owed to the broker-dealer by customers (its “aggregate debit items”).  Broker-dealers are required to suspend or terminate their securities activities if they are unable to meet this test.  See:  HAIRCUT.

NET CASH REFUNDING – See:  ADVANCE REFUNDING.

NET INTEREST COST (NIC) – A method of computing the interest expense to the issuer of bonds, which may serve as the basis of award in a competitive sale.  NIC takes into account any premium or discount applicable to the issue, as well as the dollar amount of coupon interest payable over the life of the issue.  NIC does not take into account the time value of money (as would be done in other calculation methods, such as the “true interest cost” (TIC) method).  The term “net interest cost” refers to the overall rate of interest to be paid by the issuer over the life of the bonds.  The formula for calculating the NIC rate is:

Compare:  TRUE INTEREST COST.

NET OFFERING – An offering made at a net price without any concession.  See:  CONCESSION; NET PRICE.

NET ORDER – See:  PRIORITY PROVISIONS.

NET PLEDGE – See:  PLEDGED REVENUES.

NET PRICE – The price at which a security is offered to the general public.  The price of a transaction between municipal securities professionals is generally the net price less a concession.  See:  CONCESSION.

NET PROCEEDS – Bond proceeds less costs of issuance, costs of any bond insurance or other credit enhancement and any reserves.  See:  BOND PROCEEDS.

NET REVENUE PLEDGE – See:  PLEDGED REVENUES.

NET REVENUES – The amount of money available after subtracting from gross revenues such costs and expenses as may be provided for in the bond contract.  The costs and expenses most often deducted are operations and maintenance expenses.  See:  PLEDGED REVENUES.

NETTING – A process used in an automated system made available by a clearing corporation whereby sequences of transactions in a single issue of securities are consolidated into a reduced number of delivery obligations.  Persons in the transaction sequence who purchase and subsequently resell the same securities are “netted out,” so that deliveries are generally made from the initial sellers of the securities to the ultimate buyers.  See:  BALANCE ORDER.

NEW ISSUE MARKET – See:  PRIMARY MARKET.

NEW ISSUE MUNICIPAL SECURITIES or NEW ISSUE – Municipal securities sold during the initial distribution of the issue in a primary offering by the underwriter or underwriting syndicate.  For purposes of MSRB rules, new issue municipal securities are municipal securities (other than commercial paper) that are sold by a broker-dealer during the issue’s underwriting period.  All broker-dealers selling a new issue of municipal securities to customers or to other broker-dealers must meet certain requirements regarding delivery of official statements and certain other information.  This obligation is not limited to broker-dealers acting as underwriters or selling group members.  Compare:  SECONDARY MARKET.  See:  CUSTOMER TRADE; PRIMARY MARKET; PRIMARY OFFERING; UNDERWRITING PERIOD; WHEN, AS AND IF ISSUED.

NFMA – See: NATIONAL FEDERATION OF MUNICIPAL ANALYSTS.

NIC – See:  NET INTEREST COST.

NIDS – See: NATIONAL INSTITUTIONAL DELIVERY SYSTEM.

NMO (NO MORE ORDERS) – An indication that no more orders will be accepted on the securities being offered, often indicating the end of an order period. See: ORDER PERIOD.

NOMINAL INTEREST RATE – See:  COUPON RATE.

NOMINAL QUOTATION – An indication of the approximate market value of a security, provided for informational purposes only.  The nominal quotation does not represent an actual bid for or offer of securities.  A nominal quotation may also be referred to as an “indication.”  Compare:  WORKABLE.

NOMINEE – An entity established by a bank, securities firm or other corporation to be used as the holder of record for registered securities owned by the bank, securities firm or corporation.  Securities are registered in the name of a nominee to avoid the difficulties of registering and transferring securities in a corporate name.  This form of registration is satisfactory for purposes of delivery on inter-dealer transactions.  Compare:  “STREET” NAME.

NO MORE ORDERS (NMO) – See: NMO.

NON-AMT BOND – A tax-exempt bond, interest on which is not subject to the federal alternative minimum tax.  Compare:  AMT BOND.  See:  ALTERNATIVE MINIMUM TAX; TAX-EXEMPT BOND.

NON-APPROPRIATION CALL or REDEMPTION – See:  REDEMPTION PROVISIONS.

NON-APPROPRIATION CLAUSE – A provision of a bond contract that allows the government to terminate a lease securing a long-term certificate of participation or other revenue obligation financing if its appropriating body does not appropriate funds for the lease payments.  This clause permits a long-term financing without technically incurring debt.  Such obligations are not considered debt in most states and thereby generally are not subject to debt limitations because the lease payments are characterized as payments for use of the facilities rather than as payments on a promise to repay bonded debt.  Compare:  ABATEMENT CLAUSE; ANNUAL APPROPRIATION PLEDGE; COVENANT TO BUDGET AND APPROPRIATE.  See:  CERTIFICATE OF PARTICIPATION; LEASE RENTAL BOND.

NON-CALLABLE BOND – A bond that cannot be redeemed at the issuer’s option before its stated maturity date.  Compare:  CALLABLE BOND.

NON-INVESTMENT GRADE – A credit designation given municipal securities that is below investment grade.  Compare:  INVESTMENT GRADE.  See:  HIGH-YIELD BOND; RATINGS.

NON-LITIGATION or NO LITIGATION CERTIFICATE – A document executed prior to delivery of a new issue by an issuer or obligor with respect to municipal bonds certifying that there is no litigation pending, threatened, or contemplated that would materially affect the validity or security of the bonds; the issuance, execution or delivery of the bonds; the existence of the issuing entity or obligor; or the validity or legality of provisions authorizing the payment of principal of and interest on the bonds.

NON-MFP EXECUTIVE OFFICER – An associated person of a broker-dealer who is in charge of a principal business unit, division or function of the broker-dealer but who does not qualify as a municipal finance professional.  Non-MFP executive officers generally are subject to the reporting provisions of MSRB Rule G-37.  However, their political contributions generally will not result in a ban on municipal securities business.  Compare:  MUNICIPAL FINANCE PROFESSIONAL.

NON-PERIODIC MUNICIPAL FUND SECURITY PROGRAM – A written authorization or arrangement for a broker-dealer, acting as agent, to purchase, sell or redeem for a customer specific municipal fund securities at the direction of the customer.  A broker-dealer selling municipal fund securities to a customer pursuant to such a program may use monthly periodic statements in lieu of individual transaction confirmations under MSRB Rule G-15 if the customer is not a natural person or, if the customer is a natural person, such customer or the issuer of municipal fund securities has consented to the use of periodic statements. Compare:  PERIODIC MUNICIPAL FUND SECURITY PLAN.  See:  MUNICIPAL FUND SECURITY; PERIODIC STATEMENT.

NON-RATED SECURITY – A security that has not been rated by any of the nationally recognized statistical rating organizations.  See:  RATINGS.

NOTE – A short-term obligation of an issuer to repay a specified principal amount on a certain date, together with interest at a stated rate, usually payable from a defined source of anticipated revenues.  Notes usually mature in one year or less, although notes of longer maturities are also issued.  The following types of notes are common in the municipal market:

Bond anticipation notes (BANs) – Notes issued by a governmental unit, usually for capital projects, that are paid from the proceeds of the issuance of long-term bonds.

Commercial paper (CP) – See:  COMMERCIAL PAPER.

Construction loan notes (CLNs) – Notes issued to fund construction of projects (typically housing projects).  CLNs are repaid by the permanent financing, which may be provided from bond proceeds or some pre-arranged commitment, such as a GNMA takeout.

Grant anticipation notes (GANs) – Notes issued on the expectation of receiving grant moneys, usually from the federal government. The notes are payable from the grant funds, when received.

Revenue anticipation notes (RANs) – Notes issued in anticipation of receiving revenues at a future date.

Tax anticipation notes (TANs) – Notes issued in anticipation of future tax receipts, such as receipts of ad valorem taxes that are due and payable at a set time of year.

Tax and revenue anticipation notes (TRANs) – Notes issued in anticipation of receiving future tax receipts and revenues at a future date.

Compare: BOND; VARIABLE RATE DEMAND OBLIGATION.

NOTICE OF REDEMPTION – A publication announcing the issuer’s intention to call some or all outstanding bonds prior to their stated maturity dates. See:  CALLABLE BOND; REDEMPTION; REDEMPTION PROVISIONS.

NOTICE OF SALE – A publication by an issuer describing the terms of a competitive sale of an anticipated new issue of municipal securities.  It generally contains the date, time and place of sale, amount of issue, type of security, amount of good faith deposit, basis of award, name of bond counsel, maturity schedule, method of delivery, time and place of delivery, and bid form.  See:  BID FORM; COMPETITIVE SALE.

NOT REOFFERED – See:  NRO MATURITY.

NRMSIR – See: NATIONALLY RECOGNIZED MUNICIPAL SECURITIES INFORMATION REPOSITORY.

NRO (NOT REOFFERED) MATURITY – A maturity of a new issue of municipal securities that is fully subscribed for or sold prior to the general reoffering of the issue by the underwriters to the public and therefore is not reoffered to the public by the underwriters.

NRSRO – See: NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION.

NSCC – See:  NATIONAL SECURITIES CLEARING CORPORATION.