Municipal Fund Securities

529 College Savings Plans
Local Government Investment Pools

Securities Regulation

The activities of brokers, dealers and municipal securities dealers (collectively referred to as "broker-dealers") relating to municipal fund securities are subject to MSRB rules. These rules are designed to protect investors and the public interest and to ensure a fair and efficient marketplace. However, as with municipal bonds and notes, issuers of municipal fund securities and other non-broker-dealer parties that service the municipal fund securities market are not subject to the comprehensive system of federal securities regulation that applies to most other forms of securities, such as mutual funds and corporate equity or debt securities. Thus, issuers and these other parties generally are exempt from the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940. MSRB rules apply solely to broker-dealers and not to any other party, including issuers.

Issuer Regulation:  By virtue of their general exemption from the federal securities laws, issuers are not required to meet the basic requirements set forth in these laws in connection with the structuring and marketing of their municipal fund securities.  Some of the requirements from which issuers of municipal fund securities are exempted include registration with the Securities and Exchange Commission ("SEC"), preparation of a prospectus and statement of additional information (SAI), daily calculation of net asset value, and establishment of a board of directors that includes independent directors.  In the case of municipal fund securities structured to emulate a money market mutual fund, such municipal fund securities are also exempt from the SEC’s risk-limiting rules (specifically, Investment Company Act Rule 2a-7) designed to ensure that money market mutual funds maintain their liquidity and do not break the dollar.

However, issuers of municipal fund securities are not exempted from the basic anti-fraud provisions of the federal securities laws.  Thus, for example, an issuer is subject to the prohibition of Exchange Act Rule 10b-5 against the use of any device, scheme or artifice to defraud or the making of any untrue statement of a material fact or the omission of any material fact necessary to make statements made, in light of the circumstances in which they were made, not misleading.

In addition, issuers are subject to the laws of their state, including state securities laws.  The North American Securities Administrators Association (NASAA) is a central resource on state securities regulations.

Broker-Dealer Regulation:  Exchange Act Section 15B provides that no broker-dealer may effect a transaction in, or induce or attempt to induce the purchase or sale of, any municipal security in contravention of MSRB rules.  All MSRB rules apply to transactions in municipal fund securities effected by broker-dealers, except where explicitly exempted.  In addition, the MSRB frequently publishes interpretive notices and interpretive letters providing guidance on the application of MSRB rules, often in the context of particular facts and circumstances.  Except to the extent that the context otherwise requires, much of this guidance is applicable to broker-dealer transactions in municipal fund securities, even where the guidance does not explicitly mention such securities. 

Further, the SEC has informed the MSRB that Exchange Act Rule 15c2-12 applies to broker-dealer transactions in municipal fund securities. Broker-dealers also are subject to the anti-fraud provisions of the federal securities laws, including but not limited to Exchange Act Rule 10b-5.

Broker-dealers are also subject to the basic operational and soundness requirements of the various regulatory agencies (NASD, Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of Thrift Supervision) under which they are formed. Certain general broker-dealer rules of the SEC also may apply. See Qualification Requirements for Broker-Dealers and Associated Persons.

Broker-dealers also may be subject to the securities laws of individual states. NASAA provides links to the various state securities regulators.

Click on the appropriate links below to find information relating specifically to municipal fund securities.

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

©2008 Municipal Securities Rulemaking Board. All Rights Reserved. Terms and Conditions of Use.