Quick Answer
Municipal securities are exempt from Securities Act registration, so disclosure relies on MSRB rules and the municipal-underwriter disclosure rule instead of a prospectus. Underwriters deliver a Preliminary Official Statement before pricing, a final Official Statement posted to EMMA after pricing, and a Notice of Sale published in The Bond Buyer to solicit competitive bids from syndicates.
Municipal securities are exempt from Securities Act (SA) registration, so there is no federal registration statement and no "prospectus" in the traditional sense. Instead, the SEC and the Municipal Securities Rulemaking Board (MSRB) impose a parallel disclosure regime on the underwriters. This section walks through the three municipal-offering documents you need to distinguish.
How does the municipal securities disclosure framework work?
Municipal securities qualify for the exemption for government and bank-issued securities (covered more fully in Topic 6). Because they are not registered, there is no SEC-reviewed prospectus.
Disclosure is still required, however. It comes from two sources:
- The municipal-underwriter disclosure rule: requires underwriters to obtain and distribute disclosure documents before a competitive or negotiated new issue
- MSRB rules: require underwriters to deliver final disclosure documents to customers and post them to EMMA (the MSRB's Electronic Municipal Market Access platform)
The municipal market created substitute documents that look like a preliminary and final prospectus but carry different names.
What is a Preliminary Official Statement in a municipal new issue?
The Preliminary Official Statement (POS) is the municipal equivalent of a red herring.
- Prepared by or on behalf of the municipal issuer
- Distributed before the final pricing, during the period when the underwriter is gauging interest
- Sent to:
- Potential underwriters (in a competitive bid)
- Potential investors (after the underwriter is selected)
- Does NOT contain the final interest rates, offering prices, or maturity schedule
- Contains issuer information, legal disclosures, and the security's basic terms
Exam Tip: Gotchas
- Municipal securities do not have a "prospectus." The equivalent disclosure documents are the POS (preliminary) and the OS (final). Do not call an OS a prospectus on the exam.
What is an Official Statement in a municipal new issue?
The Official Statement (OS) is the final municipal disclosure document.
- Prepared after the issue is priced and awarded
- Contains:
- Final interest rates
- Offering prices (or yields)
- Maturity schedule
- Sources and uses of funds
- Legal disclosures, which may include the form or a summary of bond counsel's opinion
- Security features (general obligation backing, revenue pledge, insurance wraps)
Delivery and EMMA posting:
- Any dealer selling municipal securities to a customer during the underwriting period must deliver the final OS to that customer by settlement of the transaction. The duty is not limited to the underwriter
- On request, the underwriter keeps sending the final OS until the earlier of 90 days after the underwriting period ends, or the date the OS becomes available from the MSRB, but never less than 25 days after the underwriting period ends
- Underwriters must post the OS to EMMA (the MSRB's public access platform) so investors can look up the final terms
Think of it this way: The OS lives on EMMA after the deal closes so investors can always pull it up, including any later corrections the underwriter posts.
What is a Notice of Sale in a municipal bond offering?
A Notice of Sale is a public announcement used to solicit competitive bids from underwriting syndicates on a new municipal issue.
- Typically published in The Bond Buyer (the daily trade publication for municipal finance)
- Used only in competitive offerings (most general obligation (GO) bonds)
- Not used in negotiated offerings (most revenue bonds)
Contents of a Notice of Sale include:
- Description of the issue (size, type, security features)
- Maturity schedule
- Bid date and time
- Bidding instructions for the underwriting syndicates
- Delivery date and settlement terms
- Legal opinion requirements
Exam Tip: Gotchas
- A Notice of Sale solicits underwriters, not investors. Investors do not respond to a Notice of Sale. If an exam question says a Notice of Sale went to retail customers, the wrong document was sent. Investors see the POS; underwriters bid from the Notice of Sale.
How do you identify the POS, OS, and Notice of Sale on the exam?
When an exam question describes a document, use these markers:
- POS = preliminary disclosure for investors, no final prices
- OS = final disclosure for investors, posted to EMMA, full terms included
- Notice of Sale = announcement to underwriters soliciting competitive bids
What Should You Check on Exam Day?
- Can you state that municipal securities have no prospectus, relying instead on the POS and OS as substitute disclosure documents?
- Do you know the POS does not contain final interest rates, offering prices, or the maturity schedule?
- Can you state that a dealer must deliver the final OS to a customer by settlement of the transaction during the underwriting period?
- Do you know a Notice of Sale solicits competitive bids from underwriters, not investors, and is published in The Bond Buyer?
- Can you state the continuing OS delivery deadline: the earlier of 90 days after the underwriting period, or MSRB availability, never less than 25 days?