Dealers cannot say whatever they want about municipal securities, and issuers cannot bring bonds to market without disclosing the right information. This section covers both sides: the MSRB municipal-advertising rule and the family of disclosure rules (the municipal-disclosure rule, the official-statement-delivery rule, and EMMA).
Municipal Advertising Standards
- No dealer may publish any advertisement concerning municipal securities that is materially false or misleading
- All advertisements must be approved in writing by a municipal securities principal or general securities principal before first use
- Records of all advertisements must be maintained in a separate file
- "Advertisement" includes material published or distributed through public media: newspapers, websites, social media, radio, and TV
Key requirements:
- Pre-use approval: A principal must approve before the ad is used (not after)
- Separate file: Ads must be kept in their own file, separate from other records
- Scope: Includes all public media channels, including digital and social media
Municipal fund securities ads (529 plans, ABLE accounts, LGIPs) have additional requirements:
- Must advise investors to consider objectives, risks, charges, and expenses before investing
- Must state that more information is available in the issuer's official statement (OS)
- Must state that the OS should be read carefully before investing
- If the dealer publishing the ad is the underwriter, that fact must be disclosed
Exam Tip: Gotchas
- Principal approval is pre-use, not post-use. The municipal-advertising rule requires approval before the ad is used.
- Social media posts about municipal securities count as advertisements. Tweets, posts, and text messages all fall under the rule.
The Municipal-Disclosure Rule
This rule governs disclosure requirements for primary offerings of municipal securities:
- Requires underwriters of municipal offerings (over $1 million) to obtain and distribute the official statement (OS) to investors
- Requires the issuer to enter into a continuing disclosure agreement: annual financial statements plus material event notices submitted to EMMA (Electronic Municipal Market Access)
- The underwriter must reasonably determine that the issuer has committed to providing ongoing disclosure
What the rule does NOT do:
- Does NOT require the issuer to register with or file documents at the SEC (munis are exempt from SEC registration)
- Does NOT apply to offerings of $1 million or less
- Does NOT replace MSRB rules; it works alongside them
Exemptions:
- Offerings of $1 million or less
- Securities with a stated maturity of 18 months or less (exempt from continuing disclosure)
- Securities in $100,000 minimum denominations with maturity of 9 months or less
- Limited offerings: sold in $100,000+ denominations to no more than 35 sophisticated investors
Think of it this way: The SEC wants to protect retail investors buying long-term municipal bonds. Short-term notes and large-denomination bonds sold to sophisticated buyers carry lower disclosure burdens because those investors can evaluate risk on their own.
Exam Tip: Gotchas
- The OS is NOT filed with the SEC. Municipal official statements go to EMMA, not the SEC. Munis are exempt from SEC registration.
- The $1 million threshold applies to the aggregate offering size, not individual bond denominations. An offering of 2,000 bonds at $500 each ($1 million total) would trigger the rule.
The Official-Statement-Delivery Rule
The official-statement-delivery rule covers what dealers must provide to customers and submit to EMMA when selling new-issue municipal securities:
- Dealers must deliver the official statement (OS) to customers by settlement of the transaction
- Under the "access equals delivery" standard, dealers can satisfy the delivery obligation by notifying the buyer that the OS is available on EMMA
- If no OS is being prepared, the dealer must provide written notice of that fact, along with a copy of the preliminary official statement (POS) if one exists
- Underwriters must submit the OS, POS, and advance refunding documents to EMMA electronically
Official statement (OS) vs. preliminary official statement (POS):
| Document | What It Contains | When Distributed |
|---|---|---|
| Preliminary official statement (POS) | All terms except final price, yield, and coupon | Before pricing, to gauge investor interest |
| Official statement (OS) | Complete terms including final pricing | After pricing, delivered to investors |
- The POS is sometimes called the "red herring" (analogous to the preliminary prospectus for corporate securities)
Exam Tip: Gotchas
- The POS is like a red herring for munis. It contains everything except final pricing details.
- Delivery deadline for the OS is settlement, not the trade date. Customers must receive it by settlement.
- "Access equals delivery" means notifying the buyer the OS is on EMMA satisfies the rule. Dealers do not have to mail or hand over a physical copy.
Continuing Disclosure and Material Events
Issuers that entered into continuing disclosure agreements must post material events to EMMA within 10 business days, including:
- Principal and interest payment delinquencies
- Unscheduled draws on reserves or credit enhancements
- Substitution of credit or liquidity providers
- Bond rating changes (upgrades, downgrades, withdrawals)
- Defeasances
- Bond calls and tender offers
- Adverse tax opinions or events affecting tax-exempt status
- Bankruptcy, insolvency, or receivership of the obligated person
- Mergers, consolidations, acquisitions, or sales of substantially all assets
- Incurrence of a financial obligation (added in the 2019 amendment)
Exam Tip: Gotchas
- Material events must be reported within 10 business days, not calendar days.
- The disclosure obligation falls on the issuer, not the underwriter or dealer. The underwriter's role is to confirm the issuer has committed to making ongoing disclosure.
EMMA: Electronic Municipal Market Access
EMMA is the MSRB's centralized online system for municipal securities disclosure. The SEC has designated EMMA as the official source for municipal securities data.
- Free public access to official statements, continuing disclosure documents, trade data, and material event notices
- Underwriters submit OS and POS documents to EMMA under the official-statement-delivery rule
- Issuers submit continuing disclosure documents (annual financials and material event notices) under their continuing-disclosure agreements
- Real-time trade prices reported via RTRS (covered in Settlement and Trading) flow into EMMA for public access
Think of it this way: EMMA is to municipal bonds what EDGAR is to corporate securities. Both are free, electronic systems where investors look up disclosure documents. EMMA is run by the MSRB; EDGAR is run by the SEC.
Exam Tip: Gotchas
- EMMA is free. There is no charge for public access to municipal disclosure documents.
- Issuers do not file with the SEC. Municipal issuers file continuing disclosure on EMMA, not with the SEC. This is a common exam trap because corporate issuers file on EDGAR with the SEC.