Municipal Securities Advertising and Communications

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).

What Do the Municipal Advertising Standards Require?

• 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.

What Does the Municipal-Disclosure Rule Require?

This rule governs disclosure requirements for primary offerings of municipal securities:

• Requires underwriters of municipal offerings ($1 million or more) 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 less than $1 million
• Does NOT replace MSRB rules; it works alongside them

Exemptions:

• Offerings of less than $1 million
• 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 rule applies at $1 million or more, not "over" $1 million. An offering of exactly $1,000,000 is covered.
• 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.

What Does the Official-Statement-Delivery Rule Require?

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):

• The POS is sometimes called the "red herring" (analogous to the preliminary prospectus for corporate securities)

Municipal fund securities (529 plans, ABLE accounts) get a different delivery path:

• "Access equals delivery" does not apply the same way to municipal fund securities. If a customer already received the OS when they entered a periodic investment plan, later purchases under that same plan are satisfied by mailing any new, supplemented, or "stickered" OS
• The dealer must give the customer written disclosure of any fee it receives as the issuer's agent for distributing the municipal fund securities, no later than settlement (or at least annually if the dealer uses periodic statements instead of individual confirmations)

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.
• Municipal fund securities (529s, ABLE) have their own OS-delivery and dealer-fee-disclosure path, distinct from the standard access-equals-delivery rule for ordinary municipal bonds.

What Counts as a Material Event Under Continuing Disclosure?

Issuers that entered into continuing disclosure agreements must post material events to EMMA within 10 business days, including:

• Principal and interest payment delinquencies
• Non-payment-related defaults, if material
• 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, if material
• Adverse tax opinions or events affecting tax-exempt status
• Modifications to bondholder rights, if material
• Release, substitution, or sale of property securing the bonds, if material
• Bankruptcy, insolvency, or receivership of the obligated person
• Mergers, consolidations, acquisitions, or sales of substantially all assets
• Appointment of a successor or additional trustee, if material
• Incurrence of a financial obligation, if material, or default/acceleration/modification under an existing one
• Failure of the issuer or obligated person to provide required annual financial information on time

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.

What Is 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.

What Should You Check on Exam Day?

• Advertisement approval is pre-use, by a municipal or general securities principal
• The municipal-disclosure rule applies at $1 million or more, not "over" $1 million; an exactly-$1,000,000 offering is covered
• The OS is delivered by settlement; "access equals delivery" via EMMA satisfies the requirement
• Material events go to EMMA within 10 business days, an issuer obligation, not the underwriter's
• Munis never file with the SEC; the OS and continuing disclosure go to EMMA, run by the MSRB