Introduction

Welcome to Municipal Securities, one of the most frequently tested topics on the Series 7 exam and a key area of fixed-income knowledge for every registered representative.

Exam Weight: Part of Function 3 (73% of exam, ~91 questions), with municipal securities representing approximately 20 questions across Units 15-16

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What You'll Learn

In this unit, you'll cover:

  • General Characteristics: How munis work, quotation methods, denominations, maturity structures, and the legal opinion
  • General Obligation (GO) Bonds: Full faith and credit backing, taxing power, unlimited vs. limited tax GOs, and the debt ratios used to assess credit quality
  • Revenue Bonds: Project-based financing, feasibility studies, protective covenants, the flow of funds (net vs. gross revenue pledge), and credit enhancements
  • Analysis and Diversification: How to manage muni portfolio risk across geography, type, and credit rating
  • Types of Municipal Securities: Short-term notes (TANs, RANs, BANs), special types (moral obligation, double-barreled, pre-refunded), and municipal fund securities (529 plans, ABLE accounts, LGIPs)
  • Call Features and Redemption: Optional, mandatory, extraordinary, and make-whole calls, plus put features
  • Refunding Methods: Current vs. advance refunding, escrowed to maturity, and crossover refunding
  • Factors Affecting Marketability: What makes a muni bond easy or hard to trade
  • Pricing and Calculations: Dollar price, accrued interest (30/360), premium amortization, discount accretion, yield calculations, and the taxable equivalent yield formula
  • Tax Treatment: Federal, state, and local tax status, AMT bonds, bank-qualified bonds, and capital gains on munis
  • Primary Financing: Competitive vs. negotiated sales, official statements, and SEC Rule 15c2-12
  • Municipal Syndicate Operations: Syndicate formation, underwriter's spread, and order priority under MSRB Rule G-11
  • MSRB Rules: Key rules governing municipal dealers (G-13, G-17, G-19, G-30, G-45)
  • Market Analysis: Bond Buyer indexes, visible supply, placement ratio, continuing disclosure, and EMMA
  • Advertising and Communications: MSRB Rule G-21 and SEC Rule 15c2-12
  • Settlement and Trading: T+1 settlement, RTRS trade reporting, and suitability

Why This Matters

Municipal securities are a favorite exam topic because they combine product knowledge, tax analysis, regulatory rules, and math calculations into a single area. The Series 7 tests munis at a much deeper level than the SIE - you need to understand not just what munis are, but how they're issued, priced, traded, taxed, and regulated. The taxable equivalent yield formula, the net vs. gross revenue pledge distinction, and the syndicate order priority rules are among the most frequently tested concepts.

Let's start with the general characteristics that define all municipal securities.