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
What You'll Learn
The unit moves from product knowledge to pricing math to regulatory and market structure:
Foundation
- 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
- 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)
Bond Mechanics
- 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
Money Side
- Tax Treatment: Federal, state, and local tax status, premium amortization, OID and market discount, AMT, bank-qualified bonds, and capital gains
- Pricing and Calculations: Dollar price, accrued interest (30/360), yield calculations, and the taxable equivalent yield formula
Portfolio and Trading View
- Factors Affecting Marketability: What makes a muni bond easy or hard to trade
- Analysis and Diversification: How to manage muni portfolio risk across geography, type, and credit rating
Primary Market
- Primary Financing: Competitive vs. negotiated sales, NIC vs. TIC, and private placement
- Municipal Syndicate Operations: Syndicate formation, eastern vs. western accounts, underwriter's spread, order priority, and syndicate settlement
Regulation and Secondary Market
- MSRB Rules: The dealer-conduct rules on quotations, fair dealing, and fair pricing (plus who enforces them)
- Advertising and Communications: The municipal-advertising rule, the municipal-disclosure rule, OS/POS delivery, continuing disclosure, and EMMA
- Settlement and Trading: T+1 settlement, RTRS trade reporting, good delivery, and suitability
- Market Analysis: Bond Buyer indexes (BB20, BB11, BB40), visible supply, and placement ratio
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.