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Rule Change Updates

FINRA Notice regarding Alternative Municipal Financing Trends

FINRA recently published MEMBER Regulatory Notice 16-10 to clarify certain concepts regarding municipal private placements and bank loans. These points may be testable in Series 50, 52 and 53 exams.

Alternatives to traditional public offerings in municipal financing include the following two methods:

  • Private placements to a single purchaser (these transactions are known as direct purchases); and
  • Bank loans made to municipalities.

FINRA states that even in a private placement transaction, a firm that helps facilitate such financing is subject to registration as a municipal advisor, and the transaction is subject to underwriting assessments, disclosure, notice filing, recordkeeping and other applicable FINRA and MSRB rules.

FINRA further advises that financing obtained by a municipality from a bank that is identified as a “loan” may trigger registration requirements because it is actually a securities transaction.  Firms must perform due diligence on these loans following the Reeves Test which provides guidance for assessment.   If these loans or notes function like other securities and are perceived by the public to be a security because of their resemblance, the firm that helps facilitate the financing is subject to registration as a municipal advisor, and all other applicable FINRA and MSRB rules to the advisor and the securities.

Knopman Marks Financial Training is committed to ensuring you have access to the latest updates. As more information becomes available on this topic we will post updates. As always, good luck with your studying and with your exam, and contact us if we can be of help!

Marcia Larson is Vice President, Faculty, at Knopman Marks Financial Training, New York, NY. She has extensive experience in financial licensing and regulatory training, having authored, developed and presented courseware for numerous securities and insurance exam preparation and continuing education and compliance programs. Before joining Knopman Marks, Marcia was Director of Annuity Products and Business Development at CUNA Mutual Group, where she developed and marketed industry-leading annuity products and retirement solutions and implemented distribution relationships. She was previously VP, Securities Products for Kaplan Financial, managing securities training products and subsequently, international training and businesses development. Marcia has trained thousands of financial industry exam candidates throughout their careers, and also college students as an adjunct professor. Marcia was a summa cum laude graduate of Wartburg College with degrees in Business Administration and Piano Performance. Marcia also holds the designations of Chartered Financial Consultant® (ChFC®), Chartered Life Underwriter (CLU®), Certified Employee Benefit Specialist (CEBS), and Fellow Life Management Institute™ (FLMI®). She currently teaches the SIE, Series 6, 7, 24, 50, 52, 63, 65, and 66 exams.