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FINRA Regulatory Notice: Municipal Securities

FINRA Reminds Firms of Their Sales Practice and Due Diligence Obligations When Selling Municipal Securities in the Secondary Market

The Financial Industry Regulatory Authority (FINRA) published Regulatory Notice 10-41 reminding broker dealers including municipal securities dealers to fully understand the municipal securities they sell in order to meet their disclosure, suitability and pricing obligations under the rules of the Municipal Securities Rulemaking Board (MSRB) and federal securities laws.

There are certain risks in investing in municipal bonds. Take for instance the default risk of the municipal bond issuer, the municipality is responsible for paying the investor the due interest and principal at maturity. Though municipal bonds can be insured against default by a bond insurer, the investor is still exposed to risk: the credit risk of the bond insurer itself. Moreover, municipal bonds are subject to interest rate risks. Retail investors should also be aware of the extra costs of purchasing municipal bonds, such as fees and mark-ups and be sure that they are not excessive relative to the market.

For related information, investors are invited to visit SLCG's dedicated website which contains papers including: