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MSRB Offers Investors a List of Questions for Financial Pros

In an effort to help educate investors, the Municipal Securities Rulemaking Board yesterday issued a “fact sheet” containing seven questions they can ask their financial professionals when considering investing in municipal bonds.

The fact sheet comes almost a week after the board announced the availability of an instructional video on how to access its Electronic Municipal Market Access, or EMMA, Web site, which contains free information for more than 1.2 million muni bonds.

In the two-page fact sheet, the MSRB said investors should carefully review the information available for a bond.

It noted that key sources of data include the official statement, continuing disclosures, and trade data, all of which typically are available through EMMA, and said investors should know about credit quality, including the source of repayment of the bonds.

The fact sheet explained the differences between general obligation, revenue, and tax-backed bonds, as well as between senior and subordinated debt.

While ratings are “a valuable guide,” investors also should delve into other aspects of credit quality such as whether the bonds are insured or otherwise credit enhanced, the board said.

Investors should be aware that the yield is the annual return on a bond and that it can vary with credit quality, the maturity of the bonds, and whether the bonds are callable, according to the fact sheet.

“Investors should not hesitate to ask their financial professional about the pricing of their trades,” the MSRB said, adding that pricing and other trade data is available on EMMA.

Investors have the right to know how their financial professional is being compensated, the board added.

“It is unusual for a financial professional to charge a commission for trading a municipal security,” the board said. Instead, dealers typically will mark up or mark down prices, depending on whether they are buying or selling the bonds.

The board urged investors to consider whether the investment would be appropriate for their tax status.

Build America Bonds, for example, are taxable, and some bonds that are tax-exempt at the federal level may not be tax-exempt at the state or local level, it said.

Finally, the board said an investor should know whether or when the bond is callable because that will dictate the amount of principal and interest they receive.

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