As California officials begin to issue as much as $3.2 billion of IOUs, there is growing interest in whether the registered warrants should be considered securities or some other type of state obligation.

The distinction is important. If the IOUs are municipal securities because they are issued by a state government, their sales and trades by broker-dealers would be subject to Municipal Securities Rulemaking Board rules that cover suitability, fair dealing, and trade reporting requirements, among other things.

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