Municipal Bond Tips for the Series 7 Exam

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Series 7 Municipal Bond Exam Overview

Municipal bond topics typically comprise approximately 15 to 25 questions on the Series 7 exam, also known as the General Securities Representative Exam (GSRE), which is the test all stockbrokers must pass, to trade securities.

Municipal bonds fall under the following two broad categories:

1. General obligation (GO) bonds, which are backed by the credit and taxing power of the jurisdiction that issues them
2. Revenue bonds, which finance income-producing projects and are secured by a specified revenue source

Testers who can clearly differentiate between these bonds stand a greater chance of correctly answering muni bonds questions. This article sheds light on both bond types.

Key Takeaways

• General obligation (GO) bonds are backed by the credit and taxing power of the jurisdiction that issues them.
• Revenue bonds finance income-producing projects and are secured by a specified revenue source.
• Trust indentures, which are legally binding contracts between bond issuers and trustees that represent bondholder interests, are present with revenue bonds, but not with GO bonds.

Revenue vs. General Obligation Bonds

When working on practice questions, a comparison chart can greatly help distinguish GO bonds from revenue bonds.

The total takedown earned by syndicate members for their own sales is the selling concession plus the additional takedown. In this example, the total takedown is $9 per bond.

When the bonds are delivered to buyers and a settlement is made, the buyer receives a final confirmation and a copy of the official statement, if it has been completed. If the final official statement is not ready, the buyer will receive a copy of the preliminary official statement, which is subject to amendment.

The official statement and the preliminary official statement are disclosure documents about a municipal offering. They serve similar purposes as the prospectus and preliminary prospectus for corporate offerings. The language differs because municipal issuers are not required to follow the Act of 1933 or other federal laws relating to the issuance of securities.

If the bonds themselves are not ready for delivery, the customer will receive a temporary confirmation known as a "when issued" confirm. This document does not show the following:

• Settlement date, because that has yet to be determined
• Accrued interest, because the exact settlement has not been determined
• The total dollar amount, because the accrued interest must be added to the purchase price to produce the total dollar amount

The Bottom Line

Municipal bonds and securities are featured in three out of four sections in the 125 question Series 7 exam. Mastering these questions is key to achieving a passing score and achieving Series 7 glory.

1. Financial Industry Regulatory Authority. "Series 7 – General Securities Representative Exam."
2. U.S. Securities and Exchange Commission. "Investor Bulletin: Municipal Bonds – An Overview."
3. Fidelity. "Municipal Bonds."
4. Moody's. "Moody's Rating System in Brief."
5. Thomson Reuters. "Trust Indenture."
6. Achievable. "Achievable Series 7: 5.2.1, The Basics."
7. Achievable. "Achievable Series 7: 5.3.3 Issuance & Underwriting."
8. U.S. Securities and Exchange Commission. "Registration Under the Securities Act of 1933."
9. Achievable. "Achievable Series 7: 5.2.3 Underwriting."
10. Financial Industry Regulatory Authority. "General Securities Representative Qualification Examination (Series 7) Content Outline." Page 2.

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The Financial Industry Regulatory Authority (FINRA) is a nongovernmental organization that writes and enforces rules for brokers and broker-dealers.

A Chartered Market Technician (CMT) is a professional financial technical analyst who has earned the preeminent CMT designation awarded by the CMT Association.

An associate in claims (AIC) is a professional designation for professionals with enhanced skill training to handle different types of claims.

A Commodity Trading Advisor (CTA) provides advice on the buying and selling of futures contracts, options on futures, and certain foreign exchange contracts.

A credit analyst is a financial professional who assesses the creditworthiness of individuals, companies, or securities.

The Chartered Insurance Professional (CIP) designation is a professional accreditation within the Canadian property and casualty insurance industry.

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