4.5 Municipal Securities Rules

The MSRB and Who Enforces Its Rules

The Municipal Securities Rulemaking Board (MSRB) is the self-regulatory organization Congress created in 1975 to write rules for municipal securities dealers and municipal advisors. The most-tested structural fact: the MSRB writes the rules but does NOT enforce them.

The MSRB also operates EMMA, the market's disclosure and trade-transparency system.

Rule G-17 — Fair Dealing

Rule G-17 is the cornerstone investor-protection rule: in all municipal activities, a dealer must deal fairly and not engage in any deceptive, dishonest, or unfair practice.

• To all customers: disclose all material facts about the transaction and security that are known or reasonably accessible — at or before the time of trade.
• To issuers (in a negotiated underwriting): disclose that the underwriter's role is arm's-length, not fiduciary, plus conflicts of interest, the material risks of recommended financing structures, and compensation.

Exam Tip: G-17 disclosure to the customer must occur at or before trade execution, not after.

Rule G-19 — Suitability

Before recommending a muni, a dealer must have a reasonable basis to believe it suits the customer, considering investment objectives, financial situation and needs, tax status, risk tolerance, and existing holdings. Two layers apply: reasonable-basis suitability (the product is suitable for at least some investors) and customer-specific suitability (it fits this customer). G-19 mirrors FINRA Rule 2111.

Trap: Munis are usually unsuitable inside an IRA or other tax-deferred account — you would be wasting the tax exemption.

Rule G-37 — Political Contributions (Pay-to-Play)

Rule G-37 stops dealers from "buying" negotiated underwriting business with political contributions.

• If a dealer or a municipal finance professional (MFP) makes a non-exempt contribution to an official of an issuer who can influence the award of business, the dealer is banned from negotiated municipal securities business with that issuer for two years.
• De minimis exception: an MFP may give up to $250 per election (primary and general count separately) to a candidate for whom the MFP is entitled to vote. A contribution above $250, or to a candidate the MFP cannot vote for, triggers the two-year ban.
• Not prohibited: competitive (sealed-bid) underwriting and secondary-market trading are unaffected — the ban targets negotiated business.
• Disclosure: dealers file Form G-37 quarterly, and the contributions are posted publicly on EMMA.

Rule G-20 — Gifts and Gratuities (UPDATED 2026)

Rule G-20 limits gifts tied to someone's muni business. After SEC approval of amendments aligning with FINRA Rule 3220, the annual limit rose from $100 to $300 per person per year, effective for FINRA-member dealers on June 1, 2026 (December 1, 2026 for bank dealers and municipal advisors).

• Ordinary business entertainment and promotional items, bereavement gifts, and de minimis tokens generally fall outside the cap.
• The limit aggregates per recipient per year and must be recorded.

Rule G-30 — Fair Pricing and Markups

Rule G-30 requires prices, markups, and markdowns that are fair and reasonable in light of best execution, market conditions, transaction size, and the dealer's expense. There is no fixed percentage cap, but excessive markups violate the rule, and confirmations must disclose markups on certain principal trades with retail customers.

Supporting MSRB Rules

Exam Cheat Sheet

1. MSRB writes, FINRA/SEC enforce.
2. G-17 = fair dealing and material-fact disclosure at/before trade.
3. G-19 = suitability (munis rarely fit IRAs).
4. G-37 = two-year ban; $250 de minimis where you can vote.
5. G-20 = $300 gift limit (effective June 1, 2026 for dealers).
6. G-30 = fair and reasonable pricing, no fixed cap.

Rule G-15 — Confirmations

Rule G-15 governs the customer confirmation the dealer must send by settlement. A muni confirmation must show, among other items: trade and settlement dates, par amount, description (issuer, coupon, maturity), price and yield (and yield to the lower of call or maturity when callable), the dealer's capacity (agent or principal), the CUSIP, and any special features such as "callable," "pre-refunded," "ex-legal," or that the bond is subject to the AMT. Yield disclosure on a callable bond must be computed to the price that produces the lowest yield to the investor — yield to call or yield to maturity, whichever is lower.

Rule G-23 — Role Switching

Rule G-23 addresses conflicts when a firm has acted as the issuer's financial advisor. Under current MSRB policy a dealer that serves as financial advisor on a new issue is effectively barred from then underwriting that same issue, because the advisory relationship creates a fiduciary conflict with the arm's-length underwriting role. Expect a question contrasting the fiduciary financial-advisor duty with the non-fiduciary underwriter relationship disclosed under G-17.

Rule G-21 — Advertising

Rule G-21 requires that muni advertising be fair, not misleading, and approved by a municipal securities principal before first use. Yield claims, comparisons, and any reference to a security's tax-exempt status must be accurate and balanced — for instance, an ad touting tax-free income may need to disclose AMT exposure on a private activity bond.

Common Rule-Set Traps

• Confusing who enforces: the MSRB never enforces; FINRA, the SEC, and banking regulators do.
• Treating the $300 gift limit as the old $100 — the figure changed in 2026; use $300 for FINRA-member dealers.
• Mixing up the $250 G-37 de minimis (political contribution where you can vote) with the $300 G-20 gift cap — different rules, different numbers, different triggers.
• Forgetting that G-37's two-year ban applies to negotiated business only, leaving competitive bids open.

Exam Tip: When a question pairs a dollar figure with a rule, anchor on the rule first: G-20 = $300 gifts; G-37 = $250 de minimis contribution; G-37 = 2-year ban.