Post by Sapphire Capital on Jul 16, 2008 20:57:22 GMT 4
Section 529 College Savings Plan MSRB Rule Compliance Checklist Page 1 of 4
Section 529 College Savings Plan MSRB Rule Compliance
Checklist
October 2006
Section 529 College Savings Plans (529 Plans) are higher education savings plan trusts
established under Section 529(b) of the Internal Revenue Code as "qualified tuition programs."
Individuals invest through these 529 Plans to save for the qualifying higher education costs of
beneficiaries. The 529 Plans include interests in pooled investment funds under trusts established
by states or local governmental entities, and interests in higher education savings plan trusts
established by states.
These 529 Plans have investment features similar to mutual funds or variable annuities. For
regulatory purposes, 529 Plans issued by state or local governments are classified as municipal
fund securities,1 and are governed by the rules of the Municipal Securities Rulemaking Board
(MSRB).
Many FINRA member firms selling 529 Plans concentrate their day-to-day business on the sale of
mutual funds and variable annuities. The application of MSRB rules results in new regulatory
requirements for these firms.
Note that firms whose only municipal securities activities are 529 Plan sales are not exempt from
the MSRB rules. All MSRB rules apply to transactions in 529 Plans unless a specific exemption
exists. See the Municipal Fund Securities page of the MSRB Web site (www.msrb.org) for further
details.
MSRB rules of particular interest to members selling 529 Plans include:
1. Registration and Qualification (MSRB Rules A-12, A-14, G-2 and G-3).
2. Advertising (MSRB Rule G-21).
3. Recommendations and suitability determinations on the purchase or sale of 529 Plans
and disclosure of state tax implications (MSRB Rules G-17 and G-19).
4. Prices and commissions (MSRB Rule G-30).
5. Providing new customers with a copy of the official statement (MSRB Rule G-32).
6. Political contributions and solicitation of municipal securities business (MSRB Rules G-37
and G-38) - Municipal securities dealer firms engaged in municipal securities business
must comply with the political contribution recordkeeping and disclosure requirements.
1 The Securities and Exchange Commission (SEC) Division of Market Regulation has stated that, although
there might be instances where exceptions exist, Plans established by states or local governmental entities
are "municipal fund securities." See also letter dated February 26, 1999, from Catherine McGuire, Chief
Counsel, Division of Market Regulation, SEC, to Diane G. Klinke, General Counsel of the Municipal
Securities Rulemaking Board. See also MSRB Rule D-12.
Section 529 College Savings Plan MSRB Rule Compliance Checklist Page 2 of 4
The following checklist helps identify the basic MSRB regulatory responsibilities for members
selling 529 Plans. The checklist neither alters nor creates a safe harbor from applicable regulatory
responsibilities.
Registration & Forms Filing
_________________________________________________________________________________________________
File a notice with the MSRB indicating that the firm is a municipal securities broker
or a municipal securities dealer.
Before a firm may engage in municipal fund securities transactions, MSRB Rule A-12
requires the firm to send a letter to the MSRB as well as the payment of a $100 initial fee.
The letter to the MSRB should include the name, address, and SEC registration number
of the firm on whose behalf the fee is paid. In addition, MSRB Rule A-14 requires
payment to the MSRB of a $300 annual fee. The MSRB Rule A-12 notice and fee
payment should be mailed to the Municipal Securities Rulemaking Board, 1900 Duke
Street, Suite 600, Alexandria, Virginia 22314.
File MSRB Form G-40 with the MSRB identifying a firm email contact.
Amend the firm's Form BD filing to reflect its new status as a municipal securities
dealer or a municipal securities broker.
Comply with fingerprinting requirements of SEC Rule 17f-2 by obtaining
fingerprints of all of the firm's partners, directors, officers and employees.
Report annual municipal securities income, including income from 529 Plan
transactions, on Schedule I in the firm's annual FOCUS filing.
Register with SIPC if the firm is not already a SIPC member.
SIPC registration is required because the firm, by engaging in 529 Plan transactions, is
now a municipal securities broker or municipal securities dealer. Unlike firms that
exclusively sell registered mutual funds, which are exempt from SIPC membership, a
member selling 529 Plans must become a SIPC member. See Section 3(a)(2)(A) of the
Securities Investor Protection Act of 1970.
Obtain a fidelity blanket bond as required by MSRB Rule G-6 and NASD Rule 3020.
Professional Qualification
_________________________________________________________________________________________________
Ensure that registered representatives who sell 529 Plans are Series 7 or Series 52
qualified, or, if representatives' municipal securities activity is limited only to
transactions in 529 Plans, Series 6 qualified.
Ensure that 529 Plan transactions are supervised by a Series 53 or 51 qualified
person.
Section 529 College Savings Plan MSRB Rule Compliance Checklist Page 3 of 4
Political Contributions
_________________________________________________________________________________________________
File MSRB quarterly Form G-37 if the firm is engaged in municipal securities
business (as defined in MSRB Rule G-37), or if the firm makes political
contributions.
Maintain records and written supervisory procedures for monitoring all political
contributions made by municipal finance professionals (as defined in MSRB Rule
G-37(g)(iv)).
Consider filing MSRB Form G37x.
MSRB Form G-37x is a voluntary, one-time filing designed for those firms that are not
engaged in municipal securities business (as defined in MSRB Rule G-37(d)(vii)), such as
those firms that are only engaged in the retail distribution of 529 Plans, in order to ease
the compliance requirements of MSRB Rules G-8, G-27, and G-37.
Many firms that sell 529 Plans will likely qualify to "opt out" of the reporting requirements
of Rule G-37 on political contributions and the related recordkeeping and supervisory
procedures requirements of Rule G-8 and G-27. Firms should carefully review their own
situation in this regard. If, subsequent to filing a Form G-37x, a firm engages in municipal
securities business as defined in Rule G-37(d)(vii), it will need to recreate any records of
political contributions made during the two years prior to the date the firm engaged in
municipal securities business and report those contributions on Form G-37. See Rule G-
37(e)(iii).
Sales Practices
_________________________________________________________________________________________________
Comply with the MSRB's advertising rules (MSRB Rule G-21 and G-17).
In some instances, an advertisement of a 529 Plan may provide specific details regarding
underlying assets that are themselves subject to SEC or FINRA advertising rules. In such
instances, details of the registered security that are included in the 529 Plan
advertisement must be presented in a manner that would be in compliance with the SEC
and FINRA advertising rules applicable where the same registered security is sold directly
to an investor.
Comply with the MSRB recommendations and suitability determinations on the
purchase or sale of 529 Plans and disclosure of state tax implications (MSRB Rules
G-17 and G-19).
Comply with the MSRB's guidance published in May 2002, titled "Application of fair
practices and advertising rules to municipal fund securities."
Prices and Commissions
_________________________________________________________________________________________________
Comply with MSRB Rule G-30.
Section 529 College Savings Plan MSRB Rule Compliance Checklist Page 4 of 4
Disclosure
_________________________________________________________________________________________________
Provide new customers with a copy of the official statement (MSRB Rule G-32), and
current customers with new, amended or "stickered" official statements.
Implement procedures to receive prompt notice of material events as required by
SEC Rule 15c2-12(c) on recommendations.
Comply with MSRB Rule G-36: dealers acting as underwriters in primary offerings
of 529 Plans generally would be subject to the requirements of MSRB Rule G-36
unless such primary offering falls within one of the exemptions stated in SEC Rule
15c2-12.
For additional information about firm compliance with MSRB rules, including the rules applicable
to Section 529 College Savings Plans, contact FINRA's Malcolm Northam at (202) 728-8085, or
the MSRB at (703) 797-6600. Read additional information about Section 529 College Savings
Plans at www.finra.org/issuecenter/529checklist.
Section 529 College Savings Plan MSRB Rule Compliance
Checklist
October 2006
Section 529 College Savings Plans (529 Plans) are higher education savings plan trusts
established under Section 529(b) of the Internal Revenue Code as "qualified tuition programs."
Individuals invest through these 529 Plans to save for the qualifying higher education costs of
beneficiaries. The 529 Plans include interests in pooled investment funds under trusts established
by states or local governmental entities, and interests in higher education savings plan trusts
established by states.
These 529 Plans have investment features similar to mutual funds or variable annuities. For
regulatory purposes, 529 Plans issued by state or local governments are classified as municipal
fund securities,1 and are governed by the rules of the Municipal Securities Rulemaking Board
(MSRB).
Many FINRA member firms selling 529 Plans concentrate their day-to-day business on the sale of
mutual funds and variable annuities. The application of MSRB rules results in new regulatory
requirements for these firms.
Note that firms whose only municipal securities activities are 529 Plan sales are not exempt from
the MSRB rules. All MSRB rules apply to transactions in 529 Plans unless a specific exemption
exists. See the Municipal Fund Securities page of the MSRB Web site (www.msrb.org) for further
details.
MSRB rules of particular interest to members selling 529 Plans include:
1. Registration and Qualification (MSRB Rules A-12, A-14, G-2 and G-3).
2. Advertising (MSRB Rule G-21).
3. Recommendations and suitability determinations on the purchase or sale of 529 Plans
and disclosure of state tax implications (MSRB Rules G-17 and G-19).
4. Prices and commissions (MSRB Rule G-30).
5. Providing new customers with a copy of the official statement (MSRB Rule G-32).
6. Political contributions and solicitation of municipal securities business (MSRB Rules G-37
and G-38) - Municipal securities dealer firms engaged in municipal securities business
must comply with the political contribution recordkeeping and disclosure requirements.
1 The Securities and Exchange Commission (SEC) Division of Market Regulation has stated that, although
there might be instances where exceptions exist, Plans established by states or local governmental entities
are "municipal fund securities." See also letter dated February 26, 1999, from Catherine McGuire, Chief
Counsel, Division of Market Regulation, SEC, to Diane G. Klinke, General Counsel of the Municipal
Securities Rulemaking Board. See also MSRB Rule D-12.
Section 529 College Savings Plan MSRB Rule Compliance Checklist Page 2 of 4
The following checklist helps identify the basic MSRB regulatory responsibilities for members
selling 529 Plans. The checklist neither alters nor creates a safe harbor from applicable regulatory
responsibilities.
Registration & Forms Filing
_________________________________________________________________________________________________
File a notice with the MSRB indicating that the firm is a municipal securities broker
or a municipal securities dealer.
Before a firm may engage in municipal fund securities transactions, MSRB Rule A-12
requires the firm to send a letter to the MSRB as well as the payment of a $100 initial fee.
The letter to the MSRB should include the name, address, and SEC registration number
of the firm on whose behalf the fee is paid. In addition, MSRB Rule A-14 requires
payment to the MSRB of a $300 annual fee. The MSRB Rule A-12 notice and fee
payment should be mailed to the Municipal Securities Rulemaking Board, 1900 Duke
Street, Suite 600, Alexandria, Virginia 22314.
File MSRB Form G-40 with the MSRB identifying a firm email contact.
Amend the firm's Form BD filing to reflect its new status as a municipal securities
dealer or a municipal securities broker.
Comply with fingerprinting requirements of SEC Rule 17f-2 by obtaining
fingerprints of all of the firm's partners, directors, officers and employees.
Report annual municipal securities income, including income from 529 Plan
transactions, on Schedule I in the firm's annual FOCUS filing.
Register with SIPC if the firm is not already a SIPC member.
SIPC registration is required because the firm, by engaging in 529 Plan transactions, is
now a municipal securities broker or municipal securities dealer. Unlike firms that
exclusively sell registered mutual funds, which are exempt from SIPC membership, a
member selling 529 Plans must become a SIPC member. See Section 3(a)(2)(A) of the
Securities Investor Protection Act of 1970.
Obtain a fidelity blanket bond as required by MSRB Rule G-6 and NASD Rule 3020.
Professional Qualification
_________________________________________________________________________________________________
Ensure that registered representatives who sell 529 Plans are Series 7 or Series 52
qualified, or, if representatives' municipal securities activity is limited only to
transactions in 529 Plans, Series 6 qualified.
Ensure that 529 Plan transactions are supervised by a Series 53 or 51 qualified
person.
Section 529 College Savings Plan MSRB Rule Compliance Checklist Page 3 of 4
Political Contributions
_________________________________________________________________________________________________
File MSRB quarterly Form G-37 if the firm is engaged in municipal securities
business (as defined in MSRB Rule G-37), or if the firm makes political
contributions.
Maintain records and written supervisory procedures for monitoring all political
contributions made by municipal finance professionals (as defined in MSRB Rule
G-37(g)(iv)).
Consider filing MSRB Form G37x.
MSRB Form G-37x is a voluntary, one-time filing designed for those firms that are not
engaged in municipal securities business (as defined in MSRB Rule G-37(d)(vii)), such as
those firms that are only engaged in the retail distribution of 529 Plans, in order to ease
the compliance requirements of MSRB Rules G-8, G-27, and G-37.
Many firms that sell 529 Plans will likely qualify to "opt out" of the reporting requirements
of Rule G-37 on political contributions and the related recordkeeping and supervisory
procedures requirements of Rule G-8 and G-27. Firms should carefully review their own
situation in this regard. If, subsequent to filing a Form G-37x, a firm engages in municipal
securities business as defined in Rule G-37(d)(vii), it will need to recreate any records of
political contributions made during the two years prior to the date the firm engaged in
municipal securities business and report those contributions on Form G-37. See Rule G-
37(e)(iii).
Sales Practices
_________________________________________________________________________________________________
Comply with the MSRB's advertising rules (MSRB Rule G-21 and G-17).
In some instances, an advertisement of a 529 Plan may provide specific details regarding
underlying assets that are themselves subject to SEC or FINRA advertising rules. In such
instances, details of the registered security that are included in the 529 Plan
advertisement must be presented in a manner that would be in compliance with the SEC
and FINRA advertising rules applicable where the same registered security is sold directly
to an investor.
Comply with the MSRB recommendations and suitability determinations on the
purchase or sale of 529 Plans and disclosure of state tax implications (MSRB Rules
G-17 and G-19).
Comply with the MSRB's guidance published in May 2002, titled "Application of fair
practices and advertising rules to municipal fund securities."
Prices and Commissions
_________________________________________________________________________________________________
Comply with MSRB Rule G-30.
Section 529 College Savings Plan MSRB Rule Compliance Checklist Page 4 of 4
Disclosure
_________________________________________________________________________________________________
Provide new customers with a copy of the official statement (MSRB Rule G-32), and
current customers with new, amended or "stickered" official statements.
Implement procedures to receive prompt notice of material events as required by
SEC Rule 15c2-12(c) on recommendations.
Comply with MSRB Rule G-36: dealers acting as underwriters in primary offerings
of 529 Plans generally would be subject to the requirements of MSRB Rule G-36
unless such primary offering falls within one of the exemptions stated in SEC Rule
15c2-12.
For additional information about firm compliance with MSRB rules, including the rules applicable
to Section 529 College Savings Plans, contact FINRA's Malcolm Northam at (202) 728-8085, or
the MSRB at (703) 797-6600. Read additional information about Section 529 College Savings
Plans at www.finra.org/issuecenter/529checklist.