Section 529College Savings Plan MSRB Rule Compliance Checklist by alj19178

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									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
                1
fund securities, 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.



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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.




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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 3 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.




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