Question

If the Mayor of Little Rock, Arkansas is also a director of a Little Rock municipal securities dealer, which of the following statements are TRUE regarding the municipal securities dealer recommending the purchase of Little Rock G.O. bonds?
I A control relationship existsII A control relationship does not existIII Recommendation of the securities is prohibitedIV Recommendation of the securities must be accompanied by a disclosure of the nature of the relationshipA. I and IIIB. I and IVC. II and IIID. II and IV

Answer 1

Answer: B. I and IV

Explanation:

A CONTROL RELATIONSHIP is defined as a situation where an issuer is controlled by the DEALER, or the Dealer is controlled by the Issuer, or there common control between the Issuer and Dealer of the security. As Mayor of Little Rock and also the Director of the Municipal Dealer, there is definitely a CONTROL relationship going on.

The Municipal Securities Rulemaking Board (MSRB) requires that when a control relationship exists between a municipal securities dealer and the issuer whose bonds are recommended by that dealer, the nature of the relationship must be DISCLOSED to the customer.

Hence option B is correct.