SEC Form MSD

What Is SEC Form MSD

To act as a municipal securities dealer (MSD) a banking or financial institution or entity must file SEC Form MSD. A bank or other financial institution, or a specific division or department within the organization must file Form MSD with the Securities and Exchange Commission (SEC) to act in the capacity of a municipal securities dealer.

Under section 15B(a) of the Securities Exchange Act of 1934, only Form MSD may amend a current registration for a bank, or a separately identifiable department or division of a bank, as defined by the Municipal Securities Rulemaking Board (MSRB). Further, the application or amendment shall be deemed to have been made by the bank on behalf of the applicant.

The Basics of SEC Form MSD

Section 15B(a) of the Securities Exchange Act of 1934 details the provisions for municipal securities dealers. Also, Form MSD requires a firm to reveal if any staff person working with its municipal securities division has involvement in disciplinary proceedings related to the sale of securities. To officially withdraw the registration of status as a municipal securities dealer, an entity must use SEC Form MSD-W.

As the name implies, municipal securities dealers work with the trading of municipal securities. Municipal securities are typically bonds, issued by governments or governmental agencies. These bonds trade over-the-counter (OTC) in the secondary market much like other OTC stocks. The municipal bond dealer provides quotes for the bonds with which they deal, to other broker-dealers. Investors tend to like municipal bonds because they offer tax-sheltered income at the federal, state, or local level, or they may be a combination of each.

Example of a Municipal Bond Dealer's Work

A hypothetical example of the typical actions of a municipal securities dealer includes giving a quote to another dealer interested in purchasing the New York State GO bonds of “6.12% firm for 45 minutes with a 5-minute recall.”

The municipal dealer is willing to sell the bonds to the purchasing dealer at a yield to maturity of 6.12% and will be ready to do so for 45 minutes. However, if during that 45 minutes another interested party wishes to purchase the same bonds, the second interested buyer will receive a subject quote based upon the fact that the selling dealer is still obligated to sell the securities to the first buyer. The selling dealer will then contact the first buyer and give them 5 minutes notice to buy the bonds or lose the right to do so at the quoted price. If the first dealer fails to purchase the bonds within the time allowed by the 5-minute recall, the selling dealer may then trade the bonds with the second interested party at 6.12%.

Real World Example

The instructions for completing an SEC Form MSD state it may be addressed using a fillable PDF or typewritten onto a paper copy of the document. An original and manual signature of an authorized person within the financial institution must appear on either version of the Form used. Also, the authorized person must have involvement in the management, direction and supervision of the department or person making the application.

If an individual is applying for MSD status, the completed document must bear an in-the-name-of signature of that person's supervisor, or principal officer. When a department or a division of a bank is applying, the signer must be a principal officer within that portion of the organization.