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Education Center

Glossary of Municipal Securities Terms

Second Edition (January 2004)
 
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
 

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AAU – See:  AGREEMENT AMONG UNDERWRITERS.
ABATEMENT CLAUSE – A provision of a lease that relieves a lessee of the obligation to make lease payments in the event that the leased property cannot be utilized (e.g., because of construction delays, property damage or other causes).  Compare: ANNUAL APPROPRIATION PLEDGE; NON-APPROPRIATION CLAUSE.  See: CERTIFICATE OF PARTICIPATION; LEASE RENTAL BOND.
ACATS (AUTOMATED CUSTOMER ACCOUNT TRANSFER SERVICE) – A service provided by National Securities Clearing Corporation used by broker-dealers to transfer customer accounts from one broker-dealer firm to another.  See:  NATIONAL SECURITIES CLEARING CORPORATION.
ACCELERATION – A contract term providing for the principal amount of and any accrued interest on an obligation to become due and payable prior to the originally scheduled due date upon occurrence of a contractually stipulated event (typically, certain specified events of default).  See:  DEFAULT.
ACCEPTANCE RATIO – See:  PLACEMENT RATIO.
ACCEPTANCE RISK – The risk to an investor that a lessee in a certificate of participation or lease rental bond financing might not occupy a newly constructed or renovated facility (and thereby might not begin making lease payments) because of dissatisfaction with the final construction or condition of the financed facility.  See:  CERTIFICATE OF PARTICIPATION; LEASE RENTAL BOND.
ACCREDITED INVESTOR – An investor to whom a security otherwise required to be registered under the Securities Act of 1933 may be sold in a limited offering without registration under the SEC’s Regulation D and who does not count against the maximum limit of 35 investors.  In addition to a variety of categories of institutional investors (including banks, insurance companies, investment companies, business development companies and employee benefit plans, as well as certain 501(c)(3) organizations, corporations, business trusts and partnerships), an accredited investor includes high net worth or high income individuals.  Municipal securities generally are not subject to registration under the Securities Act of 1933 but sometimes their sales are restricted to accredited investors to ensure that they are sold only to persons who are capable of understanding the risk and bearing the potential loss of an investment in the securities.  Compare: QUALIFIED INSTITUTIONAL BUYER; SOPHISTICATED INVESTOR; SOPHISTICATED MUNICIPAL MARKET PROFESSIONAL.  See:  ANTI-FRAUD PROVISIONS; INVESTOR LETTER; PRIVATE PLACEMENT.
ACCRETED VALUE – See:  COMPOUND ACCRETED VALUE.
ACCRETION OF DISCOUNT – An accounting process by which the book value of a security purchased at a discount from par is increased during the security’s holding period.  The accretion reflects the increase in the security’s value as it approaches the redemption or maturity date.  Under a “straight line” accretion method, the amount of the yearly accretion is the same for all years and is equal to the product of the total amount of the discount divided by the number of years to redemption.  Under a “constant interest” accretion method, the amount of the yearly accretion increases as the redemption date approaches and for any semi-annual period is equal to (a) the original semi-annual yield to maturity multiplied by the current book value less (b) the current interest payment.  Compare:  AMORTIZATION OF PREMIUM.  See:  COMPOUND ACCRETED VALUE; DISCOUNT; MARKET DISCOUNT BOND; ORIGINAL ISSUE DISCOUNT.
ACCRUED INTEREST – On a transaction in a security, the dollar amount of interest, based upon the stated rate or rates of interest, that has accumulated on the security from (and including) the most recent interest payment date (or, in certain circumstances, the dated date or other stated date), up to but not including the date of settlement of the transaction.  Accrued interest is paid to the seller by the purchaser.  Accrued interest is usually calculated on the basis of a 360-day year (assuming that each month has 30 days), but alternative day counting methods (most commonly based on a 365- or 366-day year counting actual days elapsed) are used for many securities that bear interest at a variable rate and for certain other types of securities (e.g., some municipal notes).  The formula for computing accrued interest based on a 360-day year is as follows:



ACCUMULATION ACCOUNT – An account established by the sponsor of a unit investment trust into which securities purchased for the portfolio of the trust are placed until the trust is formally created and the securities are deposited into the trust.  See: BOND FUND.
ADDITIONAL BONDS – An issue of bonds having a lien on the revenues or other security pledged to outstanding bondsissued under the same bond contract.  Additional bonds typically are issued on a parity with the outstanding bonds, although in some cases additional bonds can have either a junior lien or a senior lien on pledged revenues or other security.  See:  JUNIOR LIEN BONDS; OUTSTANDING BONDS; PARITY BONDS; PLEDGED REVENUES; SENIOR LIEN BONDS.
ADDITIONAL BONDS COVENANT or TEST – The financial test, sometimes referred to as a “parity test,” that must be satisfied under the bond contract securing outstanding revenue bonds as a condition to issuing additional bonds.  Typically, the test would require that historical revenues (plus, in some cases, future estimated revenues) exceed projected debt service requirements for both the outstanding issue and the proposed issue by a certain ratio.  See:  ADDITIONAL BONDS; COVENANT.
ADDITIONAL TAKEDOWN – See:  SPREAD.
ADJUSTABLE RATE – See:  VARIABLE RATE.
ADJUSTED TRADE – An offsetting pair of transactions, executed inviolation of the SEC’s anti-fraud rules and the MSRB’s pricing rules, in which a broker-dealer purchases a security at a price above its market value and the contra-party purchases a different security from the broker-dealer at an adjusted price that exceeds the security’s market value by approximately the same amount.  These trades would permit a party to the transaction to liquidate portfolio holdings without accurately reflecting losses.
AD VALOREM TAX – A direct tax calculated “according to value” of property.  Ad valorem tax is based on an assigned valuation (market or assessed) of real property and, in certain cases, on a valuation of tangible or intangible personal property.  In virtually all jurisdictions, ad valorem tax is a lien on the property enforceable by seizure and sale of the property.  An ad valorem tax is normally the one substantial tax that may be raised or lowered by a local governing body without the sanction of superior levels of government (although statutory restrictions such as tax rate limitations may exist on the exercise of this right).  Thus, ad valorem taxes often function as the element used by local governments to assure that their budgets remain in balance.  See:  MILLAGE; TAX RATE LIMIT.
ADVANCE REFUNDING – For purposes of certain tax and securities laws and regulations, a refunding in which the refunded issue remains outstanding for a period of more than 90 days after the issuance of the refunding issue.  The proceeds of the refunding issue are generally invested in Treasury securities or federal agency securities (although other instruments are sometimes used), with principal and interest from these investments being used (with limited exceptions) to pay principal and interest on the refunded issue.  Bonds are “escrowed to maturity” when the proceeds of the refunding issue are deposited in an escrow account for investment in an amount sufficient to pay the principal of and interest on the issue being refunded on the original interest payment and maturity dates, although in some cases an issuer may expressly reserve its right (pursuant to certain procedures delineated by the SEC) to exercise an early call of bonds that have been escrowed to maturity.  Bonds are considered “prerefunded” when the refunding issue’s proceeds are escrowed only until a call date or dates on the refunded issue, with the refunded issue redeemed at that time.  The Internal Revenue Code and regulations thereunder restrict the yield that may be earned on investment of the proceeds of a refunding issue.

There are several methods of advance refunding or achieving the same practical effect as an advance refunding:



Crossover Refunding – A method of advance refunding in which the revenue stream originally pledged to secure the refunded bonds continues to be used to pay debt service on the refunded bonds until they mature or are called.  At that time the pledged revenues “cross over” to pay debt service on the refunding bonds and escrowed securities are used to pay the refunded bonds.  During the period when both the refunded and the refunding bonds are outstanding, debt service on the refunding bonds is paid from interest earnings on the invested proceeds of the refunding bonds.
Forward Refunding – An agreement, usually between an issuer and the underwriter, whereby the issuer agrees to issue bonds on a specified future date and an underwriter agrees to purchase such bonds on such date.  The proceeds of such bonds, when issued, will be used to refund the issuer’s outstanding bonds.  Typically, a forward refunding is used where the bonds to be refunded are not permitted to be advance refunded on a tax-exempt basis under the Internal Revenue Code.  In such a case, the issuer agrees to issue, and the underwriter agrees to purchase, the new issue of bonds on a future date that would effect a current refunding.
Full Cash or Gross Refunding – A method of advance refunding in which the proceeds of refunding bonds, without reinvestment, will provide sufficient funds to pay debt service on the refunded bonds.  Such a refunding issue generally consists of two series of bonds: the refunding bonds, which pay debt service on the refunded bonds; and “special obligation bonds,” which pay a portion of the debt service on the refunding bonds.  The special obligation bonds are paid from the interest earnings on the invested refunding bond proceeds.  Thus, even though a larger total amount of principal may be outstanding as a result of this type of refunding, the issuer’s total annual debt service requirements may be reduced because the debt service on the special obligation bonds is paid from the earnings on the series of refunding bonds.
Net Cash Refunding – A method of advance refunding in which the proceeds of refunding bonds and any other available moneys, together with interest earnings thereon, will produce sufficient funds to pay debt service on the refunded bonds.
Synthetic Refunding – An agreement between an issuer and a counter-party entered into in connection with outstanding bonds that the issuer is not permitted to advance refund on a tax-exempt basis under the Internal Revenue Code.  The agreement is designed to generate debt service savings that the issuer would realize if it were permitted to advance refund the outstanding bonds. Such agreements generally provide for a payment from the counter-party to the issuer upon execution in return for a specified action of the issuer or a right to take a specified action by the counter-party at a future date, typically a date on which the issuer can call the outstanding bonds and effect a current refunding.  For example, on the call date, the counter-party may have the right to require the issuer to issue refunding bonds with certain specified terms for purchase by the counter-party.  Alternatively, the issuer may issue variable rate refunding bonds and have the right to require the counter-party to enter into an interest rate swap on specified terms.

Compare:  CURRENT REFUNDING.  See:  ARBITRAGE; DEFEASANCE; ESCROW DEPOSIT AGREEMENT; MARKET PRICE RULE; REFUNDING; SLGS; TRANSFERRED PROCEEDS.
ADVANCE REFUNDING DOCUMENT – The refunding escrow deposit agreement or its equivalent prepared by or on behalf of an issuer in connection with the advance refunding of an outstanding issue of municipal securities.  The advance refunding document generally must be filed with the MSRB pursuant to Rule G-36.  See:  ADVANCE REFUNDING; ESCROW DEPOSIT AGREEMENT.
AFFIRMATION – An acknowledgment transmitted by an institutional customer or its agent through the facilities of an automated confirmation system indicating that the customer agrees with the details of a transaction previously confirmed through the system by the broker-dealer on the other side of the transaction.  Compare:  CONFIRMATION.  See:  NATIONAL INSTITUTIONAL DELIVERY SYSTEM.
AGENCIES – A colloquial term for securities issued by a federal agency or certain federally chartered entities (often referred to as government-sponsored enterprises or GSEs).  Agency securities typically are not guaranteed by the federal government, particularly those of GSEs.  Agency securities also are generally exempt from the registration and prospectus requirements of the Securities Act of 1933.  Securities of the following entities, among others, generally are considered agency securities:  Federal Agricultural Mortgage Corporation (Farmer Mac), Federal Farm Credit Banks Funding Corporation (FFCB or Farm Credit), Federal Home Loan Bank System (FHLB or Home Loan), Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), Federal Housing Administration (FHA), Federal National Mortgage Association (FNMA or Fannie Mae), Government National Mortgage Association (GNMA or Ginnie Mae), Student Loan Marketing Association (SLMA or Sallie Mae), and Tennessee Valley Authority (TVA).  Compare:  TREASURY SECURITIES.
AGENCY CROSS – An offsetting purchase and sale transaction in which a broker-dealer purchases securities from one of its customers and sells the securities to another of its customers while acting as agent for both customers.  See:  “AS AGENT” TRADE; CUSTOMER TRADE.
AGENCY SECURITIES – See:  AGENCIES.
AGENCY TRADE – See:  “AS AGENT” TRADE.
AGREED UPON PROCEDURES LETTER – A letter from an auditor to the underwriters of a new issue of municipal securities setting forth the procedures undertaken with respect to the review of specified financial information (e.g., interim period financial statements or other information not covered by audited statements)appearing in the official statement and providing certain conclusions regarding the information with respect to which such review procedures were applied.  Compare:  COMFORT LETTER.
AGREEMENT AMONG UNDERWRITERS (AAU) – The contract among the members of an underwriting syndicate establishing the syndicate rules, including the rights, duties and commitments of the senior manager and the other syndicate members with respect to the new issue of municipal securities being underwritten.  In a competitive bid underwriting, the AAU is sometimes referred to as a syndicate account letter.  The agreement among underwriters is also sometimes referred to as the underwriting agreement.  Compare:  SELLING GROUP AGREEMENT.  See:  SYNDICATE; SYNDICATE ACCOUNT LETTER; UNDERWRITING AGREEMENT.
AIC – See: ALL IN COST.
ALL IN COST or ALL INCLUSIVE COST (AIC) – (1) A measurement of the total cost of a bond financing, expressed as a discount rate calculated using the present value of all debt service payments on the issue and the total proceeds of the issue.  For purposes of this calculation, the amount of proceeds is adjusted by any accrued interest, original issue discount, original issue premium and costs of the financing (e.g., costs of issuance, credit enhancement fees, underwriter’s spread, etc.).

(2) For a variable rate demand obligation issue, the measure of costs expressed as a percentage that includes the cost of the liquidity facility, remarketing fees, interest payments and administrative fees.
ALL OR NONE (AON) – (1) A type of offering in which a party interested in purchasing the securities is required to buy (or bid for) all of the securities being offered if it wishes to buy any.  Broker-dealers bidding to underwrite a primary offering often (but not always) are required to bid on an all or none basis.

(2) In the secondary market, an all or none buy or sell order signifies that an execution must include all of the securities.
ALLOCATION – (1) The process of setting bonds apart for the purpose of distribution to syndicate members.  This term is often used interchangeably with the term “allotment.”  Compare:  ALLOTMENT.  See:  RETENTION.

(2) Where an advisor or other professional is purchasing securities for more than one of its customers, the amount of the securities deposited to or otherwise held for the account of each such customer.
ALLOTMENT – A syndicate member’s distribution of bonds by means of the allocation process.  This term is often used interchangeably with the term “allocation.”  Compare:  ALLOCATION.  See:  RETENTION.
ALTERNATIVE MINIMUM TAX (AMT) – Taxation based on an alternative method of calculating federal income tax intended to ensure that taxpayers are not able to avoid paying any federal income tax.  For taxpayers subject to the alternative minimum tax, certain tax preference items, including interest on some private activity bonds, otherwise not subject to taxation are added to the gross income of the taxpayer for purposes of calculating the federal income tax liability.  See:  INTERNAL REVENUE CODE.
ALTERNATIVE TRADING SYSTEM (ATS) – A system that provides a platform for trading securities among multiple counter-parties.  The system operator must be registered under SEC rules as a broker-dealer or a securities exchange.
AMORTIZATION – The process of paying the principal amount of an issue of securities by periodic payments either directly to holders of the securities or to a sinking fund for the benefit of security holders.  See:  DEBT SERVICE; DEBT SERVICE SCHEDULE.
AMORTIZATION OF PREMIUM – An accounting process by which the book value of a security purchased at a premium above par is decreased during the security’s holding period.  The amortization reflects the decrease in the security’s value as it approaches the redemption or maturity date.  Under a “straight line” amortization method, the amount of the yearly amortization is the same for all years and is equal to the product of the total amount of the premium divided by the number of years to redemption or maturity.  Under a “constant interest” amortization method, the amount of the yearly amortization decreases as the redemption or maturity date approaches and for any semi-annual period is equal to (a) the current interest payment less (b) the original semi-annual yield to maturity multiplied by the current book value.  Compare:  ACCRETION OF DISCOUNT.  See:  ORIGINAL ISSUE PREMIUM; PREMIUM.
AMORTIZATION SCHEDULE – A table showing the periodic repayment of an amount of indebtedness, such as a mortgage or bond.  This table is often set up to show interest payments in addition to principal repayments.  Compare:  MATURITY SCHEDULE.  See:  DEBT SERVICE SCHEDULE.
AMT – See:  ALTERNATIVE MINIMUM TAX.
AMT BOND – A tax-exempt bond, interest on which is subject to the alternative minimum tax.  Compare:  NON-AMT BOND; TAXABLE BOND.  See:  ALTERNATIVE MINIMUM TAX; PRIVATE ACTIVITY BOND; TAX-EXEMPT BOND.
ANNUAL APPROPRIATION PLEDGE – A pledge typically found in the bond contract for lease revenue bonds or securing a certificate of participation financing that commits the issuer or other obligor to make lease payments or other periodic debt service payments to the extent that moneys are budgeted and appropriated on an annual basis by the issuer’s or obligor’s governing body.  The governing body is not legally obligated to make such appropriation in any year.  An annual appropriation pledge typically is used only in connection with projects that are considered to be essential to the issuer’s or obligor’s operations and therefore the governing body is likely to appropriate the money needed to pay debt service on an on-going basis.  This clause permits a borrowing entity to undertake a long-term certificate of participation or other lease revenue obligation financing without technically incurring debt.  Such obligations are not considered debt in most states and therefore generally are not subject to debt limitations and referendum requirements because the lease payments are characterized as payments for use of the facilities rather than as payments on a promise to repay bonded debt.  Compare:  ABATEMENT CLAUSE.  See:  CERTIFICATE OF PARTICIPATION; COVENANT TO BUDGET AND APPROPRIATE; LEASE RENTAL BOND; NON-APPROPRIATION CLAUSE.
ANNUAL DEBT SERVICE – See:  DEBT SERVICE.
ANNUAL FEE – (1) The fee charged by the MSRB on an annual basis to broker-dealers that engage in municipal securities activities.  Unlike the transaction assessment or underwriting assessment, the annual fee is not based on, and is payable regardless of, the level of municipal securities activities conducted by the broker-dealer during the year.  See:  INITIAL FEE; TRANSACTION ASSESSMENT; UNDERWRITING ASSESSMENT.

(2) A fee charged by some issuers of municipal fund securities. Annual fees may be paid from portfolio assets or may be charged directly to investors, based on the investment portfolio’s asset value or according to a fee schedule. Compare: MANAGEMENT FEE. See: MUNICIPAL FUND SECURITY.
ANNUAL FINANCIAL INFORMATION – Financial information or operating data of the type included in the final official statement with respect to the issuer or any other obligated persons.  Rule 15c2-12 obligates underwriters for most primary offerings of municipal securities to ensure that the issuer or other obligated persons have undertaken to provide such information or data on an annual basis to each nationally recognized municipal securities information repository and to the appropriate state information depository, if any.  See:  CONTINUING DISCLOSURE; CONTINUING DISCLOSURE AGREEMENT; NATIONALLY RECOGNIZED MUNICIPAL SECURITIES INFORMATION REPOSITORY; RULE 15c2-12; STATE INFORMATION DEPOSITORY.
ANTI-FRAUD PROVISIONS – This term usually refers to the provisions of federal law prohibiting fraud (typically in the form of material omissions or misstatements) in the issuance and sale of securities, regardless of whether such securities are subject to registration with the SEC.  These include Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 and other related rules.  See:  RULE 10b-5; SECURITIES ACT OF 1933; SECURITIES EXCHANGE ACT OF 1934.
ANY-INTEREST-DATE CALL or REDEMPTION – See:  REDEMPTION PROVISIONS.
ANY TIME CALL or REDEMPTION – See:  REDEMPTION PROVISIONS.
AON – See:  ALL OR NONE.
APPROPRIATE REGULATORY AGENCY – An agency specified under the Securities Exchange Act of 1934 as responsible for enforcing MSRB rules with respect to the municipal securities activities of dealer banks and other municipal securities dealers that are not NASD members.  Appropriate regulatory agencies include the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Office of the Comptroller of the Currency.  The Securities and Exchange Commission is the appropriate regulatory agency for municipal securities dealers that are not members of any other appropriate regulatory agency or of NASD.  Compare:  NASD.  See:  FEDERAL DEPOSIT INSURANCE CORPORATION; FEDERAL RESERVE BOARD; OFFICE OF THE COMPTROLLER OF THE CURRENCY; SECURITIES AND EXCHANGE COMMISSION.
APPROPRIATION CALL or REDEMPTION – See:  REDEMPTIONPROVISIONS.
APPROVING OPINION – See:  LEGAL OPINION.
ARBITRAGE – (1) With respect to the issuance of municipal securities, arbitrage usually refers to the difference between the interest paid on tax-exempt bonds and the interest earned by investing the proceeds of the bonds in higher-yielding taxable securities.  Federal income tax laws generally restrict the ability to earn arbitrage in connection with tax-exempt bonds.  See:  ARBITRAGE REBATE; YIELD REDUCTION PAYMENT; YIELD RESTRICTION.

(2) Generally, transactions by which securities are bought and sold in different markets at the same time for the sake of the profit arising from a difference in prices in the two markets.
ARBITRAGE ACCOUNT – (1) See: ARBITRAGE REBATE FUND.

(2) An account used by an investor in order to engage in market transactions intended to earn arbitrage profits.
ARBITRAGE BONDS – Bonds initially issued on a tax-exempt basis that are formally deemed by the Internal Revenue Service to violate federal arbitrage regulations.  If the Internal Revenue Service finds that bonds are “arbitrage bonds,” the interest becomes taxable and therefore is included in each bondholder’s gross income for federal income tax purposes.  Compare:  TAXABLE MUNICIPAL SECURITY; TAX-EXEMPT BOND.  See:  ARBITRAGE.
ARBITRAGE CERTIFICATE – A document executed by the issuer of tax-exempt municipal securities at the time of initial issuance certifying as to various matters relating to the arbitrage rules under federal income tax laws.  A borrower of private activity bond proceeds often also executes an arbitrage certificate.  See:  ARBITRAGE.
ARBITRAGE EARNINGS – Investment earnings on bond proceeds and certain related funds that exceed the bond yield.  See:  ARBITRAGE.
ARBITRAGE REBATE – A payment made by an issuer to the federal government in connection with an issue of tax-exempt bonds.  The payment represents the amount, if any, of arbitrage earnings on bond proceeds and certain other related funds, except for earnings that are not required to be rebated under limited exemptions provided under the Internal Revenue Code.  An issuer generally is required to calculate, once every five years during the life of its bonds, whether or not an arbitrage rebate payment must be made.  See:  ARBITRAGE; ARBITRAGE EARNINGS; ARBITRAGE REBATE FUND.
ARBITRAGE REBATE FUND or ACCOUNT – A fund typically established under the bond contract for tax-exempt bonds in which arbitrage earnings from investments in various funds and accounts holding bond proceeds are accumulated in order to make arbitrage rebate payments to the federal government under the Internal Revenue Code.  See:  ARBITRAGE EARNINGS; ARBITRAGE REBATE.
ARBITRATION – A system for resolving disputes in which two parties who have a disagreement involving the municipal securities activities of a broker-dealer may submit the disagreement to an impartial panel for resolution.  Broker-dealers may be compelled to arbitrate disputes; customers cannot be compelled to arbitrate disputes involving securities law claims, although they can be required to resolve general contractual disputes through arbitration if a valid arbitration agreement had been previously executed.  Decisions of an arbitration panel are binding on the parties to the claim.
ARPS – See:  AUCTION RATE PREFERRED SECURITIES.
“AS AGENT” TRADE – A securities transaction executed by a broker-dealer on behalf of and under the instruction of another party.  The broker-dealer does not act in a principal capacity and may be compensated by a commission or fee (which must be disclosed to the party for whom it is acting) rather than by a mark-up.  To function as a customer’s agent,a broker-dealer must disclose or express willingness to disclose the identity of the other side of the transaction.  Compare:  PRINCIPAL TRADE.  See:  AGENCY CROSS; CUSTOMER TRADE; INTER-DEALER TRADE.
ASK – See:  OFFER.
ASSESSED VALUATION or ASSESSED VALUE – The appraised worth of a property as set by a taxing authority for purposes of ad valorem taxation.  The method of establishing assessed valuation varies from state to state.  For example, in certain jurisdictions the assessed valuation is equal to the full or market value of the property; in other jurisdictions the assessed valuation is equal to a set percentage of full or market value.  See:  AD VALOREM TAX; MILLAGE.
ASSESSMENT BOND – See:  SPECIAL ASSESSMENT BOND.
ASSIGNMENT – The form imprinted on a certificated security that, when completed and signed by the registered owner, authorizes the transfer of the security into the name of a new owner.  Assignments are often executed by the registered owner “in blank,” with the name of the assignee filled in subsequently.  See:  BOND POWER; CERTIFICATED SECURITY; REGISTERED BOND; TRANSFER.
ASSOCIATED PERSON – (1) In the case of a broker-dealer (other than a dealer bank), any employee of the broker-dealer, other than persons whose functions are solely clerical or administrative; any partner, officer, director or branch manager of the broker-dealer; or any other person directly or indirectly controlling, controlled by or under common control with the broker-dealer.

(2) In the case of a dealer bank, any person directly engaged in the management, direction, supervision or performance of any of the dealer bank’s activities with respect to municipal securities; or any person directly or indirectly controlling such activities or controlled by the dealer bank in connection with such activities.

Associated persons who undertake municipal securities activities generally must be qualified to perform such activities under MSRB Rule G-3. See: FINANCIAL AND OPERATIONS PRINCIPAL; MUNICIPAL FUND SECURITIES LIMITED PRINCIPAL; MUNICIPAL SECURITIES PRINCIPAL; MUNICIPAL SECURITIES REPRESENTATIVE; MUNICIPAL SECURITIES SALES PRINCIPAL.
ATS – See:  ALTERNATIVE TRADING SYSTEM.
AUCTION AGENT – A broker-dealer responsible for conducting the Dutch auction used in connection with the periodic interest rate reset and remarketing of auction rate securities.  Compare:  REMARKETING AGENT.  See:  AUCTION RATE SECURITIES; DUTCH AUCTION. 
AUCTION MARKET – A market for securities, typically found on a national securities exchange, in which trading in a particular security is conducted at a specific location with all qualified persons at that post able to bid or offer securities against orders via outcry.  Very few municipal securities are traded in an auction market system.  Compare:  OVER-THE-COUNTER MARKET.
AUCTION RATE SECURITIES – Variable rate bonds whose interest rate is reset periodically under the Dutch auction process.  See:  DUTCH AUCTION; VARIABLE RATE.
AUCTION RATE PREFERRED SECURITIES (ARPS) – Securities issued by a tax-exempt bond fund as preferred shares earning periodic dividend payments based on a rate of return determined through a Dutch auction procedure.  Investment earnings realized by the bond fund are applied first to pay dividends on ARPS before being allocated to holders of common shares of the bond fund.  See:  BOND FUND; DUTCH AUCTION.
AUDITED STATEMENT – A financial statement that has been examined by an auditor and upon which the auditor has expressed or disclaimed an opinion.  See:  AUDIT REPORT; COMPREHENSIVE ANNUAL FINANCIAL REPORT; INTERIM PERIOD FINANCIAL STATEMENTS.
AUDIT REPORT – The report prepared by an auditor following its audit or investigation of an entity’s financial position and results of operations for a given period of time.  As a general rule, the report should include: (a) a statement of the scope of the audit; (b) explanatory comments concerning exceptions from generally accepted accounting principles and auditing standards; (c) expression or disclaimer of opinions; (d) explanatory comments concerning verification procedures; (e) financial statements and schedules; and (f) statistical tables, supplementary comments and recommendations.  See:  AUDITED STATEMENT.
AUTHENTICATION – A certification, usually by the trustee under a trust indenture, appearing on a bond certificate attesting that the certificate is authentic.
AUTHORITY – A unit or agency of government, or a separately established not-for-profit entity formed on behalf of a governmental entity, established to perform specialized functions.  In some cases, authorities have the power to issue debt that is secured by the lease rental payments made by a governmental unit using the facilities constructed with bond proceeds.  In other cases, authorities issue private activity bonds for the purpose of making the proceeds available to qualified private entities for use as permitted under the federal tax laws.  Examples of such conduit authorities include health facilities authorities, industrial development authorities and housing finance authorities.  An authority may function independently of other governmental units, or it may depend upon other units for its creation, funding or administrative oversight.  Authorities, other than conduit authorities, usually are financed by service charges, fees or tolls, although they also may have taxing powers.  Conduit authorities generally are financed by fees payable by conduit borrowers, either paid directly by the borrower or under the bond contract.  See:  CONDUIT ISSUER.
AUTHORIZED DENOMINATION – See:  DENOMINATION.
AUTHORIZING ORDINANCE – See:  AUTHORIZING RESOLUTION.
AUTHORIZING RESOLUTION – With respect to an issue of municipal securities, the document adopted by the issuer that implements its power to issue the securities.  The legal grant of such authority may be found in the enabling provisions of the constitution, statutes, charters and ordinances applicable to the issuer.  Adoption of an authorizing resolution by the issuer’s governing body is a condition precedent to the issuance of the proposed securities.  Typically, an issuer will be required to adopt a final “award” or “sale” resolution setting forth the specific terms of the offering.  In certain jurisdictions, the governing body will act by means of an ordinance (“authorizing ordinance”) rather than by resolution.  Compare:  AWARD RESOLUTION; INDUCEMENT RESOLUTION; MASTER RESOLUTION; REIMBURSEMENT RESOLUTION.  See:  BOND CONTRACT; BOND RESOLUTION; ORDINANCE; RESOLUTION.
AUTOMATED CUSTOMER ACCOUNT TRANSFER SERVICE – See:  ACATS.
AVERAGE ANNUAL DEBT SERVICE – See:  DEBT SERVICE.
AVERAGE COUPON – A calculation of the total interest cost for a bond issue expressed as a percentage.  The average coupon is equal to the total interest payments of an issue divided by bond year dollars.
AVERAGE LIFE – With respect to an issue of bonds, the weighted period of time required to repay half of the issue through scheduled principal payments (e.g., maturity, sinking fund redemption, etc.).  The average life, also referred to as the “weighted average life” or “weighted average maturity,” is a reflection of the rapidity with which the principal of an issue is expected to be paid.  Under one commonly used calculation method, average life is equal to the total bond years divided by the total number of bonds  (one bond equals $1,000 par amount, regardless of actual denomination).  Note that this computation method does not take into account the time value of the principal amounts.  The formula for this computation is:

See: BOND YEAR; EXPECTED AVERAGE LIFE; SINKER.
AWARD – The official acceptance by the issuer of a bid or offer to purchase a new issue of municipal securities by an underwriter.  The date of the award is generally considered the “sale date” of an issue.  See:  BID; BOND PURCHASE AGREEMENT; WRITTEN AWARD.  Compare:  VERBAL AWARD.

AWARD RESOLUTION – With respect to a new issue of municipal securities, the issuer’s resolution, sometimes referred to as the “sale resolution,” authorizing the sale of the securities and approving the specific terms of the offering.  Compare:  AUTHORIZING RESOLUTION.  See:  BOND RESOLUTION; RESOLUTION; SERIES RESOLUTION.

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