The analysis of the advertisement must be conducted through the lens of MSRB Rule G-21 on Advertising and MSRB Rule G-17 on the Conduct of Municipal Securities and Municipal Advisory Activities. The headline, “Guarantee Your Child’s College Education with Tax-Free Growth!”, contains two significant misrepresentations that constitute a major violation. First, the term “Guarantee” is fundamentally misleading. Investments in municipal fund securities like 529 plans are subject to market risk and are not guaranteed by the state, the federal government, or any other entity. Using this term creates a false sense of security and is a direct violation of the antifraud provisions and the fair dealing principles of Rule G-17. Second, the phrase “Tax-Free Growth” is an oversimplification that is also misleading. The growth within a 529 plan is tax-deferred, not tax-free. Withdrawals are only free from federal income tax if they are used for qualified higher education expenses. Any non-qualified withdrawal will have the earnings portion subject to ordinary income tax plus a potential 10% federal tax penalty. The advertisement fails to provide this critical context, thereby misrepresenting the product’s tax features. While other aspects of the advertisement, such as the presentation of performance data or the method of linking to the Program Disclosure Document, are also subject to MSRB rules, the promissory and factually incorrect nature of the headline represents the most severe and direct violation of a principal’s duty to ensure that communications are fair, balanced, and not misleading.

The core issue revolves around MSRB Rule G-37, which governs political contributions and their impact on a dealer’s ability to conduct municipal securities business. The rule is designed to prevent pay-to-play practices. A municipal finance professional, or MFP, is an associated person of a dealer who is primarily engaged in municipal securities representative activities, solicits municipal securities business, or is in the supervisory chain above such persons. In this scenario, David is an MFP. The rule states that if a dealer or its MFPs make a contribution to an official of an issuer, the dealer is banned from engaging in municipal securities business with that issuer for a period of two years. There is a de minimis exception that allows an MFP to contribute up to $250 per election to an official for whom the MFP is entitled to vote, without triggering the two-year ban. David’s contribution of $300 exceeds this $250 de minimis threshold. Consequently, the two-year ban is triggered for his employer, Apex Financial Distributors. The ban applies to all forms of municipal securities business with the state, which includes acting as a primary distributor for the state’s 529 plan. The two-year prohibition period begins on the date the contribution was made. The principal’s responsibility is to recognize this violation and ensure the firm complies with the resulting prohibition.

The calculation to determine the regulatory consequence is based on the application of MSRB Rule G-37. Contribution Amount: \($300\) De Minimis Exception Limit: \($250\) per election Is the Municipal Finance Professional (MFP) entitled to vote for the official? No. Conclusion: The de minimis exception is not applicable. Any contribution by an MFP to an official for whom the MFP is not entitled to vote triggers a two-year ban on municipal securities business with that issuer. The fact that the contribution of \($300\) also exceeds the \($250\) threshold is a secondary reason for the violation. The ban is triggered regardless of the amount in this specific circumstance. The ban begins on the date of the contribution. The principal’s duty under MSRB Rule G-27 is to enforce the firm’s written supervisory procedures, which must include ceasing the prohibited business. MSRB Rule G-37 is designed to prevent pay-to-play practices in the municipal securities industry. The rule states that a broker, dealer, or municipal securities dealer is prohibited from engaging in municipal securities business with an issuer for a period of two years after the dealer or any of its municipal finance professionals (MFPs) makes a political contribution to an official of that issuer. There is a de minimis exception that permits an MFP to contribute up to \($250\) per election to an official for whom the MFP is entitled to vote, without triggering the two-year ban. In the given scenario, the MFP, David, made a \($300\) contribution, which exceeds this limit. More critically, David is not entitled to vote for the official, which makes the de minimis exception entirely unavailable to him. Therefore, any contribution, even one dollar, would have triggered the prohibition. The consequence is a strict two-year ban on the firm conducting any municipal securities business, which includes distributing the state’s 529 plan, with the State of Calypso. Under MSRB Rule G-27, the designated principal, Lena, has a direct supervisory responsibility to enforce the firm’s compliance with all MSRB rules. Upon discovering the violation, her most critical duty is to ensure the firm’s written supervisory procedures are followed, which involves immediately halting all municipal securities business with the affected issuer for the two-year period and documenting the event and the firm’s response.

The core issue stems from the definition and required handling of a customer complaint under MSRB rules. According to MSRB Rule G-8(a)(xii), a “complaint” is defined as any written statement by a customer, or any person acting on behalf of a customer, alleging a grievance involving the activities of the dealer or its associated persons in connection with the solicitation or execution of any transaction or the disposition of securities or funds of that customer. The representative’s subjective belief that the communication is not a formal complaint is irrelevant. The client’s written expression of dissatisfaction with fees and performance constitutes a grievance and therefore must be treated as a complaint. MSRB Rule G-27, which governs supervision, places a direct responsibility on the firm and its principals. Specifically, Rule G-27(c)(i)(B) mandates that a dealer’s written supervisory procedures must provide for the prompt review and written approval by a designated principal of the handling of all written customer complaints. The failure in the scenario is not merely the representative’s error in judgment, but a systemic breakdown in the supervisory process. The firm’s procedures were clearly inadequate if they allowed a representative to unilaterally decide that a written grievance was not a complaint, thereby circumventing the required principal review. The principal’s primary duty is to establish, maintain, and enforce a system that ensures all such communications are escalated for proper review, investigation, and documentation. The failure to have such a robust system in place is the most significant supervisory deficiency.

The analysis of the principal’s obligations involves a multi-step process based on MSRB rules. First, the advertisement must be evaluated under MSRB Rule G-21, which governs advertising by brokers, dealers, and municipal securities dealers. This rule requires that all advertisements be based on principles of fair dealing and good faith and must not contain any false or misleading statements or claims. The omission of material facts, such as the potential for state tax recapture on rollovers and the lack of a disclaimer about past performance, renders the advertisement misleading. Second, under MSRB Rule G-27, the Municipal Fund Securities Limited Principal has a supervisory responsibility to review and approve all municipal fund securities advertising prior to its first use. This approval must be documented in writing. Therefore, the principal cannot approve the advertisement in its current form. The principal must require the representative to amend the advertisement to include the necessary disclosures to make it fair and balanced. Third, once the advertisement is corrected and approved, MSRB Rule G-9 on the preservation of records becomes applicable. Rule G-9(a)(viii) specifically requires that records of all advertisements be kept for a period of at least four years from the date of last use. This record must include a copy of the advertisement, the name of the person who prepared it, and the name of the principal who approved it, along with the date of approval. The combination of these rules dictates a clear course of action: withhold approval, mandate specific corrections for compliance, and then ensure proper records are created and maintained for the specified retention period.

The core of this issue lies in the intersection of MSRB Rule G-21 on advertising, MSRB Rule G-27 on supervision, and MSRB Rule G-9 on recordkeeping. First, under Rule G-21(a)(i), the term “advertisement” is broadly defined to include any material, other than a listing of offerings, published or used in any electronic or other public media, or any promotional literature designed for dissemination to the public. This definition clearly encompasses social media posts, downloadable reports, and interactive online tools. MSRB Rule G-21(f) mandates that each advertisement must be approved in writing by a qualified municipal securities principal or municipal fund securities limited principal prior to its first use. This is a critical pre-emptive supervisory step. Furthermore, MSRB Rule G-27(c) requires that each dealer establish, maintain, and enforce written supervisory procedures (WSPs) that are reasonably designed to achieve compliance with applicable MSRB rules. When a firm adopts new communication methods like interactive digital tools, its WSPs must be reviewed and updated to specifically address the unique compliance and supervisory challenges these new technologies present. Simply relying on general advertising procedures may not be sufficient. Finally, MSRB Rule G-9 requires that records of all advertisements and the written approvals by the principal be maintained for a period of not less than three years, with the first two years in an easily accessible place. The supervisory framework must ensure that this recordkeeping is systematically performed for all components of the digital campaign. A comprehensive supervisory action must therefore integrate the pre-use approval, the adequacy of the WSPs for the specific media, and the corresponding recordkeeping obligations.

No calculation is required for this question. MSRB Rule G-8(a)(xii) defines a customer complaint as any written statement from a customer, or someone acting on their behalf, that alleges a grievance involving the activities of the dealer or its associated persons. The definition is intentionally broad and does not require the customer to use the specific word “complaint” or demand monetary compensation. A letter expressing dissatisfaction with risk disclosures and resulting performance falls squarely within this definition of a grievance. Upon receipt of such a written grievance, MSRB Rule G-27, which governs supervision, mandates that a designated principal must review the complaint. The firm’s written supervisory procedures must outline the process for handling such complaints. This includes investigating the allegations to determine their merit. Furthermore, MSRB Rule G-8 requires the firm to create and maintain a specific record for each written complaint. This record must be kept in a dedicated complaint file and include the complainant’s name and address, the date the complaint was received, the name of the associated person identified, a description of the complaint, and a record of the disposition of the complaint. Finally, MSRB Rule G-10 requires the firm to provide the customer with specific information in response to the complaint. This includes the MSRB’s website address, a statement that an investor brochure describing the protections available under MSRB rules is available on the MSRB website, and the name, address, and telephone number of the broker-dealer. The combination of identifying the communication as a complaint, initiating a principal review, creating the required record, and providing the G-10 disclosures constitutes the complete and compliant initial response.

The principal must reject the advertisement as it contains multiple violations of MSRB Rule G-21. Under MSRB Rule G-27, a Municipal Fund Securities Limited Principal has the supervisory responsibility to review and approve all advertising related to municipal fund securities prior to its first use. This review must ensure compliance with all applicable MSRB rules, most notably MSRB Rule G-21 on advertising. The proposed advertisement contains several clear violations. First, claiming or implying “guaranteed returns” for a 529 savings plan is a material misrepresentation. The value of these plans is based on underlying investments, which are subject to market risk and are not guaranteed. Such a statement is false and misleading. Second, the use of a paid actor for a testimonial without disclosing that the person is a paid spokesperson and that their experience may not be representative of all clients is a deceptive practice. MSRB Rule G-21 requires that any testimonial be presented fairly and not be misleading. Third, the advertisement fails to identify the broker-dealer firm responsible for its content. The rule mandates that advertisements clearly and conspicuously state the name of the broker-dealer. The overarching principle of MSRB Rule G-17, which requires dealers to deal fairly and not engage in deceptive or dishonest practices, is also violated. Therefore, the principal’s primary duty is to disapprove the advertisement and require its correction to comply with all regulatory standards before it can be disseminated to the public.

The principal’s primary responsibility is to disapprove the brochure and mandate specific corrections. This action is required to comply with MSRB Rule G-21 on advertising and MSRB Rule G-27 on supervision. MSRB Rule G-21 requires that all advertising and sales literature related to municipal fund securities be approved in writing by a qualified principal, such as a Municipal Fund Securities Limited Principal, before its first use. The core standard of this rule is that such materials must not be false or misleading. They must present a fair and balanced view of both the potential benefits and the risks associated with the investment. The draft brochure in the scenario contains several misleading elements and material omissions. The use of a paid actor in a testimonial without disclosing the paid nature is a deceptive practice. Highlighting state tax deductions without also disclosing potential recapture provisions for non-qualified withdrawals or rollovers presents an incomplete and potentially misleading picture of the tax consequences. Furthermore, presenting performance data without clearly and prominently disclosing the impact of all relevant fees, sales charges, and expenses, as well as the specific risks of the underlying investments, is a significant material omission that makes the performance depiction misleading. The principal’s supervisory duty under MSRB Rule G-27 compels them to enforce the firm’s written supervisory procedures, which must include the review and approval of advertising to ensure compliance with all applicable MSRB rules. Therefore, the principal must reject the material and require it to be corrected to include all necessary disclosures and remove any misleading content before it can be distributed to the public.

Step 1: Identify the applicable MSRB rules for the scenario. The key rules are MSRB Rule G-21 concerning advertising, MSRB Rule G-27 concerning supervision, and MSRB Rule G-9 concerning the preservation of records. Step 2: Analyze the principal’s approval action under Rule G-21. The social media posts are considered product advertisements. Rule G-21(f) requires that these advertisements be approved by an appropriate principal prior to first use. The Municipal Fund Securities Limited Principal (Series 51) is an appropriate principal for approving advertisements related to municipal fund securities. The principal’s act of reviewing and approving the content is a required supervisory step. Step 3: Analyze the recordkeeping practice under Rule G-9. This rule mandates the preservation of books and records, including copies of all advertisements. For electronic advertisements, such as social media posts, this requirement extends to preserving the advertisement in its original format, including all text, images, interactive elements, and hyperlinks to other documents as they existed at the time of publication. The firm’s system, which only archives the text of the posts, fails to capture the full context and content of the advertisement as it was presented to the public. This constitutes a failure to create and maintain an accurate record of the advertisement. Step 4: Synthesize the supervisory responsibility under Rule G-27. A principal’s supervisory duty is not limited to just approving content. It encompasses ensuring that the entire process, from creation to dissemination to recordkeeping, complies with all applicable MSRB rules. By approving advertisements for use within a system that has a fundamentally flawed recordkeeping process, the principal has failed in their broader supervisory duty. The most significant and concrete violation is the failure to ensure the advertisements were preserved in accordance with Rule G-9, as this undermines the ability of regulators to review the firm’s communications with the public. While the written supervisory procedures could be more specific, the tangible failure to keep proper records is a direct violation.

The described supervisory structure is compliant with MSRB rules. MSRB Rule G-27 requires a broker-dealer to establish, maintain, and enforce written supervisory procedures (WSPs) and a system for applying such procedures, which are reasonably designed to prevent and detect violations of MSRB rules and federal securities laws. A core component of this rule is the requirement for the dealer to designate one or more principals who are responsible for supervision. The key is that the designated principal must be an “appropriate principal” for the activities being supervised. Under MSRB Rule G-3, which outlines qualification requirements, a Municipal Securities Principal (Series 53) is qualified to supervise the full scope of a dealer’s municipal securities business. This includes underwriting, trading, sales, and financial advisory activities for all types of municipal securities, which explicitly includes municipal fund securities. A Municipal Fund Securities Limited Principal (Series 51) is qualified to supervise only the activities of the dealer related to municipal fund securities, such as 529 plans and Local Government Investment Pools (LGIPs). Because the authority of a Series 53 principal encompasses the more limited authority of a Series 51 principal, the Series 53 principal is considered an appropriate principal to supervise any aspect of the firm’s municipal fund securities business. Furthermore, MSRB Rule G-27 allows a firm to allocate specific supervisory responsibilities among different, appropriately qualified principals. Therefore, it is permissible for the firm’s WSPs to assign the duty of new 529 plan account approval to the Series 53 principal while assigning the duty of correspondence review for those same accounts to the Series 51 principal. Both individuals are qualified for their assigned tasks, and the firm has a documented, reasonable supervisory system in place.

The core of this issue rests on determining the appropriate supervisory qualifications under MSRB rules for a specific activity. The activity in question is the review of correspondence related solely to 529 savings plans. According to MSRB Rule D-12, a 529 plan is defined as a municipal fund security. MSRB Rule G-3 outlines the qualification requirements for principals. Specifically, Rule G-3(b)(iv)(A) establishes the Municipal Fund Securities Limited Principal (Series 51) qualification. This rule explicitly states that a person with this registration is qualified to engage in the management or supervision of activities related to municipal fund securities. Since reviewing correspondence about 529 plans is a supervisory activity directly related to municipal fund securities, a Series 51 principal is appropriately qualified for this function. MSRB Rule G-27(b)(ii) requires a dealer to designate one or more principals to supervise its municipal securities activities. Rule G-27(b)(ii)(C) further clarifies that the designated individual must be an “appropriate principal” for the activities being supervised. While a Municipal Securities Principal (Series 53) is also qualified because their authority covers all municipal securities, the limited scope of the Series 51 principal is perfectly aligned with and sufficient for supervising activities that are exclusively related to municipal fund securities. Therefore, assigning this specific task to the Series 51 principal is fully compliant with MSRB rules. There is no rule that mandates a broader registration like the Series 53 for this limited function, nor is there a requirement for co-supervision in this context.

The core issue is evaluated by applying the principles of MSRB Rule G-17, which governs the conduct of municipal securities business, and MSRB Rule G-21, which specifically addresses advertising. First, MSRB Rule G-17 establishes a broad ethical standard, requiring broker-dealers to deal fairly with all persons and not engage in any deceptive, dishonest, or unfair practice. The advertisement in question, while not containing an explicit falsehood, creates a misleading impression. By highlighting the state tax deduction without mentioning that this benefit applies to other states’ plans under the new tax parity law, it implies a unique advantage that does not exist. This is a deceptive practice. Second, MSRB Rule G-21(c) states that no broker, dealer, or municipal securities dealer may publish or disseminate any advertisement concerning municipal securities which it knows or has reason to know is materially false or misleading. An advertisement must present a fair and balanced picture of both the risks and benefits. The omission of the potential for state tax recapture on non-qualified withdrawals is a material omission of a potential negative consequence, thus failing the fair and balanced presentation standard. A principal’s supervisory duty under MSRB Rule G-27 includes ensuring that all advertising complies with all applicable MSRB rules. The principal must look beyond mere factual accuracy to the overall impression created by the communication. The combination of implying a unique benefit and omitting a key risk (tax recapture) makes the advertisement fundamentally unfair and misleading. Therefore, the principal’s primary obligation is to reject the advertisement because it violates the foundational principle of fair dealing under Rule G-17 by being misleading through both implication and omission.

The core issue is the violation of the specific supervisory procedures mandated by the MSRB for handling written customer complaints. MSRB Rule G-27(c)(i)(B) explicitly requires that a designated principal review and endorse, in writing, any response to a written customer complaint. In this scenario, the municipal fund securities representative responded directly to the client without obtaining the required prior review and endorsement from the designated principal. This action fundamentally circumvents the established supervisory framework designed to ensure that customer complaints are handled appropriately, investigated thoroughly, and responded to in a manner consistent with firm policy and regulatory requirements. While other related violations may have occurred, such as the failure to provide the MSRB investor brochure under Rule G-10 or the improper creation of a complaint record under Rule G-8, these are secondary to the primary breakdown in the supervisory process. The principal’s review is the critical control point. The representative’s unilateral action represents the most significant failure because it bypasses the designated principal’s direct responsibility and authority in the complaint resolution process, potentially exposing the firm to significant regulatory and legal risk. The purpose of this rule is to prevent ad-hoc, unapproved responses and to ensure a centralized, supervised, and documented approach to all written complaints.

The core issue revolves around the intersection of MSRB Rule G-37, concerning political contributions, and MSRB Rule G-27, which mandates dealer supervision. MSRB Rule G-37(b) imposes a two-year prohibition on a dealer engaging in municipal securities business with an issuer if the dealer, a Municipal Finance Professional (MFP) associated with the dealer, or a dealer-controlled PAC makes a contribution to an official of that issuer. The rule provides a de minimis exception of $250 per election for contributions by MFPs to officials for whom they are entitled to vote. In this scenario, Leo is explicitly identified as a non-MFP. Therefore, his personal contribution of $300 does not automatically trigger the two-year ban for Keystone Wealth Distributors under Rule G-37(b). The ban is specifically linked to contributions from the dealer, its MFPs, or its PAC. However, the analysis does not end there. MSRB Rule G-37(d) prohibits a dealer from doing indirectly what it is prohibited from doing directly. This means a dealer cannot use an associated person, such as a non-MFP, as a conduit to make a contribution to circumvent the rule. A contribution from a non-MFP could be deemed an indirect contribution from the dealer if the dealer solicited or directed it. This possibility places a significant burden on the firm’s supervisory principal under MSRB Rule G-27. Anika, as the Municipal Fund Securities Limited Principal, is responsible for establishing and maintaining written supervisory procedures (WSPs) reasonably designed to achieve compliance with all applicable MSRB rules. A failure to have procedures to review political contributions by non-MFPs involved in the municipal securities business represents a critical supervisory lapse. Such a review is necessary to determine if the contribution was made to circumvent Rule G-37. The absence of this supervisory control means the firm cannot adequately guard against potential indirect violations of Rule G-37(d).

The core issue lies in the firm’s Written Supervisory Procedures (WSPs) regarding advertising. MSRB Rule G-27 mandates that a dealer must establish, maintain, and enforce WSPs that are reasonably designed to achieve compliance with all applicable securities laws and MSRB rules. For a firm dealing in municipal fund securities, this includes the specific rules governing advertising. MSRB Rule G-21 covers advertising, and Rule G-21(f) is particularly critical. This rule requires that each advertisement must be approved in writing by a Municipal Securities Principal or a Municipal Fund Securities Limited Principal before its first use. The firm’s current procedure, which calls for a review of marketing materials within 10 business days *of dissemination*, is a direct violation of this pre-use approval requirement. A post-use review does not meet the standard set by the MSRB. The WSPs must explicitly detail the process for a qualified principal to review and approve all advertisements prior to their initial publication or distribution to the public. This approval must be documented and maintained as part of the firm’s books and records, in accordance with MSRB Rules G-8 and G-9. The lack of a pre-use approval process represents a significant failure in the firm’s supervisory system, as it allows for the potential distribution of non-compliant, misleading, or otherwise prohibited advertising materials to the public.

The conclusion is that the email must be treated as a customer complaint, triggering specific supervisory and recordkeeping duties. The principal must review the complaint, ensure a record is created and filed according to MSRB Rule G-8, and verify the client has received the educational disclosures required by MSRB Rule G-10. Under MSRB rules, a customer complaint is defined as any written statement of a grievance by a customer involving the activities of the municipal securities dealer or its associated persons. The client’s email, expressing disappointment and a feeling of being misled about potential returns, clearly falls under this definition, even without using the specific word “complaint” or demanding financial restitution. MSRB Rule G-27 places a direct supervisory responsibility on the designated principal to review such complaints. The rule does not allow the principal to delegate this initial review or to first determine the complaint’s validity before taking action. Concurrently, MSRB Rule G-8(a)(xii) mandates that the firm must create and maintain a specific record for each written complaint. This record must be kept in a dedicated complaint file, separate from general correspondence, and must include details such as the complainant’s name, the date, the associated person involved, a description of the grievance, and the final disposition. Furthermore, MSRB Rule G-10 requires firms to provide customers, at least annually and upon receipt of a complaint, with educational material, including a statement that the firm is registered with the MSRB and the SEC, the MSRB’s website address, and a brochure describing the protections available under MSRB rules. Therefore, the proper initial procedure involves recognizing the communication as a complaint and immediately initiating the required supervisory, recordkeeping, and disclosure steps.

The core of this scenario revolves around the MSRB’s definition of a customer complaint and the subsequent supervisory duties of a principal. MSRB Rule G-8(a)(xii) defines a complaint as any written grievance by a customer or a person acting on behalf of a customer involving the customer’s account. The client’s email, which is a written communication alleging that a representative was misleading, clearly falls under this definition, even though it does not use the specific word “complaint” or demand a specific remedy. Once a communication is identified as a written complaint, MSRB Rule G-27(c)(i)(B) imposes a direct and immediate responsibility on a designated principal. This rule requires the principal to promptly review the customer complaint. This is a personal supervisory function that cannot be delegated entirely without review. Following this review, the firm must adhere to the recordkeeping requirements of Rule G-8(a)(xii). This involves creating and maintaining a specific file for the complaint. This file must contain the complainant’s name and address, the date the complaint was received, the name of the associated person identified in the complaint, a description of the complaint, and a record of the disposition or action taken by the firm. MSRB Rule G-9 specifies that these complaint records must be preserved for a period of at least six years. Therefore, the principal’s most critical and immediate responsibility is to recognize the communication as a complaint, personally review it, and initiate the formal documentation process as mandated by the rules.

The logical conclusion is that the primary failure is the ineffective enforcement of the firm’s written supervisory procedures (WSPs) as required by MSRB Rule G-27. MSRB Rule G-27 is the cornerstone of a dealer’s supervisory obligations. It requires each dealer to establish, maintain, and enforce a supervisory system, including written procedures, designed to achieve compliance with all applicable MSRB rules and securities laws. A critical component of this system, as it relates to communications, is the enforcement of MSRB Rule G-21. Rule G-21(f) explicitly mandates that a qualified principal must approve all advertisements in writing before their first use. In the scenario, the representative published the advertisement without receiving this required prior approval. While the content of the advertisement itself may violate the content standards of Rule G-21(c) and G-21(e), and the representative’s action is a clear breach of procedure, the principal’s ultimate responsibility is for the system itself. The fact that an unapproved advertisement could be disseminated publicly demonstrates a failure in the design or, more likely, the enforcement of the firm’s supervisory controls. The principal’s primary duty is not just to approve materials but to ensure a system is in place that prevents such unapproved materials from being used. The event is a symptom of a systemic failure under Rule G-27.

Step 1: Identify the primary MSRB rule governing the conduct of municipal securities dealers. MSRB Rule G-17 requires that dealers deal fairly with all persons and shall not engage in any deceptive, dishonest, or unfair practice. This is a broad, principles-based rule. Step 2: Analyze the content and tone of the representative’s proposed marketing script. The script selectively emphasizes the “guaranteed” nature of certain underlying investments within a conservative 529 plan portfolio option. It also implies a level of safety and return for the entire 529 plan product that is not accurate. Step 3: Evaluate the script against the standards of MSRB Rule G-17. The rule is not merely about avoiding outright factual falsehoods. It is about the overall impression created by a communication. A communication can be misleading even if every individual statement within it is technically true. Step 4: Determine if a violation exists. By focusing on the guaranteed nature of a component part, the script creates a misleading impression that the 529 plan itself is guaranteed by the state or some other entity, which is false. It omits the material facts that the value of the 529 plan can fluctuate and is subject to market risk. This omission and misleading emphasis constitute an unfair and deceptive practice. Conclusion: The script violates the fundamental duty of fair dealing under MSRB Rule G-17. The supervising principal’s responsibility is to ensure that all communications are fair, balanced, and not misleading in their overall context. The script fails this test because its selective presentation of facts is designed to create a false sense of security for the investor, which is a clear breach of the dealer’s ethical obligations.

No calculation is required for this question. MSRB Rule G-8 outlines the books and records that must be made by brokers, dealers, and municipal securities dealers. However, Rule G-8(g) provides a specific exception for transactions in municipal fund securities. It states that a dealer is not required to make and keep the detailed customer account records specified in other parts of the rule if those records are maintained by a registered transfer agent for the municipal fund security. This reliance is not absolute and does not eliminate the dealer’s responsibilities. The dealer must maintain records that identify the transfer agent responsible for maintaining the account records. Furthermore, MSRB Rule G-27 on supervision requires the firm to establish and maintain a system to supervise the activities of its associated persons and the conduct of its business. This includes creating and enforcing written supervisory procedures (WSPs). When a firm relies on a third party, such as a transfer agent, for recordkeeping under the G-8(g) exception, its WSPs must clearly document this arrangement. The supervising principal is responsible for ensuring these procedures are adequate. Critically, MSRB Rule G-9, which governs the preservation of records, mandates that records must be readily accessible for examination by regulators. Therefore, even if the records are physically held by the transfer agent, the dealer is ultimately responsible for ensuring they can be produced promptly upon request. The principal’s supervisory duty includes implementing procedures to verify this accessibility, which goes beyond simply noting the reliance in the WSPs. This ensures the firm can meet its regulatory obligations during a compliance examination.

The core issue revolves around the application of MSRB Rule G-21 on advertising and MSRB Rule G-17 on fair dealing. Under Rule G-21, all advertising by a broker, dealer, or municipal securities dealer must be based on principles of fair dealing and good faith, must be fair and balanced, and may not contain any false or misleading statements or claims. A statement that is factually correct for a specific subset of the target audience but presented without qualification to a broader audience can be deemed misleading. In this scenario, the claim of a state income tax deduction is only true for residents of the state of Veridia. Since the digital brochure is intended for nationwide distribution, presenting this benefit without specifying its residency limitation would be misleading to investors in all other states. It creates a false impression of a universal benefit. This also implicates Rule G-17, which requires dealers to deal fairly with all persons. Providing misleading information, even by omission of critical context, is not considered fair dealing. Under MSRB Rule G-27, a designated principal, in this case a Municipal Fund Securities Limited Principal, is responsible for the review and approval of all advertising prior to its use. The principal’s approval signifies that the material is in compliance with all applicable rules. Therefore, the principal cannot approve the advertisement in its current form. The material must be amended to clearly and prominently state that the state tax deduction is a benefit available only to taxpayers of that specific state.

The core of this scenario revolves around the supervisory responsibilities of a principal concerning advertising, as mandated by the Municipal Securities Rulemaking Board (MSRB). MSRB Rule G-21 specifically governs the advertising of municipal securities, including municipal fund securities like 529 plans. A critical provision within this rule, G-21(f), requires that a designated principal, such as a Municipal Fund Securities Limited Principal, must approve in writing any advertisement before its first use. This approval is not a mere administrative check-off. The principal’s approval signifies that they have reviewed the content and determined it to be in compliance with all applicable MSRB rules. This includes ensuring the advertisement is not false, exaggerated, or misleading. For municipal fund securities advertisements, Rule G-21(e) adds further specific requirements. The principal must verify that the material does not misrepresent tax benefits, includes appropriate risk disclosures, and provides a prominent statement advising potential investors to read the official statement or program disclosure document. Any comparisons to other investment products, like a Coverdell ESA, must be fair and balanced, presenting all material facts necessary for an informed comparison. Therefore, the principal’s primary obligation is a substantive review to ensure the content is fair, balanced, and contains all necessary disclosures before providing written approval for its dissemination. This duty is a cornerstone of the broader supervisory framework outlined in MSRB Rule G-27.

The primary compliance failure is that the advertisement contains a misleading and unwarranted claim of “guaranteed returns” and was not pre-approved by a qualified principal. MSRB Rule G-21 governs the advertising of municipal fund securities. This rule broadly defines advertising to include electronic communications such as social media posts and videos. A core tenet of Rule G-21 is that all product advertisements must be approved in writing by a Municipal Securities Principal or Municipal Fund Securities Limited Principal prior to their first use. The representative’s failure to obtain this prior approval is a significant procedural violation. Furthermore, Rule G-21 explicitly prohibits any advertisement from containing false, exaggerated, unwarranted, or misleading statements or claims. Stating that returns are “guaranteed” based on the historical performance of an underlying fund is a material misrepresentation. The value of municipal fund securities, including 529 plans, can fluctuate and is not guaranteed by any party, including the state or the federal government. Past performance is not indicative of future results, and suggesting otherwise is a serious violation of fair dealing principles under MSRB Rule G-17 as well. While providing a link to the official statement is a positive step toward disclosure, it does not cure the misleading nature of the advertisement itself. The advertisement must be able to stand on its own as fair and balanced. The principal’s supervisory responsibility under MSRB Rule G-27 includes enforcing procedures to prevent such violations.

The analysis begins by identifying the relevant MSRB regulation, which is Rule G-37 concerning political contributions and prohibitions on municipal securities business. The first step is to determine the status of the employee, Ananya. As a Municipal Fund Securities Limited Principal, she is defined as a municipal finance professional (MFP) under Rule G-37(g)(iv) because she is a principal engaged in the supervision of municipal securities representatives. The rule applies to contributions made by the firm or its MFPs to officials of an issuer. The recipient of the contribution is the State Treasurer, an official of the state issuer who has influence over the selection of firms for municipal securities business, specifically the 529 plan. The next step is to evaluate the contribution amount against the de minimis exception provided in Rule G-37(b). This exception permits an MFP to contribute up to $250 per election to an official for whom the MFP is entitled to vote, without triggering a business prohibition for the firm. Ananya’s contribution of $300 exceeds this $250 threshold. Because the contribution exceeds the de minimis amount, the exception does not apply. Consequently, the rule’s prohibition is triggered. The prohibition states that the dealer firm is banned from engaging in any municipal securities business with that specific issuer for a period of two years. The two-year look-back and look-forward period begins on the date the contribution was made. The ban applies to the entire firm, Keystone Distributors, not just the individual MFP, and covers all negotiated municipal securities business with the state issuer.

The logical determination of the required action proceeds as follows. First, identify the applicable regulation, which is MSRB Rule G-37 concerning political contributions and prohibitions on municipal securities business. Second, determine if the individual making the contribution, or related to it, is a municipal finance professional (MFP). Leo, as a municipal securities representative, is an MFP. Third, analyze the nature of the contribution. The rule states that a contribution made from a joint account held by an MFP and their spouse is presumed to be a single contribution from the MFP. Even if viewed as separate, Leo’s consent to his spouse’s contribution attributes it to him. The total contribution is $600, so Leo’s attributable portion is at least his half, or $300. Fourth, assess the recipient. The state treasurer is an official of an issuer with influence over the awarding of municipal securities business (the 529 plan distributorship). Fifth, apply the de minimis exception. Rule G-37 allows an MFP to contribute up to $250 per election to an official for whom they are entitled to vote without triggering a business prohibition. Leo’s attributable contribution of $300 exceeds this $250 limit. Sixth, determine the consequence of exceeding the de minimis threshold. This action triggers a two-year prohibition, or ban, on the firm engaging in municipal securities business with that specific issuer (the state). The principal’s primary supervisory duty under MSRB Rule G-27 is to enforce MSRB rules. Therefore, the most critical and immediate action is to ensure the firm adheres to this two-year ban. While reporting the contribution is also required, preventing prohibited business is the most severe and immediate consequence that must be managed.

The core issue revolves around the principal’s supervisory responsibilities under MSRB Rule G-27 and the definition of advertising under MSRB Rule G-21. A publicly accessible social media post by an associated person that discusses municipal fund securities, even if it only presents performance data, is considered an advertisement. MSRB Rule G-21(f) explicitly requires that all advertisements be approved in writing by a qualified municipal securities principal prior to first use. The representative’s posts were not pre-approved, constituting a direct violation. Furthermore, Rule G-21(e) sets specific content standards for municipal fund security advertisements, requiring them to be fair and balanced, and to include disclosures such as a statement that past performance does not guarantee future results and that investors should consider the investment objectives, risks, charges, and expenses associated with the security before investing. The representative’s posts likely lack these required disclosures. Under MSRB Rule G-27, the Municipal Fund Securities Limited Principal is responsible for supervising the activities of associated persons to ensure compliance with MSRB rules. The most critical and immediate supervisory action when a violation is discovered is to stop the prohibited activity to prevent further harm to the public and limit the firm’s liability. Subsequent actions, such as updating written supervisory procedures and conducting training, are also necessary, but the primary responsibility is to halt the ongoing violation. Therefore, the principal must instruct the representative to take down the non-compliant communications immediately.

The fundamental principle of MSRB Rule G-17 is the duty of a broker, dealer, or municipal securities dealer to deal fairly with all persons and to not engage in any deceptive, dishonest, or unfair practice. This duty extends beyond merely avoiding false statements; it encompasses the entire context of a communication and the overall impression it creates. In the described scenario, the most significant issue is the creation of a misleading impression of a formal partnership or endorsement by the university. By placing a kiosk in the financial aid office, using co-branded materials with the university’s logo, and employing a slogan like “University X’s Partner,” the firm is leveraging the university’s credibility and reputation. This could lead a reasonable person, such as a university employee or a student’s parent, to believe that the university has vetted and officially selected this specific 529 plan as a preferred or superior option. This implied endorsement is a material piece of information that could unduly influence an investor’s decision, causing them to choose the plan based on the perceived affiliation rather than a careful consideration of its features, fees, and suitability for their individual needs. A Municipal Fund Securities Limited Principal, under their supervisory obligations in MSRB Rule G-27, must recognize that such a marketing arrangement is inherently deceptive and constitutes an unfair practice under Rule G-17, regardless of the factual accuracy of the plan’s details presented.

The advertisement must be rejected because it contains promissory and exaggerated claims and does not present information in a fair and balanced manner, which is a direct violation of MSRB Rule G-21. MSRB Rule G-21 governs the advertising of municipal securities, including municipal fund securities like 529 plans. A core tenet of this rule is that no advertisement may be materially false or misleading. The use of the word “Guarantee” in the headline is a significant violation. Investments in 529 plans are subject to market risk and can lose value; they are not guaranteed by the state, the FDIC, or any other entity. This language creates a false sense of security for the investor. Furthermore, while past performance may be included in advertisements, it must be presented in a way that is not misleading. The rule requires that the advertisement present a fair and balanced picture of both the risks and potential benefits. In this scenario, highlighting a \(12\%\) average return while relegating risk disclosures to a small, inconspicuous footnote fails this “fair and balanced” test. The risks must be presented with a prominence that is at least equal to the presentation of the potential returns. The principal’s duty, as outlined in MSRB Rule G-27, includes the review and approval of all advertisements before their first use to ensure they comply with all applicable MSRB rules. Rejecting this advertisement is a critical supervisory function to protect the public and maintain the firm’s compliance with MSRB standards of fair dealing under Rule G-17.

Step 1: Analyze the advertisement content against MSRB Rule G-21(e) for municipal fund securities. The rule mandates that if an advertisement includes performance data, it must present the most recent 1-year, 5-year, and 10-year (or life-of-plan, if shorter) average annual total returns. The advertisement in the scenario only includes 3-year data, which is an incomplete and potentially misleading presentation. This constitutes a direct violation. Step 2: Evaluate the advertisement’s general statements against MSRB Rule G-17 (Conduct of Municipal Securities and Municipal Advisory Activities) and Rule G-21’s general standards. Rule G-17 requires dealers to deal fairly with all persons and not engage in any deceptive, dishonest, or unfair practice. Rule G-21 prohibits advertisements from being false or misleading. The claim of “guaranteed returns” is a material misrepresentation, as investments in 529 plans are subject to market risk and are not guaranteed by the state, the FDIC, or any other entity. Step 3: Determine the principal’s obligation under MSRB Rule G-27 (Supervision). Rule G-27(a) requires the dealer to supervise the municipal securities activities of its associated persons. Rule G-21(f) specifically requires that all advertisements be approved in writing by a municipal securities principal or municipal fund securities limited principal prior to first use. Step 4: Synthesize the required supervisory action. The principal cannot approve a non-compliant advertisement. The appropriate action is to formally reject the material. This rejection must be documented. The documentation should specify the reasons for rejection, referencing the specific rule violations, namely the omission of required performance data under G-21(e) and the inclusion of misleading language under G-17 and G-21. The principal must then provide clear instructions to the representative for correcting the deficiencies before the material can be reconsidered for approval. This comprehensive action fulfills the principal’s duty to supervise, enforce MSRB rules, and maintain records of the supervisory process.