MSRB Rule G-21: Definition, Purpose & Overview

Instructor: N. Faye Angel

Faye has taught college classes in Business and Information Systems programs, and has a Ph.D. in Technical Education and an M.B.A. in Business Administration.

The Municipal Securities Rule Board (MSRB) Rule G-21 was enacted to promote fair dealing and 'good faith' by dealers selling municipal securities. Its definition, purpose, and an overview are discussed.


Tokoda has recently been hired as director of a social media company advertising municipal securities. His job is to develop electronic media to sell the securities to investors. But what might be considered misleading or fraudulent claims?

Although he is particularly interested in social media guidelines, Tokoda should know what constitutes misleading or fraudulent advertising in general. He is focused on the guidelines of the MSRB Act, especially Rule G-21.

The Municipal Securities Rulemaking Board (MSRB) Act was passed in 1975 in an attempt to prevent fraudulent or misleading acts of those selling municipal securities or products like investment firms, banks or municipalities. Municipal securities are used by state and local governments for public needs and frequently are tax exempt. The MSRB is supervised and enforced by the Securities Exchange Commission (SEC).

Rule G-21

Rule G-21 specifically establishes guidelines for advertisements that make fraudulent and misleading claims relating to municipal securities. This includes any type of advertising. Full disclosure is an important feature making investors aware of any risk factors.

The purpose of MSRB Rule G-21 is to protect municipal securities holders, as well state and local governments, from misleading or fraudulent advertising from dealers. It was intended to limit or eliminate monetary losses from the investments.

The MSRB Act initially defined 'advertisements' as promotional material made public about municipal securities that includes circulars, reports, pamphlets, market letters, form letters, press releases, and any documents misrepresenting the skills of financial managers. It does not apply to preliminary official statements, analysis investment tools, or written reports based on analysis investment tools.

The MSRB even regulates the footnotes of promotional material - down to the size of the font. Care must be taken if testimonials are included, as they may be paid or may not represent the experience of other investors.

Omission of financial or relevant information is considered to be fraudulent and misleading advertising. Based on the MSRB Rule G-21, dealers cannot predict or promise performance for any security. In addition, promotional materials for municipal securities must be maintained in a separate file.

The financial company representative must approve any type of advertisements concerning the municipal securities before dissemination. Tokoda knows not to neglect this important; he certainly does not want to be responsible for publishing fraudulent or misleading claims.

Examples of Misleading Material

The MSRB Rule G-21 assumes that any municipal securities advertisements are made in 'good faith' and based on fair dealings. Examples of misleading promotional advertisements might include:

  • promising a higher annual return than the historical yield
  • stating average annual rates of return while omitting certain years (which would lower it)
  • stating inflated profit while understating current liabilities
  • hiding financial information that would be relevant when purchasing securities
  • exaggerating cash inflows

In 2015, B.C. Ziegler and Company was found to have distributed misleading advertisements for municipal securities, violating several regulations. One of these included violation of MSRB Rule G-21 for selling Senior Living Bonds without disclosing their risks as unrated bonds. Although they can provide a high rate of return, they are associated with high risk. The penalty was sanctions for selling securities and a $150,000 fine.

FAQ Section for Social Media

In 2019, MSRB Rule G-21 was amended to update the rules on digital or electronic media and includes websites, text messages, e-mails, hyperlinks to third parties, and all types of social media.

An important aspect of the amendment was the creation of Frequently Asked Questions (FAQ) which addresses the questions concerning social media so financial companies can avoid being in violation.

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