Many brokers and customers mistakenly believe that municipal bonds are always a “safe” place to be. The recent debacle in Puerto Rico proves this is not the case.
The law imposes special obligations upon brokers who sell municipal bonds.
First, the broker must thoroughly research the municipal bond that he or she is recommending to the client. This goes far beyond merely knowing the credit rating of the bond. Instead, brokers must perform an independent analysis. They must obtain and review all material information that is publicly available through sources such as the Electronic Municipal Market Access System, also known as EMMA. They must also obtain and review information that is not generally available to the public through established industry resources such as research reports, press releases and other data provided by independent sources. This is all spelled out in FINRA Regulatory Notice 10–41.