General Securities Sales Supervisor (Series10) Practice Exam

In a municipal transaction, which factor is NOT considered when determining a fair price to customers?

1. A Availability of the security

2. B Nature of the dealer's business

3. C Execution expenses

4. D Underwriting fees

The correct answer is: D Underwriting fees

In a municipal transaction, underwriting fees are not taken into account when determining a fair price to customers. This is primarily because underwriting fees pertain to the costs that an underwriter incurs during the process of bringing a new issue to market, and they are typically absorbed by the issuer rather than passed on directly to the customers purchasing the securities in the secondary market. When assessing a fair price for customers, the other factors—availability of the security, nature of the dealer's business, and execution expenses—are crucial. Availability indicates how scarce or abundant a security is, influencing its pricing. The nature of the dealer's business can affect their pricing strategies and overall costs, while execution expenses reflect the costs associated with the transaction that may impact the final price charged to customers. Taking these factors into account helps ensure that the dealer is offering a price that reflects the market realities and the costs of executing trades, promoting fairness and transparency in pricing municipal securities.