General Securities Sales Supervisor (Series10) Practice Exam

When a municipal broker-dealer has a control relationship, when must this be disclosed to customers?

1. Only in primary market transactions as an agent

2. At or prior to confirmation of all sales

3. Only in secondary market transactions as a dealer

4. Only if specifically requested by the customer

The correct answer is: At or prior to confirmation of all sales

Disclosure of a control relationship by a municipal broker-dealer is essential for maintaining transparency and trust in the securities market. When a broker-dealer has a control relationship, it means they have a significant influence or control over the issuer of the securities. This could potentially lead to conflicts of interest that could affect the recommendations or transactions made on behalf of customers. The correct requirement is that such control relationships must be disclosed at or prior to the confirmation of all sales. This timing is crucial because it ensures that customers are fully informed about any potential conflicts of interest before they finalize their transactions. The confirmation of a sale is a significant moment in the transaction process, as it solidifies the deal. Therefore, having the necessary disclosures provided at this stage allows customers to make informed decisions based on all relevant information. Other scenarios mentioned, such as only disclosing in primary market transactions as an agent or only in secondary market transactions as a dealer, do not encompass the breadth of obligation to disclose control relationships. Similarly, only disclosing upon specific request by the customer undermines the proactive approach needed for transparency in the broker-dealer's operations. Instead, comprehensive disclosure aligns with regulations designed to promote fair practices within the municipal securities market.