The term "municipal fund securities" refers to a securities issued by an issuer that would be required to register as an "investment company" under the Investment Company Act, but for the exemption in ICA Section 2(b), which excludes from registration under the ICA. See also MSRB Rule D-12. ("Municipal fund securities" are not the same as a municipal bond fund, which is generally an investment company registered under the ICA that invests in municipal securities.)
Regulation of municipal fund essentially began in 1999, when the MSRB learned of sales of certain interests in trust funds held by state or local governmental entities may be effected by or through brokers, dealers or municipal securities dealers ("dealers"). At that time, the Board has reviewed two types of state or local governmental programs in which dealers may effect transactions in such interests: pooled investment funds under trusts established by state or local governmental entities ("local government pools") and higher education savings plan trusts established by states ("higher education trusts").
Although municipal fund securities constitute municipal securities, they may not have many of the features typically associated with traditional municipal securities. Instead, municipal fund securities appear to have features similar to investment company securities or variable contract products a they provide an investment return based on the investment performance of an underlying pool of assets.
While municipal fund securities are exempt from registration under the Securities Act and the Investment Company Act, broker-dealers engaged in sale of the securities are subject to the the requirements of the Securities Exchange Act, including SEA Rule 15c2-12, and the MSRB's Rules. MSRB Rules with provisions specific to municipal fund securities are linked below. However, money derived from the purchase of municipal fund securities does not come from municipal entities, and therefore advisors with respect to such funds are not required to register as municipal advisors.
Since the MSRB first became aware of the existence of municipal fund securities, a number of new types of such securities have developed including 529 Plans and ABLE programs.