Under MSRB rules, all of the following are prohibited activities EXCEPT:

• A. Agreeing to repurchase bonds from a customer personally at a preset price
• B. Recommending the purchase of a put option to the customer as protection against loss
• C. Guaranteeing a customer account against loss
• D. Sharing in the gain or loss in a customer's account that is not proportionate to the amount of capital contributed

Answer: (B)

Under MSRB rules, a protective put option used to hedge a municipal security position is not prohibited when it’s suitable for the customer and properly disclosed. The put option gives the holder the right to sell the security at a set price, which helps limit downside risk without guaranteeing a specific outcome. It’s a legitimate risk-management tool, not a promise of profits, so recommending it can be appropriate if it fits the customer’s objectives and risk tolerance.

The other scenarios run into prohibited areas: agreeing to repurchase bonds from a customer personally at a preset price creates a personal buyback obligation and potential conflicts of interest; guaranteeing a customer account against loss crosses into guaranteeing investment performance; and sharing in gains or losses in a customer’s account that isn’t proportional to the capital contributed constitutes improper, non-pro rata compensation.