WASHINGTON -- The Municipal Securities Rulemaking Board approved a modified political contributions rule yesterday that strengthens some parts of its original proposal and tones down others.
"The revised Rule G-27 bans a dealer from transacting municipal securities business with an issuer within two years after any contribution to an official of such issuer made by that dealer, any dealer-controlled PAC or any municipal finance professional," the board announced at a press briefing late yesterday.
The provision would tighten language that the board proposed on Aug. 30 that would have barred contributions by underwriters that are designed to obtain or retain an issuers bond business.
The final rule, which will be sent to the Securities and Exchange Commission by the end of the year, would allow municipal finance professional to give up to $250 in personal contributions to officials of issuers for whom the person is entitled to vote, the board announced.
As expected, the rule reduces the number of employees at securities firms that would be covered by the measure.
Generally, employees engaged in the municipal bond business and their supervisors all the way up to the chief executive officer of a, firm would be covered by the rule, the board said.
The new rule also would revise a provision in the draft rule that would have required dealers to report contributions to an issuer two years before and two years after they did any business.
The original rule would have covered dealers and their "associated persons," which dealer groups had warned would apply to a multiplicity of officers, directors and employees of firms.
But MSRB officials said yesterday that that provision would have been too broad. "We would have covered all 450,000 associated persons at firms," MSRB Executive Director Christopher Taylor said at the briefing.
The details of the revised rule were announced as the board ended the second day of its three-day quarterly meeting here in which it is also expected to vote to launch a pilot program to promote better dissemination of municipal bond prices and to tighten standards requiring dealers to sell only suitable bonds to customers.
Officials said that the board will probably include language that makes clear that "bundling" of employees' personal contributions would be explicitly barred under the board's rule.
The final rule likely will be sent to the Securities and Exchange Commission for review, probably before Christmas, Taylor said. Then it will be published in the Federal Register and the municipal industry and the public will be asked to comment on it. Once comments are received and reviewed by the SEC staff, the SEC commissioners will vote whether to enact it. A final rule could be adopted as early as January, Taylor said.
The decision to apply the rule only to municipal finance professionals and their supervisers came after strong protests from the Public Securities Association and Securities Industry Association who warned in comment letters last month that complying with the rule would, as the SIA put it, be a "herculean" task.
The board said that the prohibitions on business contained in Rule G-37 will cover contributions make on or after Jan. 1, 1994.
Taylor said "dealers should be aware of this date and should begin preparing supervisory procedures to ensure compliance with this rule."
The board will propose for public comment draft amendments to its Rule G-20 which sets limits on gifts and gratituties that dealers may make to issuers. "We received numerous comments on the proposed rule and many of them urged the board to strengthen and clarify its requirement," said MSRB Chairman David Clapp. "This revised rule responds to these requests. Under the revised rule, a dealer can make political contributions to an issuer or can transact business with an issuer -- but not both. It is just that simple. The exception, however, provides municipal finance professionals with the continued ability to participate in local politics," Clapp said.
