WASHINGTON -- The Municipal Securities Rulemaking Board's political contributions rule should be modified further to exempt salespeople who do not sell many municipal bonds even if they are selling them to institutional clients, the Public Securities Association said yesterday.
The PSA asked for the change in a letter it sent to the Securities and Exchange-Commission commenting on amendments to the rule the MSRB proposed in August.
The letter and a statement issued by the PSA said that while the proposed amendments are helpful, further modification would "ensure more effective compliance" and "avoid needless mistakes."
The MSRB's Rule G-37, which took effect on April 25, generally bars municipal dealers that make contributions to issuer clients from doing business with them for two years afterward.
The rule applies to "municipal securities professionals" and to registered representatives of firms who are "primarily engaged" in the municipal securities business.
The amendments proposed by the MSRB would exempt securities firms' retail staffs from the rule and narrow the number of supervisors of municipal finance professionals that are covered by it.
The amendments are currently pending before the SEC and have been subject to public comment.
In a four-page letter to the SEC yesterday, the PSA said that while the proposed amendments do not go as far toward modifying the rule as the association had wanted, the PSA "nevertheless generally supports their attempt to provide the industry with greater guidance."
The PSA urged the MSRB or other appropriate regulatory authorities to further modify the rule, through a formal release such as one that provides questions and answers about the rule, to make clear that an institutional salesperson with commissions for municipal bonds sales below a specified amount will not be considered to be "primarily engaged" in the municipal securities business.
If such a modification is not made, the PSA warned, firms will wind up-making their own determinations about what "primarily engaged" means, and this "will lead to inconsistent implementation of the rule" as well as "uncertainty" about whether they are in compliance with it, the PSA said.
Meanwhile, Mark Schwartz, a lawyer and former investment banker with Prudential Securities, urged the SEC in a letter last month to reject the MSRB's amendments, which he said will "weaken what is presently an infirm rule."
Schwartz urged the SEC to launch an investigation into the political fund-raising tactics and use of consultants by broker-dealers.
