Following concerns raised by officials at the Securities and Exchange Commission, representatives of the municipal market's largest players are revising their strategy for overhauling a voluntary ban on campaign contributions.
The accord on banning contributions, reached last October by the municipal market's largest firms and extended later to many regional dealers, places tough restrictions on campaign contributions made by securities professionals to state and local officials.
In recent months, lawyers representing municipal market firms have tried to revise the ban along the lines of a separate rule imposed by the Municipal Securities Rulemaking Board.
The board's rule, known as G-37, restricts municipal bond dealers from doing business in places where they have made contributions to state and local officials.
Many firms believe the voluntary accord is too onerous, imposing stiff reporting requirements not found in federal restrictions. Wall Street executives also say it's difficult to comply with two sets of rules.
But the market's first attempt at changing the voluntary accord has not gone over well with officials at the SEC, Wall Street sources say.
Last week SEC officials, who have worked with industry leaders in crafting the accord, received a draft copy of the group's work and promptly expressed their concerns over some of the changes.
According to Wall Street sources, commission officials said the draft they received not only attempted to bring the voluntary accord in line with G-37 but also interpreted several aspects of the federal rule, including which executives of a firm are covered under the federal restrictions.
Regulators, including those at the MSRB, have warned industry executives against interpreting G-37 and have refused to provide much insight into how they will enforce some of the rule's key provisions.
An SEC spokeswoman had no comment on the matter.
PaineWebber general counsel Theodore Levine, who has taken a lead role in revising the accord, said the group never formally presented the commission with a revision of the voluntary ban, but confirmed that the commission last week received a draft of the proposal.
Levine would not elaborate on the commission's objections. He said lawyers representing municipal market firms continue to work on a revision of the voluntary accord and will soon present the commission with a new interpretation.
"We're trying to get people focused on the issue [of] what is a reasonable and rational intrepretation so people can go foward," Levine said. "We are not trying to undercut" the agreement.
Wall Street sources said the revisions are aimed at interpreting Rule G-37 because market players feel that while the MSRB board has been helpful on some aspects of the rule, others have been left open to question.
In recent months, Wall Street executives have complained through their trade organization, the Public Securities Association, that the MSRB has failed to adequately direct them on how to interpret the federal restrictions.
Heather Ruth, president of the PSA, would not comment about efforts to revise the accord, but said many market players are "frustrated" with the rulemaking board, and would prefer more guidance. MSRB executive director Christopher Taylor would not comment on the matter.
So amid the mounting frustration, lawyers representing about 40 market firms attempted to use a revision of the voluntary accord as a way to provide guidance for the SEC on how to implement the rulemaking board's edict, Wall Street sources say.
Instead of giving guidance on G-37, SEC officials said they could not interpret a rule imposed by the MSRB, Wall Street sources said.
The Street "is really in a quandary," one market source said. "The SEC says it can't interpret the rule, only the MSRB can."
