WASHINGTON -- The Municipal Securities Rulemaking Board voted last week to propose an amendment to its "pay-to-play" political contributions rule that would narrow significantly the number of registered representatives covered by the measure, MSRB chairman David Clapp said yesterday.
The board also adopted new procedures aimed at increasing its "outreach" to market participants, including possibly publishing board agendas just prior to meetings and holding regular regional meetings with dealers and other players, Clapp said. But the board made no decision about whether to change its nearly 20-year closed-door meeting policy and open at least some of its quarterly deliberations to public view, said Clapp, who was presiding over his last quarterly board meeting before his term ends in October.
The 15-member board made the decisions at a three-day quarterly meeting last Wednesday through Friday in Napa Valley, Calif., where the board also elected a new chairman. But Clapp would not divulge which board member has been elected chairman.
The board's political contributions Rule G-37, which took effect April 25, bars municipal dealers that make contributions to issuer clients from doing business for two years with those governments. The rule applies not only to municipal securities professionals, but those general registered representatives of firms who are primarily engaged in municipal securities activities.
The Public Securities Association warned the board in a seven-page letter this month that its contributions rule could put firms' general sales forces in an "untenable position" and urged the board to exclude such employees from the measure.
PSA President Heather Ruth said that since salespeople often float in and out of selling municipal bonds, it will be virtually impossible for compliance staffs to determine from day to day who is and who is not a municipal finance professional, particularly among the industry's larger broker-dealers.
"We are going to narrow the number of registered representatives' covered by the rule," Clapp said in a telephone interview. "The board felt that the large majority [of sales representatives] should be exempted." He said the board would narrow the field by revising the board's definition of who is covered by the rule.
Clapp said the board will propose the revisions in a set of amendments that will be sent to the Securities and Exchange Commission shortly.
The PSA also asked the MSRB to revise the rule to exclude, under certain circumstances, direct supervisors who are outside municipal securities departments from the rule.
"There was a different feeling when it came to the supervisory people," Clapp said, signaling that the board may not propose a broadbased amendment providing relief to that category of employees.
Clapp said that the board also adopted a "wide-ranging program of increased outreach to all market participants."
The move follows pressure from the Government Finance Officers Association, the National Association of State Treasurers, and some municipal dealers seeking a change in the MSRB's meeting policy. The GFOA's committee on governmental debt and fiscal policy sent a four-page letter to the board last month citing a "lack of adequate outreach and meaningful consultation with public officials on important issues."
Clapp declined to say what action, if any, the board took on a third key item that was on its agenda last week. That item called for the board to hammer out comments on the SEC's proposed amendments to its disclosure rule 15c2-12 and an interpretive release published for comment March 16.
The board was expected to vote to oppose a controversial provision in the SEC's rule that would bar dealers from recommending bonds to customers unless they review an issuer's disclosure documents. It was considering recommending that the commission adopt a less restrictive proposal that the board made last year.
