Many regional bond firms are boycotting a voluntary ban on campaign contributions advocated by the municipal market's larger players and recently approved by the Securities and Exchange Commission.
At the moment, more than half of the 55 firms that agreed to join the ban are now saying they have no reason to comply with some or all of its mandates, even though some of these restrictions have been weakened.
The ban, first announced last October by 17 of the market's largest underwriters, was designed to end so-called "pay-to-play" practices, where firms made campaign contributions to bond issuers as a way of winning underwriting business.
The rule, which prevented municipal executives from making all contributions to state and local officials, was revised on Monday, to more closely resemble federal restrictions on campaign contributions imposed by the Municipal Securities Rulemaking Board. As pan of the revision, municipal executives can now make contributions. of up to $250 to state and local officials in jurisdictions where they live.
In a statement, SEC chairman Arthur Levitt Jr. said the revisions "reaffirm" the municipal market's commitment to ending the practice of pay-to-play.
Facing pressure from the SEC, all 17 of the major firms that joined the accord in October as well as a host of regional firms say they will continue to comply with the industry ban. Levitt wants the voluntary accord to continue amid a constitutional challenge to the MSRB's rule.
But as many as 28 firms, mostly regional companies and several smaller New York bond shops, will no longer agree to some or all the voluntary rule's conditions. They include Artemis Capital Corp., Dain Bosworth Inc., Dean Witter Reynolds Inc., and others that believe some or all of the mandates are unnecessary.
The federal rule, enforced by the MSRB, went into effect in April, "and many regional firms have the view that they are obligated to conform to G-37, so why should they abide by the private initiative," said one lawyer, who represented a large Wall Street firm in developing and revising the voluntary accord.
According to interviews with several regional executives, the decision to disavow the voluntary accord involves several factors including a deep distrust in the large firms that advocated the rule. Many regional firms say the rule prevents them from competing with larger players, who have built relationship with bond issuers through large, past contributions.
"The regional firms have a legitimate concern," said Mark D. Schwartz, who has worked as an investment banker at both a large investment bank as well as a regional bond house. "The large firms are better able to take advantage of loopholes in G-37."
Other reasons for the change include competitive pressures to maintain political contacts, disagreements over the technical differences between the two rules, and in many cases, a philosophical opposition to contribution restrictions.The Roll Call: Firms that have signed on to the revisedvoluntary agreement on political contributions. Advest Inc. Lazard Freres & Co. A.G. Edwards & Sons Inc. Lehman Brothers Inc. Barr Brothers & Co. Merrill Lynch & Co. Bear, Stearns & Co. Morgan Stanley & Co. Clayton Brown & Associates Inc. Oppenheimer & Co. Craigie Inc. PaineWebber Inc. CS First Boston Principal Financial Securities Inc. Dillon, Read & Co. Prudential Securities Inc. Donaldson, Lufkin & Jenrette Roosevelt & Cross Inc. Securities Corp. Salomon Brothers Inc. Goldman, Sachs & Co. Smith Barney Inc. J.P. Morgan Securities Inc. Tucker Anthony Inc. Kemper Securities Inc. William E. Simon & Sons Kidder, Peabody & Co.
