WASHINGTON -- It may be a case of trying to prevent regulatory overkill, or it may be the beginning of a loophole that could make the municipal market safe for play-to-play antics once again.

That is the quandary the Securities and Exchange Commission will face next month when it decides whether to approve the Municipal Securities Rulemaking Board's proposal to exempt retail sales representatives from its political contributions rule.

The MSRB's Rule G-37, which went into effect April 25, generally bars municipal dealers that make contributions to issuer clients from doing negotiated deals with those clients for two years afterward.

The rule applies to "municipal finance professionals" or anyone "primarily engaged" in municipal securities activities.

The MSRB proposed the exemption in August after its alter ego, the Public Securities Association, argued that it would be difficult for firms, especially large firms, to determine if their retail sales representatives are primarily engaged in municipal bond activities and, therefore, covered by the rule.

The PSA said most retail representatives sell a variety of products, not just municipal bonds, and are not usually involved in the solicitation of bond business.

But three small municipal firms recently urged the SEC to reject the MSRB's proposal, arguing that it would create a large loophole that would undermine the intent of the rule and allow large firms to continue to make the kinds of political contributions that the rule was designed to stop.

Officials of George K. Baum & Co., one of the regional firms that filed comments, told the SEC that dealers with large sales forces expect their local representatives to identify potential bond offerings and help obtain underwriting business.

If those brokers contribute to local officials, "an appearance that the contributions resulted in obtaining or retaining municipal finance business is created" and the intent of the rule is violated, the Baum officials said.

The officials of Baum and the other firms raised an excellent point.

While the rule already covers anyone who solicits bond business, it would be unwise to automatically exempt retail staffs from the rule.

Firms should be forced, in effect, to check on their sales staffs' activities beforehand and determine whether they are subject to the rule.

While that might put a greater burden on firms' compliance officials, it is a far better approach than discovering that the rule is being violated wholesale and then trying to clean up the mess.

A little regulatory overkill is better than a loophole that might bring back influence peddling.

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