Editor's Note: The following is the text of remarks by Christopher Taylor, executive director of t managers of regional municipal underwriting firms. The remarks were made at a closed-door meeting he firms can implement the MSRB's curbs on political contributions. The meeting, sponsored by the Publi of 51 regional underwriting firms and dealer banks.

I have several things I want to accomplish today in making my remarks. First, I went to give you a brief overview of Rule G-37 related to political contributions. Second, I want to point out a feature of the rule that will require you to begin immediately drafting compliance procedures and a reason to consider adopting the principles agreed to by a number of large dealers on Oct. 18. And, last, but not least, I want to put the Board's action in perspective.

I want to begin by asking that you all put aside whatever rumors, articles, etc., that you have read or heard about this rule. If I have learned nothing else these lost several months, it is that few people have taken the time or effort to read and hear what the Board has to say. Unfortunately, people have tended to rely on others, be they friends, newspaper articles, etc., for their understanding of our rules. It would be extraordinarily foolish to do so in the current environment. You must all do your own homework.

Now, let's look at what the Board did this past week with regard to political contributions and the like. The Board agreed on the final shape of Rule G-37 and it will file this proposed rule with the SEC within the next several weeks.

The basic provision of the proposed rule bans a firm from doing municipal securities business with an issuer to whom a political contribution has been given by a municipal securities professional, the firm, or a dealer-controlled Political Action Committee within the last two years. There is an exception to this ban -- a municipal securities professional may give a contribution of no more than $250 to a candidate in a jurisdiction where he is entitled to vote.

This basic provision seems to me to be simple and clear. If you give a contribution to anyone other than someone you can vote for, you cannot do business in that jurisdiction for two years. If you give no more than $250 to someone in any jurisdiction where you can vote, then you can still do business in those jurisdictions. So you can underwrite the bonds in your home town (where you live, but not necessarily where you work) and in your state.

We got about 40 comment letters, and we believe that this rule has been crafted to deal with the desire on the part of the commentators to have a rule with clear bright lines of what is proper and what is improper. Under this rule, either you can do business or you can't and the only reason you can't is because you gave a political contribution to a candidate in that particular jurisdiction.

There are several other provisions of the rule. First, there is a provision prohibiting you from doing indirectly what you are prohibited from doing directly. This means you cannot have someone else in your shop give the contribution; you cannot use consultants or lobbyists to funnel money to politicians, and you cannot use affiliates or their as a means to circumvent the rule. Anyone who attempts to use indirect means to slip the green stuff over, under, or around the table had better be ready to answer to the SEC and the NASD when they come in.

Another provision of the rule prohibits a dealer or any person from soliciting other persons for contributions, even contributions to a candidate where these persons are en-titled to vote. Moreover, the same provision explicitly prohibits the practice of bundling. Again, I think these two provisions -- on indirect means and on soliciting and bundling -- are simple and clear. No one should have a problem understanding what they should or should not be doing.

In addition to adopting proposed Rule G-37, we amended our record-keeping rule G-8 to require that a dealer keep records of all contributions made by municipal securities professionals, with the exception of the contributions made locally that are $250 or less. This amendment is less extensive than the one we proposed in August; we were mindful of the comments that our previous proposal was overly broad and burdensome.

Well, those are the basic provisions of the rule, The second point that I wanted to make was that the prohibitions in this rule apply to contributions made on or after Jan. 1, 1994. This means that if any municipal securities professional in your shop makes a contribution to a candidate for office in a particular jurisdiction on or after that date, you will not be allowed to conduct municipal securities business in that jurisdiction. You can make the contribution if you want, but you cannot get their business. One or the other, but not both.

As with all rules of the Board, you are required under Rule G-27 to have supervisory procedures in place to assure compliance with each Board rule. With regard to proposed rule G-37, this means that your firm has to know where and when every contribution made by a muni professional was made because those are the places where you will not be able to do business. This means that you have to have procedures in place to ensure that consultants or lobbyists hired by your firm are not making contributions that can be attributed to you. This means that you have to have procedures in place that will prevent any muni professional from soliciting any other member of the firm to make contributions.

While all of these procedures do not need to be in place on Jan. 1, you certainly will need to know about every contribution made by those employees covered by the rule. I strongly suggest that you begin that effort now. I do not want to hear any sob stories from anyone in this industry that they were unaware of the cutoff date.

The third point I want to make today is to state in the strongest possible terms that no one should doubt the Board's intelligence or determination with regard to its desire to assure that municipal securities business is awarded only on the basis of merit. There is no place in this industry for those that define "merit" as how much money flows to or at the direction of those who make or can influence the awarding of business. There is a permanent change underway in this industry and anyone who thinks otherwise is mistaken.

It is a sad fact that many in this industry believe that contributions and other payments do, in fact, influence the awarding of business, One merely has to read comment letter after comment letter where the writer believes he will be at a competitive disadvantage unless the Board closes this or that loophole.

The Board has adopted proposed rule G-37 as a first step toward its goal of eliminating this problem. We believe that the rule will be both effective and complete. We also took our second step at this meeting. We will put out for comment amendments to rule G-20 on gifts and gratuities to prohibit the giving of money to any charity or the like at the direction or suggestion of persons in a position to influence the awarding of municipal securities business. So the next time an issuer calls you up and asks you to buy a table at a charitable event, to attend a charity golf outing, etc., you are going to have to tell him "no".

This a long way of saying that we are well aware of the realities out there (they are being thrown in our face day after day), and we are prepared to address them. We are taking this one step at a time and, trust me, there will be more steps taken. We have no hesitation in writing additional rules or interpreting existing rules to deal with this problem. The Board is absolutely determined to maintain the integrity of this industry.

Many of you may have heard about the principles agreed to by 17 major firms at meeting with SEC Chairman Levitt on Oct. 18. While I know that you probably view with a jaundiced eye anything coming out of New York or D.C., I urge you to give those principles your serious consideration. MSRB rules only specify a minimum standard of conduct. You should always be seeking to maintain a higher level, especially now.

We will be looking to make sure that there is tight compliance with both the letter and spirit of this rule. The principles offer you a clear way to follow the spirit of the rule and to put yourself on the right side of these ethical issues. Let me say that you will need something along these lines to put in place your supervisory procedures. Unless you "get with the program," you will force the Board to write ever-more detailed and burdensome requirements.

Let me end with a plea for you to read the next issue of MSRB Reports that will be coming out in December. I urge you, beg you, plead with you, to read the notice of filing and draft rule language carefully.

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