WASHINGTON -- It's a limited exemption, a safety valve.

But the amendment the Municipal Securities Rulemaking Board proposed last week to its political contributions rule is not a loophole.

It certainly should not be viewed as a way to get around the board's much-needed anti-pay-to-play rule.

The proposal, which must be approved by the Securities and Exchange Commission before it goes into effect, would protect firms that make good faith efforts to comply with the rule from being penalized for isolated violations by employees.

The amendment is needed to make sure that a conscientious dealer's business will not be ruined if an employee inadvertently makes a contribution that violates the rule.

It is particularly needed to protect dealers from a situation in which a disgruntled employee deliberately makes a contribution that would ban the dealer from underwriting an issuer's bonds for two years.

The overall rule bars dealers from doing negotiated business with an issuer for two years after the dealer, its political action committee, or its bond professionals contribute to an officeholder who could influence the awarding of bond business. The only exception allows employees to give up to $250 to candidates in the jurisdiction where the employees live.

Any dealer who thinks that the new amendment is a way to escape from the overall rule may be in for a rude awakening, according to the wording of the MSRB's filing with the SEC.

Dealers seeking the exemption would have to prove that they had set up procedures to ensure compliance, had no knowledge of the contribution, took all steps to get the contribution returned, and took other remedial and preventative measures.

Dealers should have to go to substantial lengths to prove the need for the exemption, the MSRB says.

The MSRB also says it will scrutinize exemptions given by the National Association of Securities Dealers and the bank agencies, which are in charge of enforcing the board's rules.

The implication is very strong that if dealers try to use the exemption to get around the rule, the MSRB will go back to the SEC and ask that the exemption be tightened or eliminated.

Wisely, the MSRB has made it clear that its approach to the provision is "abuse it and you'll lose it."

But the MSRB should go a step further and use its "bully pulpit" to warn dealers they will be severely punished if they try to circumvent the proposed safety valve. That is the best way to protect everyone.

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