WASHINGTON -- The leaders of groups representing bond lawyers and analysts yesterday praised the Municipal Securities Rulemaking Board's forthcoming rules on political contributions and secondary market disclosure.
But some underwriters continued to express bitterness.
The comments from the heads of the National Association of Bond Lawyers and the National Federation of Municipal Analysts, plus representatives of some Wall Street bond firms, came in response to the board's announcement on Aug. 4. It said then that it plans to propose a rule late this month that would ban contributions aimed at capturing an issuer's bond business and require dealers to disclose two years before and two years after the awarding of a deal the political contributions they make to issuer officials.
The MSRB also announced an upcoming rule that would require dealers to notify investors in writing at the time of a bond sale whether an issuer intends to provide secondary market disclosure affecting their investments.
Jane Dickey, president of the National Association of Bond Lawyers, called the board's proposal on secondary market disclosure "very constructive." This rule may be the "kind of shot in the arm" that is needed to spur market demand for better ongoing disclosure, Dickey said. Voluntary secondary market disclosure has been gradually improving over the last few months, but the pace has been "frustrating," she said.
Dickey said lawyers are anxious to see details of the plan. "We're not sure when the notice [regarding secondary market disclosure] will go to potential purchasers, what form it will take, and what it will say." It needs to be disseminated to purchasers in time for them to make an investment decision, she said.
"And who makes the disclosure about political contributions? How are they catalogued -- by individual recipient, by individual giver, by corporate umbrella giver, by affiliation of an individual with an issuing authority?"
A partner with the Rose Law Firm in Little Rock, Ark., Dickey also lauded the MSRB's planned political contributions rule. "I think a federal rule that may now be enforced by federal authorities ... is helpful," she said. "It highlights the serious goal that most of us share of safeguarding the integrity of the municipal marketplace."
Katherine Bateman, chair of the National Federation of Municipal Analysts, said she was "excited" about the board's planned secondary market disclosure proposal. A vice president with John Nuveen & Co. in Chicago, Bateman said the rule would build on model disclosure language that analysts have been pressing issuers to incorporate in bond documents.
Nearly 100 issuers nationwide have pledged in documents to provide ongoing, audited financial statements and other relevant information about their securities, according to an awards program launched by the analysts group.
One underwriter, who asked not to be identified, objected to the contributions proposals saying that the kind of gifts the board wants to ban are already prohibited by law.
"We have bribery statutes now. They didn't need this." If political contributions to issuer clients are effectively ended, "why didn't they make it clear, [by] just banning all political contributions, instead of having a very dull line between what is permissible and what is not permissible?" the underwriter said.
"Firms probably will have to hire someone to figure out what's permissible and what's not," he said.
But another underwriter, who also asked not to be identified, speculated that the board opted not to go with an all-out ban to avoid the potential for years of litigation over its authority to take such a step.
"The MSRB's principal mandate is to protect investors," the source said. "One could make a straight-forward case that it's not investors" that a political contributions ban protects, but investors, the source added.
"Clearly, the MSRB has to think about what it can and cannot do quickly," the source continued, referring to the heavy pressure for reforms being exerted on the board by the Securities and Exchange Commission and Congress. "The political contributions issue needs to be defused" as soon as possible, the dealer added.
Harvey Pitt, outside counsel to the board on the political contributions issue, would not comment on the advice he gave board members on whether they should impose a flat ban on contributions. Pitt is with Fried, Frank, Harris, Shriver & Jacobson in Washington.
An industry source said, however, that Pitt concluded that while the board would be on firm legal ground in banning contributions, it could, nevertheless, anticipate court challenges to the ban that could extend for months or even years.
Milton Wells, director of the office of federal relations for the National Association of State Treasurers, said the group is gratified that the board did not take steps that would more directly affect issuers.
"We're certainly pleased to see they respected the Tower Amendment," Wells said, referring to the 1975 law that restricts regulators' ability to impose standards on municipal issuers. "It looks like they are regulating their members and not imposing additional burdens on issuers."
Ellen Miller, executive director for the Washington-based Center for Responsive Politics, a nonprofit research organization on money and politics, said, "I would applaud this as a positive first step."
"This new resource on contributions will give us an in-depth perspective of how this industry works and what kind of favors they may be seeking with their campaign contributions," Miller said. "We can more closely track where the money is coming from and whether from a public perspective we can determine if there is thinly disguised bribery going on."
But Miller said the proposal does not go far enough. Giving dealers the authority to decide whether a donation is a bribe is "like letting the fox guard the chicken coop. No one will say that this is a bribe."
