WASHINGTON -- The Municipal Securities Rulemaking Board is scheduled to vote later this week on whether to adopt new rules to curb political contributions and to tighten its suitability standards.
The 15-member board, which meets Wednesday through Friday al the board's headquarters here, is also expected to start a pilot program to promote better dissemination of municipal bond prices.
In what is expected to be one of the MSRB's busiest quarterly meetings ever, the top item on the board's agenda is whether to revise the political contributions rule the board proposed on Aug. 30.
The rule would bar contributions by underwriters that are aimed at obtaining or retaining an issuer's business. It would also require dealers to report to the MSRB all political contributions to an issuer two years before and two years after they do business with the issuer.
The proposed rule has triggered strong objections from the Public Securities Association and the Securities Industry Association, who warn that its scope is too broad. If approved by the MSRB, it would also have to be cleared by the Securities and Exchange Commission.
Both the PSA and SIA have urged in comment letters, for instance, that the board amend a provision that would extend the rule's coverage not only to municipal securities brokers and dealers but to persons "associated" with such dealers, even if they are not involved in the municipal side of the firm.
"Rule G-37 would apply to a multiplicity of officers, directors and employees of dealers and of their corporate parent, affiliates and subsidiaries, the vast majority of whom are not involved in any way with the securing or retaining of a dealer's. municipal securities business," SIA chairman Thomas M. O'Donnell and SIA president Marc E. Lackritz: said in comments filed Oct. 7 with the board.
Complying with the rules reporting and record-keeping provisions would be a "herculean" task that could involve collecting information on thousands of people, even for a mid-sized firm, they said.
The PSA and SIA also urged the board to grant employees of municipal firms a "safe harbor" from enforcement action if they give contributions to issuers that fall under a set amount, such as $100 tb $250.
It was unclear yesterday what specific revisions the board would make in its contributions rule, but knowledgeable sources said that the Aug. 30 proposal is expected to be amended.
The board also is expected to adopt amendments it proposed earlier this year that would eliminate a provision in its so-called "suitability rule," Rule G-19. The provision currently permits a dealer to sell a bond to a customer who is reluctant to provide information about his finances as long as the dealer has "no reasonable grounds to believe" the recommendation is unsuitable.
The board's proposed rule also would wipe out a second provision in G-19 that permits a dealer to sell bonds to a customer even if the dealer has determined the bonds are unsuitable and has informed the customer of that fact, but the customer still wants them.
The two provisions came under fire from Securities and Exchange Commission member Richard Roberts earlier this year. Roberts said they are "loopholes" that should be eliminated.
The MSRB also may vote to put more teeth into its rule that restricts the gifts and gratuities that dealers can give to issuer clients outside of political contributions.
Rule G-20 limits gifts to no more than $100 a year per recipient. It also exempts the giving of small reminder gifts like a calendar and occasional meals or tickets to sporting events, as long as they are not large enough or frequent enough to suggest an effort to buy business.
The board may approve a rule requiring dealers to keep records of those gifts that fall into the exception category, MSRB executive director Christopher Taylor said in a speech Oct. 6 in San Francisco.
The board also is expected this week to vote on whether to proceed with a one-year pilot system it proposed earlier this year that would publish price information beginning in January 1995 for an average of 180 frequently traded interdealer transactions.
Dealers would submit their interdealer transactions to a registered clearing agency for automated comparison. The board would collect and make available information on transactions as soon as the transactions are compared.
The MSRB also is expected to discuss how to implement a plan recommended by an industry panel in September that would require brokers, including municipal securities brokers, to participate in mandatory training programs to brush up on job skills.
The MSRB and other self-regulatory groups will use the recommendations, which they are expected to adopt shortly, to develop the first uniform standards for ongoing education of brokers and dealers.
Finally, the board is expected to discuss rapidly moving developments in the secondary market disclosure area, including how to proceed with its Continuing Disclosure Initiative pilot system.
