The Municipal Securities Rulemaking Board's proposed ban on political contributions may also make it more difficult for firms to obtain bond business by hiring political consultants.

At the moment. officials at the MSRB may amend a proposal that bans most forms of political contributions to state and local officials to include a ban on the use of political consultants.

The proposed rule prevents dealers over a two-year period from underwriting municipal bonds issued by state and local officials who have received contributions from the "dealer, any dealer-controlled [political action committee], or any municipal finance professional."

Last Wednesday, Christopher Taylor, the board's executive director, told a group of underwriters in Chicago that the ban would also prevent dealers from funneling money to politicians through consultants or lobbyists.

But in recent days, sources with knowledge of the board's actions say that the MSRB is considering writing language into the contributions rule that would prevent firms from hiring political consultants to influence underwriter selections in areas of the country where the consultants have also made political contributions.

The possible consultant ban would also cover a period of two years after a contribution is made, sources said.

Many market executives and Securities and Exchange Commission chairman Arthur Levitt Jr. have said that they are concerned that underwriter selections are not always based on merit and that Wall Street firms often rely on campaign contributions as well as consultants to influence selection decisions.

"There is a lot of speculation that the rule will be toughened with regards to consultants," said one source with knowledge of the process. "If it happens, the rule could be enough to kill most of these guys."

But others are not convinced that the market's self-regulatory arm can devise a rule that would effectively end influence peddling to obtain bond business.

"Self regulation doesn't work," said Mark Schwartz, a lawyer and former investment banker for Prudential Securities. "Loopholes abound, and it's time for the SEC to come in and deal with this matter."

For his part, Taylor, the MSRB's executive director, has said that the board is concerned about the industry's use of political consultants to win bond business and is examining the issue.

Taylor said that he is aware of concerns expressed by market executives as well as policymakers, such as Levitt, that bond dealers often hire politically connected lawyers and lobbyists to win bond business.

In a telephone interview, Taylor said yesterday that "I'm not going to comment" on possible revisions to the contribution ban to include a ban on the use of certain types of political consultants.

"I'm not saying there won't be" a ban on political consultants, Taylor said. "We're working diligently on the proposed rule. Far be it for me to say what the board is going to do."

At the moment, the board is working on the final language for its proposed contribution ban, which board officials must submit to the SEC for final approval.

After announcing revisions to the contribution ban on Nov. 11, the board said in a press release that it will forward the rule to the SEC "within the next few weeks for approval."

At the moment, lawyers working for the board are attempting to draft official language on the contributions ban that would include some sort of ban on consultants, but would not lead to substantial changes in the way the original proposal is written. If substantial changes to the rule are made, the board will have to meet again to vote on the issue.

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