Federal regulators may prevent municipal bond executives from financing inaugural parties or paying transition costs for Rudolph Giuliani, New York City's mayor-elect, sources with knowledge of the issue said.

The Municipal Securities Rulemaking Board, the industry's self-regulatory agency, wrote Giuliani transition officials that public finance executives who contribute funds to help finance the mayor-elect's transition team may violate rule G-20, which limits gifts and gratuities from market executives to municipal bond issuers.

The MSRB's statements came in response to a recent request by the Giuliani team. Fundraisers for Giuliani asked if municipal bond executives are prohibited from making contributions to pay for the costs of the mayor-elect's transition given the board's recent efforts to clamp down on business-related campaign contributions.

For example, a rule proposed by the board would bar some types of political contributions from public-finance executives.

The proposed rule, known as G-37, would allow municipal finance executives to personally contribute up to $250 to officials and issuers where the executives is registered to vote. The rule is intended to prevent the influencing of underwriter selections through contributions to political campaigns.

Sources familiar with the correspondence say Guiliani's camp was pleased with the MSRB's initial response because regulators said contributions for transitions do not violate the proposed rule.

But in saying that another rule may apply, the board may have added to the chilling effect that its recent contribution restrictions -- as well as a voluntary industry contribution ban -- has had on the efforts of public officials to raise money for events outside general campaign purposes.

In addition, sources say Guiliani's aides interpret the MSRB's response on transition expenses to also extend to contributions for the inaugural, which is scheduled to be held on the morning of Jan. 2 on the steps of city hall.

Under G-20, no municipal securities broker or dealer shall give "any thing or service of value, including gratuities, in excess of $100 per year ... if such payments or services are in relation to the municipal securities activities of the employer of the recipient fo the payment or service."

Recently, the board announced that it may add more teeth to G-20, a rule many Wall Street executives have called weak and rarely, if ever, enforced.

Last week, Giuliani officials mailed letters to potential contributors -- including municipal bond executives -- asking for private donations to finance the inauguration, Wall Street executives say.

The letter said that on Dec. 13, the transition team will hold "a small dinner dance with Rudy ... to raise the needed funds for an inaugural. The evening begins with cocktails at 7 p.m. at the St. Regis Hotel and continues with dinner and dancing in the rooftop ballroom."

The letter asks for contributions of $1,000, $ 2,500, $ 5,000 and $6,500, payable to a not-for-profit corporation, the New York City Inaugural -- 1994 Inc.

The inaugural as well as the transition team, which will be financed using a separate not-for-profit corporation, is expected to cost about $1 million, sources with knowledge of the activities said.

When asked about the MSRB's letter to the transition team, spokesman Richard Bryers said: "If it's tough [to raise funds], it's tough. We can raise money elsewhere."

The rule limiting personal contributions to $250 is still a proposal and must be approved by the Securities and Exchange Commission. Christopher Taylor, the board's executive director, has said that some of the reforms addressed by G-37 could be enforced under existing regulations.

Neither Taylor nor David Clapp, the chairman of the board for the MSRB and a partner in the public finance department at Goldman Sachs & Co., returned telephone calls on the Giuliani matter. Sources with knowledge of the issue said the Giuliani team has asked the MSRB to clarify its remarks.

But several market executives said the board may be going too far by limiting contributions to areas outside of campaigns in its attempt to rid the industry of influence peddling following scandals in New York City, New Jersey, Massachusetts, and elsewhere.

The executives say that while the New York City mayor selects underwriters for one of the most lucrative financing teams in the nation, underwriters have little if any opportunity to influence the bonding decisions by making contributions to transition and inaugural events.

The transition team and inauguration "aren't decision makers," said one bond executive who asked not be named. "This is a good cause. It's better than using city money."

But an official from Common Cause, a public-policy watchdog group, said any attempt to root out influence peddling should cover every potential type of activity, even if it bars charitable contributions.

"It's much safer to be overcautious than undercautious," said Andrew Greenblatt, executive director for New York State Common Cause. "Money that tries to buy influence is like water. If you dam it up in one place, it's going to flow someplace else."

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