WASHINGTON -- The MSRB will ask the Securities and Exchange Commission on Monday to approve revisions to the board's political contributions rule, including one that would protect firms complying with the rule from being penalized for isolated violations by employees.

Christopher Taylor, executive director of the Municipal Securities Rulemaking Board, revealed the move at a workshop on issues facing the fixed-income securities markets held at the National Association of Securities Dealers annual conference yesterday.

The MSRB's political contributions Rule G-37, which took effect April 25, bars municipal dealers from doing business with state and local governments 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.

"We will file with the SEC [for proposed changes to Rule G-37] probably early next week," Taylor said. The MSRB approved the changes at a quarterly meeting in Sea Island, Ga., held from May 11 to 13.

Taylor did not offer details but pointed to a story in The Bond Buyer Wednesday that said that sentiment is building on the board to amend the rule to protect firms that have adequate curbs in place from losing critical business because of an isolated violation by an employee.

He stressed that the amendment would be narrow. "We are trying to clarify as much as we can the application of the rule and give some very, very limited relief from the provisions of the rule in very, very limited circumstances," Taylor said.

The MSRB is expected to propose at least one other amendment to Rule G-37, but Taylor declined to elaborate.

The board's executive director also discussed the SEC's controversial secondary market disclosure rule, which bars dealers from recommending securities without having reviewed the financial documents produced by the issuer.

Although the rule would apply only to those deals that land in the secondary market after the proposed rule takes effect, Taylor warned that dealers are really "on the hook" for all deals.

He pointed to a sentence in the SEC's proposed rule "that says virtually every secondary market trade in the municipal securities market, in the SEC's judgment, involves a ~recommendation.'"

"So literally, Taylor said, "for every secondary market trade you are going to have to be able to know what the issuer of those bonds has recently put into a repository. Because you are on the hook for it.

But Taylor also said that existing MSRB rules, in effect, put dealers on the hook as well.

"You have to have a reasonable basis under our rules for making your recommendation. If it turns out you didn't review some existing information and the issuer says, ~By the way, it looks like I'm going into default," then you are on the hook," he said.

The SEC's proposed rule is drawing strong opposition from dealers. Top Public Securities Association officials have warned that the requirement that dealers review documents before they can recommend them will halt trading in some bonds.

"This is inviting a situation where you are going to shut down the market for some bonds," Micah Green, executive vice president of the PSA, said earlier this month.

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