WASHINGTON - The Securities Industry Association is expected to charge that the Municipal Securities Rulemaking Board's proposed political contributions rule may be unconstitutional because it violates a Supreme Court decision on free speech, sources said yesterday.

The SIA, which represents 700 securities firms, is expected to state its position in a comment letter to be filed tomorrow with the MSRB. The letter will address the two-part rule proposed by the board on Aug. 30 that aims to crack down on political contributions by dealers.

The board's rule would bar dealers from making direct or indirect contributions that are designed to capture bond underwriting business. It also would require dealers to disclose political gifts made to issuers with whom they do business.

Sources said yesterday that the SIA will argue that the board's proposal may violate the Supreme Court's pivotal 1976 ruling that equated political contributions with free speech.

The case, Buckley v. Valeo, challenged the constitutionality of campaign finance reform legislation passed in 1974 in the wake of the Watergate investigation.

However. SIA president Marc Lackritz denied in a telephone interview yesterday that the SIA will argue that the board's proposal is unconstitutional. "We are going to suggest that there are constitutional issues involved here," Lackritz said. But the SIA will not state that the proposal is unconstitutional, he said.

He said the SIA decided to file comments on the rule because the MSRB's proposal affects the entire securities industry, not just municipal underwriters.

Also expected to file comments tomorrow are the Public Securities Association and the National Association of Bond Lawyers.

PSA executive vice president Micah Green said he could not comment on whether the association would deviate from a tough three-page policy statement issued by PSA's municipal executive committee July 26. The committee said it is time for the Securities and Exchange Commission to step in and require issuers to disclose the political contributions they receive from all segments of the municipal market.

PSA president Heather Ruth said in a speech before the Municipal Forum of New York that there is "not a high level of confidence" that the board's proposed rule will really stop contribution activity. "Certainty there is no evidence of [any] moderation in the current environment, and a great deal of evidence to the contrary," Ruth said.

MSRB executive director Christopher Taylor, who also spoke at the forum meeting, took issue with concerns that the board's rule has no clout. "Give as much money as you want ... but, when it comes to giving to someone with whom you have or may have business in the future, you should think very very carefully," Taylor said.

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