The Municipal Securities Rulemaking Board last week clarified and strengthened its proposed political contributions rule, and the changes are all to the good, a praiseworthy instance of self-regulation in action.

"Under the revised rule, a dealer can make political contributions to an issuer or transact business with an issuer -- but not both. It is just that simple," said David Clapp, MSRB chairman, at a press briefing held last Thursday to announce the modified rule.

The regulation will be sent to the Securities and Exchange Commission and could be adopted as early as January. That would hardly be too soon, given the questionable dealings that have tarnished the municipal market this year. The ban will take effect Jan. 1, 1994, regardless of when the SEC acts.

The MSRB's modified rule is good because it removes all question of intent. As originally proposed, investment bankers would be allowed to make political contributions as long as they were interested in good government and not underwriting business. That loophole has been closed.

The modified rule applies to regional municipal bond firms as well as to the large national firms that have taken the lead in adopting a voluntary ban on political contributions. Some regional firms have been critical of proposals to curb campaign gifts, and an incomplete ban, pitting national firms against regionals, would have hurt.

The modified rule allows municipal finance professionals to give up to $250 in personal contributions to candidates for whom the donor is entitled to vote. That seems a reasonable accommodation to genuine good-government advocates who argue that making contributions is a right. The rule will end the practice of long-distance fund-raisers for politicians unknown to big city investment bankers. No loss there.

The modified rule requires municipal bond firms to keep records of employee contributions (except the $250-or-less local gifts), but it does not require that the contributions be disclosed. The National Association of Securities Dealers will cross-check donations against bond-issuer clients, and if it uncovers banned campaign gifts, it is empowered to act. Contributions are generally required to be filed with election boards open to public scrutiny, and that will keep the NASD vigilant.

In sum, the MSRB's latest move is an effective step toward strengthening the municipal marketplace.

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