WASHINGTON -- Those who questioned whether the crusades to curb political contributions and improve disclosure in the municipal bond market would be successful should think again.
While it is too early for a final verdict, two recent developments are definitely promising.
One positive sign that the Municipal Securities Rulemak' ing Board's political contributions role is already working came last week when the deadline fell for the first quarterly reports on Rule G-37 to be filed by underwriters.
An examination of the first 100 reports submitted to the MSRB showed that most bond dealers have stopped giving money to state and local officials rather than give up doing negotiated deals with those issuers.
Even more important than the rule's apparent success is the probable explanation for that success.
Rule G-37 doesn't just tell dealers to behave. It provides a deterrent to influence peddling by forcing them to disclose in writing their political contributions, the issuers they did business with in the previous quarter, and the names of consultants that were hired to obtain or keep negotiated business. It is those acts of disclosure that give the rule its teeth. Then there are the Securities and Exchange Commis, sion's disclosure guidelines. A good sign that they are working came with reports that the Maryland attorney general was investigating whether a financial adviser for tax-exempt housing bond issues was paid twice for the same work.
That probe was triggered by a May 1 prospectus in which Merrill Lynch & Co. and other underwriters disclosed that part of their fee for handling a bond issue by the Maryland Community Development Administration would be used to pay the state's financial adviser for cash flow analysis and yield calculations.
Maryland officials deduced from the disclosure that the adviser may have been paid twice because he had already been compensated for financial advice under a 12-year contract with the agency that expired on June 30.
No matter what conclusion the investigation produces, the incident shows that the SEC is getting results with its proposed disclosure-rules and the legal interpretation it unveiled last March.
They are prompting disclosure of the potential conflicts of interest and material financial and business relationships among issuers, advisers, and underwriters that have been the plaguing the municipal market for the last few years.
Jacqueline Rogers, the secretary of Maryland's department of housing and urban development, made an excellent observation when she said the SEC's new requirements "smoke out things that people need to know."
That's exactly what both the disclosure and political contributions rules were designed to do.