WASHINGTON - The toughened-up political contributions rule approved by the Municipal Securities Rulemaking Board 10 days ago is a vastly improved package. But there are still loose strings.

The MSRB took a bold and needed step when it trashed the loophole in the rule it proposed on Aug. 30 that would have allowed underwriters to give political gifts to state and local officials as long as they didn't intend to try to win or retain an issuer's bond business.

The intent standard would have been impossible to enforce and belonged in the dustbin.

By substituting a new provision that flat out prohibits dealers from doing business with an issuer for two years after giving a contribution to an official of that jurisdiction, the MSRB's rule should go a long way. toward halting the "pay-to-play" bribery that has soiled the market.

If a dealer doesn't do business with an issuer, however, another provision would allow the firm, its political action committee, or its municipal securities professionals to make contributions to candidates.

That measure has some drawbacks.

While the provision would require firms to keep records of those contributions, which the National Association of Securities Dealers could cross-check against a firm's underwritings, the donations would not have to be reported to the MSRB and would not be made available to the public as laid out in the board's earlier proposal.

The new rule also would not require firms to keep records of or disclose the up to $250 that individual municipal professionals would be allowed to contribute to their local candidates.

And Arthur Levitt, the chairman of the Securities and Exchange Commission, is worried because the rule would not require securities executives outside of municipal departments to disclose gifts they give.

Levitt is also rightly concerned because the rule makes no attempt to clearly warn dealers against trying to circumvent its impact by funneling contributions through advisers and consultants.

That is a legitimate concern that must be resolved, especially in light of Charles Gasparino's exhaustive investigative piece in last Tuesday's edition of The Bond Buyer. The article shows that most of the firms that recently pledged to stop making campaign contributions still employ consultants to win over the officials who choose underwriters.

The MSRB is inviting trouble if it doesn't ensure that contributions made by firms and their employees are put squarely in the public spotlight along with the relationships between underwriters and consultants.

One simple way to do that would be to require firms and their employees to disclose all contributions and cross-check them with the board's records on the fees it levies on underwriters. And the MSRB should require underwriters to disclose any advisers and consultants they employ. Full disclosure is the best way to tightly tie up this anti-influence peddling package.

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