The Municipal Securities Rulemaking Board's ban on political contributions should be repealed, or narrowed solely to a reporting and disclosure requirement, to avoid infringement of individuals' civil rights and an unfair impact on women and minorities, a securities professionals' trade association said last week.

If the MSRB and the Securities and Exchange Commission are unwilling to alter the rule, then "its potentially negative impact on minority security professionals and minority public officials must be studied and monitored over the next two years," the group, the National Association of Securities Professionals, suggested.

"If Rule G-37 is to be retained, it should be modified to require only that brokers, dealers and municipal finance professionals fully report and disclose political contributions to issuers of municipal securities," the securities group said in a position paper released late Wednesday.

In its current form, the rule enacted by the MSRB last April does not "address widespread actual or probable corruption and investor insecurity" in the municipal market, the group wrote.

The National Association of Securities Professionals is a trade organization of women and minorities as well as woman- and minority-owned firms in the securities industry. A majority of the group's members specialize in municipal finance.

The group has voiced opposition to banning political campaign contributions almost since the initiation of discussions by the MSRB and the SEC on the issue last year. The group and individual members from some minority- and woman-owned firms also have complained that they were not given the same opportunity as major Wall Street investment banks in helping to formulate the ban.

Copies of the group's position paper have been sent to the MSRB, the SEC, and the Public Securities Association, among others.

The document is being distributed to board members of the MSRB, said Christopher Taylor, executive director of the board. "We will get back to them as soon as possible," said Taylor, who declined to comment further.

The SEC declined to comment.

Officials at the PSA also declined to comment Friday, saying that they had not finished studying the document.

"Our position on political contributions is that the bottom-line problem is the high cost of political campaigns and the need for effective campaign finance reform," a PSA spokesman said.

Rule G-37, which took effect April 25, bars dealers from doing business with a state or local government for two years after the dealer, its political action committee, or its municipal finance professionals make a political gift to a government official.

The rule also limits the amount individuals can give to candidates running for office in the jurisdiction where they live and requires dealers to file quarterly reports on contributions and negotiated underwritings with the MSRB.

In its position paper, the securities group wrote that the growth in the municipal securities industry as well as in the number of women and minority politicians and municipal finance professionals has become associated with two assertions that have prompted new regulations for the market.

One assertion holds that political contributions have determined the selection of municipal underwriters. The second holds that contributions from municipal brokers, dealers, and professionals have led to "fraudulent and manipulative practices as well as the choice of less competent or incompetent" underwriters.

Because the MSRB and the SEC failed to initially tap the input of diverse groups in drafting the rule and did not "pay much attention" when minorities warned about "issues of disparate impact," the rule may "endanger gains made over the past two decades by minority securities professionals and minority public officials," the securities group said.

Minority securities professionals may be adversely affected because of the large concentration of these individuals in the municipal finance industry who are now limited in their contributions to political campaigns, the group argues. As a result, many minority and women politicians could lose a "critical source of campaign contributions."

The group also believes that in developing the rule, federal regulators failed to uncover widespread corruption in the municipal market and have not given any "persuasive explanations as to why hitherto existing federal, state and local regulations cannot be applied to weed out any corruption" in the industry.

The group also suggested that federal regulators reexamine some of their assumptions regarding negotiated and competitive underwriting that may have provided the underlying need for the ban. As. a result of discussions on curbing corruption, some municipalities have already curtailed negotiated financings, long seen as the predominant way in which minority and smaller firms gain underwriting work.

If the rule is to be retained in its current form, the group also suggested that the MSRB and the SEC commission a study to determine whether there are "less restrictive alternatives, which do not impact notions of equality or basic civil liberties and rights, that can ensure the integrity of the municipal securities market."

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