MSRB Proposes Pay to Play Rule for Municipal Advisors

Date: January 14, 2011

Contact: Jennifer A. Galloway, Chief Communications Officer
             (703) 797-6600


Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) today issued a request for comment on a proposed rule that would, for the first time, regulate so-called “pay to play” activities of firms and individuals that advise municipal entities, such as state and local governments and public pension plans, on municipal securities and municipal financial products, including derivatives. The rule would also cover firms and individuals that solicit certain business from municipal entities on behalf of others. Pay-to-play refers to situations where municipal advisors may seek to influence the award of business by government officials by making or soliciting political contributions to those officials.

Under the MSRB’s draft rule, municipal advisors would be prohibited from engaging in municipal advisory business with municipal entities for compensation for two years if they make certain political contributions to state or local government officials with authority to hire such municipal advisors. They also would face a two-year ban on compensation for soliciting certain types of business engagements on behalf of others from those governments or receiving compensation for certain earlier solicitations. Under the proposed rule, individuals who are municipal advisor professionals would be entitled to contribute up to $250 per election to state and local government officials for whom they are entitled to vote. The rule would apply to all municipal advisors, including municipal securities dealers that act as municipal advisors.

“Pay to play conduct is contrary to fundamental principles of market fairness,” said MSRB Executive Director Lynnette Kelly Hotchkiss. “Our proposed rule seeks to sever any connection between political contributions to municipal government officials and the awarding of advisory service business to municipal advisors.”

The MSRB’s proposed rule would also generally prohibit the solicitation of contributions to the same state and local government officials as well as to certain state and local political parties from others, although such solicitations would not trigger a ban. It would also prohibit indirect violations of the rule and require quarterly disclosures of certain information concerning municipal advisor political contributions to the MSRB, which would make the information available to the public through its website, at

Comments on the proposed rule, MSRB Rule G-42, must be received by February 25, 2011. Comments should be sent electronically to with MSRB Notice 2011-04 appearing in the subject line. The MSRB will hold an informational webinar on the proposed rule on February 3, 2011 at 2:00 p.m. Register for the webinar.

The MSRB is also requesting comments on related draft rule amendments, including one that would remove financial advisory and consulting services from the scope of MSRB Rule G-37, the MSRB’s pay to play rule for municipal securities dealers.

The Dodd-Frank Wall Street Reform and Consumer Protection Act expanded the MSRB’s jurisdiction to include the regulation of municipal advisors, in addition to municipal securities dealers.  Municipal advisors that have engaged in any municipal advisory activities on or after October 1, 2010 must be registered with the MSRB and the Securities and Exchange Commission. See a list of MSRB-registered municipal advisors.

The MSRB protects investors, state and local governments and other municipal entities, and the public interest by promoting a fair and efficient municipal securities market. The MSRB fulfills this mission by regulating the municipal securities firms, banks and municipal advisors that engage in municipal securities and advisory activities. To further protect market participants, the MSRB provides market transparency through its Electronic Municipal Market Access (EMMA®) website, the official repository for information on all municipal bonds. The MSRB also serves as an objective resource on the municipal market, conducts extensive education and outreach to market stakeholders, and provides market leadership on key issues. The MSRB is a self-regulatory organization governed by a 21-member board of directors that has a majority of public members, in addition to representatives of regulated entities. The MSRB is overseen by the Securities and Exchange Commission and Congress.