MSRB Proposes Regulations to Further Curb Influence of Political Contributions in the Municipal Market

Date: August 19, 2011

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


Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) today proposed regulations that would help prevent the influence of political contributions by municipal advisors in the award of business by state and local government officials.

The MSRB has curbed such influence on the part of underwriters of municipal securities through regulations that sever the connection between political contributions and the awarding of underwriting business by state and local governments. Today the MSRB asked the Securities and Exchange Commission (SEC) to approve its plan to apply similar regulations to firms that advise state and local governments and public pension plans on municipal securities and financial products, including derivatives. Municipal advisors that solicit certain business from these municipal entities on behalf of others would also be covered.

“Pay to play activities have no place in municipal finance, and can distort and undermine fairness in the process by which government business is awarded,” said MSRB Executive Director Lynnette Kelly Hotchkiss. “The MSRB’s proposed rules will help reduce the undue influence of political contributions in the selection of municipal advisors and the firms they represent.”

Under the MSRB’s proposed Rule G-42, municipal advisors would be prohibited from conducting 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 municipal advisors. Municipal advisors also would be banned for two years from soliciting certain types of business engagements from municipal entities on behalf of others and from receiving compensation for prior solicitations.

The MSRB is proposing that the pay to play rule for municipal advisors be effective six months after the date the SEC approves rules defining the term “municipal advisor” under the Securities Exchange Act or at a later date as approved by the SEC. No contributions made prior to the effective date would result in a ban on business for compensation. Once the new rule is effective, the financial advisory services of dealers would no longer be subject to Rule G-37, although any ban on municipal securities business under Rule G-37 already in effect would continue until its two-year expiration date. 

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.