Rule G-38 Consultants (superceded as of August 29, 2005 by Rule G-38, on solicitation of municipal securities business)

View current Rule G-38 relating to solicitation of municipal securities business

Former Rule G-38.

(a) Definitions.

(i) The term "consultant" means any person used by a broker, dealer or municipal securities dealer to obtain or retain municipal securities business through direct or indirect communication by such person with an issuer on behalf of such broker, dealer or municipal securities dealer where the communication is undertaken by such person in exchange for, or with the understanding of receiving, payment from the broker, dealer or municipal securities dealer or any other person; provided, however, that the following persons shall not be considered consultants for purposes of this rule: (A) a municipal finance professional of the broker, dealer or municipal securities dealer; and (B) any person whose sole basis of compensation from the broker, dealer or municipal securities dealer is the actual provision of legal, accounting or engineering advice, services or assistance in connection with the municipal securities business that the broker, dealer or municipal securities dealer is seeking to obtain or retain.

(ii) The term "issuer" shall have the same meaning as in rule G-37(g)(ii).

(iii) The term "municipal finance professional" shall have the same meaning as in rule G-37(g)(iv)

(iv) The term "municipal securities business" shall have the same meaning as in rule G-37(g)(vii).

(v) The term "payment" shall have the same meaning as in ruleG-37(g)(viii).

(vi) The term "reportable political contribution" means:

(A) if the consultant has had direct or indirect communication with an issuer on behalf of the broker, dealer or municipal securities dealer to obtain or retain municipal securities business for such broker, dealer or municipal securities dealer, a political contribution to an official(s) of such issuer made by any contributor referred to in paragraph (b)(i) during the period beginning six months prior to such communication and ending six months after such communication;

(B) the term does not include those political contributions to official(s) of an issuer made by any individual referred to in subparagraph (b)(i)(A) or (B) of this rule who is entitled to vote for such official if the contributions made by such individual, in total, are not in excess of $250 to any official of such issuer, per election.

(vii) The term "reportable political party payment" means:

(A) if a political party of a state or political subdivision operates within the geographic area of an issuer with which the consultant has had direct or indirect communication to obtain or retain municipal securities business on behalf of the broker, dealer or municipal securities dealer, a payment to such party made by any contributor referred to in paragraph (b)(i) during the period beginning six months prior to such communication and ending six months after such communication;

(B) the term does not include those payments to political parties of a state or political subdivision made by any individual referred to in subparagraph (b)(i)(A) or (B) of this rule who is entitled to vote in such state or political subdivision if the payments made by such individual, in total, are not in excess of $250 per political party, per year.

(viii) The term "official of such issuer" or "official of an issuer" shall have the same meaning as in rule G-37(g)(vi).


(b) Written Agreement.

(i) Each broker, dealer or municipal securities dealer that uses a consultant shall evidence the consulting arrangement by a writing setting forth, at a minimum, the name, business address, role (including the state or geographic area in which the consultant is working on behalf of the broker, dealer or municipal securities dealer) and compensation arrangement of each such consultant ("Consultant Agreement"). In addition, the Consultant Agreement shall include a statement that the consultant agrees to provide the broker, dealer or municipal securities dealer with a list by contributor category, in writing, of any reportable political contributions and any reportable political party payments during each calendar quarter made by:

(A) the consultant;

(B) if the consultant is not an individual, any partner, director, officer or employee of the consultant who communicates with an issuer to obtain municipal securities business on behalf of the broker, dealer or municipal securities dealer; and

(C) any political action committee controlled by the consultant or any partner, director, officer or employee of the consultant who communicates with an issuer to obtain municipal securities business on behalf of the broker, dealer or municipal securities dealer.

(ii) The Consultant Agreement shall require that, if applicable, the consultant shall provide to the broker, dealer or municipal securities dealer a report that no reportable political contributions or reportable political party payments were made during a calendar quarter.

(iii) The Consultant Agreement shall require that the consultant provide the reportable political contributions and political party payments for each calendar quarter, or report that no reportable political contributions or political party payments were made for a particular calendar quarter, to the broker, dealer or municipal securities dealer in sufficient time for the broker, dealer or municipal securities dealer to meet its reporting obligations under paragraph (e) of this rule.

(iv) The Consultant Agreement must be entered into before the consultant engages in any direct or indirect communication with an issuer on behalf of the broker, dealer or municipal securities dealer.


(c) Information Concerning Political Contributions to Official(s) of an Issuer and Payments to State and Local Political Parties made by Consultants.

(i) A broker, dealer or municipal securities dealer is required to obtain information on its consultant's reportable political contributions and reportable political party payments beginning with a consultant's first direct or indirect communication with an issuer on behalf of the broker, dealer or municipal securities dealer to obtain or retain municipal securities business for such broker, dealer or municipal securities dealer. The broker, dealer or municipal securities dealer shall obtain from the consultant the information concerning each reportable political contribution required to be recorded pursuant to rule G-8(a)(xviii)(F) and each reportable political party payment required to be recorded pursuant to rule G-8(a)(xviii)(G) or, if applicable, a report indicating that the consultant made no reportable political contributions and no reportable political party payments required to be recorded pursuant to rule G-8(a)(xviii)(H).

(ii) The requirement to obtain the information referred to in paragraph (c)(i) of this rule shall end upon the termination of the Consultant Agreement.

(iii)A broker, dealer or municipal securities dealer will not violate this section if it fails to receive from its consultant all required information on reportable political contributions and reportable political party payments and thus fails to report such information to the Board if the broker, dealer or municipal securities dealer can demonstrate that it used reasonable efforts in attempting to obtain the necessary information. Reasonable efforts shall include:

(A) a statement in the Consultant Agreement that Board rules require disclosure of consultant contributions to issuer officials and payments to state and local political parties;

(B) the broker, dealer or municipal securities dealer sending quarterly reminders to its consultants of the deadline for their submissions to the broker, dealer or municipal securities dealer of the information concerning their reportable political contributions and reportable political party payments;

(C) the broker, dealer or municipal securities dealer including in the Consultant Agreement provisions to the effect that:

(1) the Consultant Agreement will be terminated by the broker, dealer or municipal securities dealer if, for any calendar quarter, the consultant fails to provide the broker, dealer or municipal securities dealer with information about its reportable political contributions or reportable political party payments, or a report noting that the consultant made no reportable political contributions or no reportable political party payments, and such failure continues up to the date to be determined by the dealer, but no later than the date by which the broker, dealer or municipal securities dealer is required to send Form G-37/G-38 to the Board with respect to the next succeeding calendar quarter, such termination to be effective upon the date the broker, dealer or municipal securities dealer must send its Form G-37/G-38 to the Board (i.e., January 31, April 30, July 31 or October 31); and

(2) no further payments, including payments owed for services performed prior to the date of termination, shall be made to the consultant by or on behalf of the broker, dealer or municipal securities dealer as of the date of such termination; and

(D) the broker, dealer or municipal securities dealer enforcing the Consultant Agreement provisions described in paragraph (c)(iii)(C) of this rule in a full and timely manner and indicating the reason for and date of the termination on its Form G-37/G-38 for the applicable quarter.


(d) Disclosure to Issuers. Each broker, dealer or municipal securities dealer shall submit in writing to each issuer with which the broker, dealer or municipal securities dealer is engaging or is seeking to engage in municipal securities business, information on consulting arrangements relating to such issuer, which information shall include the name of the consultant pursuant to the Consultant Agreement, business address, role (including the state or geographic area in which the consultant is working on behalf of the broker, dealer or municipal securities dealer) and compensation arrangement of any consultant used, directly or indirectly, by the broker, dealer or municipal securities dealer to attempt to obtain or retain municipal securities business with each such issuer. Such information shall be submitted to the issuer either:

(i) prior to the selection of any broker, dealer or municipal securities dealer in connection with the particular municipal securities business being sought; or

(ii) at or prior to the consultant�s first direct or indirect communication with the issuer for any municipal securities business. Each broker, dealer or municipal securities dealer shall promptly advise the issuer, in writing, of any change in the information disclosed, pursuant to this subsection (ii), on each consulting arrangement relating to such issuer. In addition, each broker, dealer or municipal securities dealer disclosing information pursuant to this subsection (ii) shall update such information by notifying each issuer in writing within one year of the previous disclosure made to such issuer concerning each consultant�s name, company, role and compensation arrangement, even where the information has not changed; provided, however, that this annual requirement shall not apply where the broker, dealer or municipal securities dealer has ceased to use the consultant, directly or indirectly, to attempt to obtain or retain municipal securities business with the particular issuer.


(e) Disclosure to Board. Each broker, dealer and municipal securities dealer shall send to the Board, and the Board shall make public, reports of all consultants used by the broker, dealer or municipal securities dealer during each calendar quarter. Such reports must be sent to the Board on Form G-37/G-38 by the last day of the month following the end of each calendar quarter (these dates correspond to January 31, April 30, July 31, and October 31) in the manner provided under Rule G-37. Such reports shall include, for each consultant, in the prescribed format, the consultant's name pursuant to the Consultant Agreement, business address, role (including the state or geographic area in which the consultant is working on behalf of the broker, dealer or municipal securities dealer), compensation arrangement, any municipal securities business obtained or retained by the consultant with each such business listed separately, and, if applicable, dollar amounts paid to the consultant connected with particular municipal securities business. Such reports shall indicate the total dollar amount of payments made to each consultant during the report period. In addition, such reports shall include the following information to the extent required to be obtained during such calendar quarter pursuant to paragraph (c)(i) of this rule:

(i)(A) the name and title (including any city/county/state or political subdivision) of each official of an issuer and political party receiving reportable political contributions or reportable political party payments, listed by state; and

(B) contribution or payment amounts made and the contributor category of the persons and entities described in paragraphs (b)(i) of this rule; or

(ii) if applicable, a statement that the consultant reported that no reportable political contributions or reportable political party payments were made; or

(iii) if applicable, a statement that the consultant failed to provide any report of information to the broker, dealer or municipal securities dealer concerning reportable political contributions or reportable political party payments.

Once a contribution or payment has been disclosed on a report, the broker, dealer or municipal securities dealer should not continue to disclose that particular contribution or payment on subsequent reports.

View current Rule G-38 relating to solicitation of municipal securities business