Rule G-37, on political contributions and prohibitions on municipal securities business, of the Municipal Securities Rulemaking Board (the “MSRB”) prohibits brokers, dealers and municipal securities dealers (“dealers”) from engaging in municipal securities business with issuers if certain political contributions have been made. The MSRB believes the rule has provided substantial benefits to the industry and the investing public by greatly reducing the direct connection between political contributions given to issuer officials and the awarding of municipal securities business to dealers, thereby effectively eliminating pay-to-play practices in the new issue municipal securities market.
The MSRB has received comments from municipal securities industry participants regarding contributions made by dealers, municipal finance professionals (“MFPs”) or their political action committees (“PACs”) to bond ballot campaign committees that promote voter approval of bond measures. Some industry participants have raised concerns that contributions to such committees could assist dealers with obtaining municipal securities business and may raise the perception of pay-to-play practices. These industry participants have suggested that the MSRB consider amending Rule G-37 to cover such contributions. Other industry participants have argued, however, that such amendments to the rule are not necessary because contributions and other types of assistance provided by dealers and MFPs are appropriate and lawful methods of assisting jurisdictions with receiving voter approval to finance vitally important municipal projects.
As a part of the MSRB’s periodic review of the continued effectiveness of Rule G-37, the MSRB is considering these viewpoints and other comments from industry participants. To assist with these efforts, the MSRB is soliciting general comments from the industry and other interested parties on practices in connection with bond ballot campaign committee contributions. The MSRB is asking for comment on practices relating to bond ballot measures, including the awarding of municipal securities business to dealers based on dealer contributions to bond ballot campaign committees and the perception that pay-to-play practices in this area may affect the integrity of the municipal securities market. The MSRB is considering draft amendments to Rule G-37 that would require the mandatory public disclosure of bond ballot campaign committee contributions made by dealers, MFPs and their PACs on MSRB Form G-37. Such amendments would not, however, provide for a ban on municipal securities business as a result of contributions to bond ballot measures. The information gathered through the public disclosures contemplated in the draft amendments could serve as a basis for understanding whether the MSRB should consider further action with regard to bond ballot initiatives in the future.
Rule G-37 prohibits dealers from engaging in municipal securities business with an issuer within two years after certain contributions to an official of such issuer are made by the dealer, any MFP associated with such dealer (other than certain permitted de minimis contributions) or any PAC controlled by the dealer or any MFP. The rule requires dealers to disclose on Form G-37 non-de minimis contributions to issuer officials and payments to political parties of states and political subdivisions made by dealers, MFPs, their PACs and non-MFP executive officers. The prohibition and disclosure requirements of the rule do not currently extend to contributions that are made to bond ballot campaign committees by dealers, MFPs or their PACs.
Bond ballot measure campaigns typically occur as a result of a state or local government placing a ballot measure before voters to approve specified municipal borrowing. Many state and local jurisdictions are required to authorize the issuance of municipal bonds through voter approval to fund municipal finance projects. Typical bond ballot measures include financings for school districts, transportation and other municipal projects.
The MSRB understands that contributions to bond ballot campaign committees by dealers and dealer personnel are generally given to support passage of bond ballot measures to authorize borrowing by a specific jurisdiction. Such contributions are subject to the rules and regulations of state and local finance laws, which vary from jurisdiction to jurisdiction.
REQUEST FOR COMMENT
The MSRB is requesting comment on whether contributions to bond ballot campaign committees have the potential to result in actual pay-to-play practices or the perception of pay-to-play practices, both of which can negatively affect the integrity of the municipal market. In addition, the MSRB wishes to understand whether dealer contributions to bond ballot campaign committees create issues similar to or different from those raised by contributions to political candidates. In particular, the MSRB seeks comment on:
- the prevalence of dealer contributions to bond ballot campaign committees;
- whether there is a nexus between contributions to bond ballot campaign committees for new bond issuances by specific dealers and the securing of roles by those dealers in the related bond underwriting;
- the circumstances under which such contributions have been made by dealers having roles in the related bond underwriting, including, but not limited to, the timing of such contributions in relation to key milestones in the bond authorization and underwriting processes;
- whether there are certain types of bond ballot measures that receive contributions from dealers more frequently than others;
- whether there are certain municipal finance market segments that have more contribution activity than others;
- how such contributions are used by campaign committees (e.g., for advertising purposes, etc.);
- whether in-kind contributions are frequently used and, if so, whether they should be treated differently from cash contributions; and
- whether dealers are solicited to make contributions by campaign committees or by issuers and, if so, how they are solicited (e.g., specifically requested in a request for proposals, etc.).
Based on the MSRB’s review of information available through various states’ political contribution disclosure facilities, the MSRB is concerned about the lack of effective transparency with regard to information on bond ballot campaign contributions currently available to the public. This lack of transparency arises due to disclosure requirements that vary from state to state and the difficulty of locating and extracting the relevant dealer-related and bond initiative-related information from the various public disclosure facilities. The MSRB is interested in receiving comments on the merits of requiring that dealers disclose such information in a centralized format to the MSRB through Form G-37 for public disclosure. Such disclosure would increase the amount of information available to market participants and thereby increase market transparency. The draft amendments, which are included at the end of this notice, would not provide for a ban on municipal securities business as a result of a contribution to a ballot campaign. However, such disclosures would assist the MSRB in assessing whether further action in this area would be appropriate in the future.
The MSRB is considering draft amendments that would require mandatory public disclosures regarding contributions to bond ballot campaigns that would parallel the existing disclosure requirements for non-de minimis contributions to issuer officials and state and local political parties. Thus, the dealer would be required to disclose, among other things: (i) the official name of each bond ballot campaign, including the state or local jurisdiction by or for which such bonds would be issued; (ii) the contribution amount; and (iii) the contributor category (i.e., dealer, MFP, PAC or non-MFP executive officer) for each contribution. The MSRB seeks comment on whether a dealer also should be required to disclose whether a specific item of municipal securities business it undertakes is related to a prior contribution to a bond ballot campaign. In addition, the MSRB seeks comment on whether a dealer should be required to identify the person from whom they received a contribution request and the solicitation is not pursuant to a request for proposals or related documents.
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Comments should be submitted no later than August 7, 2009 and may be directed to Leslie Carey, Associate General Counsel or Ronald W. Smith, Senior Legal Associate. Written comments will be available for public inspection on the MSRB’s web site.
June 22, 2009
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TEXT OF DRAFT AMENDMENT TO RULE G-37 
Rule G-37. Political Contributions and Prohibitions on Municipal Securities Business
(a)-(d) No change.
(e) Required Disclosure to Board.
(i) Except as otherwise provided in paragraph (e)(ii), each broker, dealer or municipal securities dealer shall, 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) send to the Board Form G-37 setting forth, in the prescribed format, the following information:
(A) No change.
(B) for contributions to bond ballot campaigns (other than a contribution made by a municipal finance professional or a non-MFP executive officer to a bond ballot campaign for which such person is entitled to vote if all contributions by such person to such bond ballot campaign, in total, do not exceed $250 per election) made by the persons and entities described in subclause (2) of this clause (B):
(1) the official name of each bond ballot campaign and the jurisdiction (including city/county/state or political subdivision) by or for which such bonds, if approved, would be issued of each bond ballot campaign receiving contributions during such calendar quarter, listed by state;
(2) the contribution amount made and the contributor category of each of the following persons and entities making such contributions during such calendar quarter:
(a) the broker, dealer or municipal securities dealer;
(b) each municipal finance professional;
(c) each non-MFP executive officer; and
(d) each political action committee controlled by the broker, dealer or municipal securities dealer or by any municipal finance professional;
(E) No change.
The Board shall make public a copy of each Form G-37 received from any broker, dealer or municipal securities dealer.
(ii) No broker, dealer or municipal securities dealer shall be required to send Form G-37 to the Board for any calendar quarter in which either:
(A) such broker, dealer or municipal securities dealer has no information that is required to be reported pursuant to clauses (A) through (D)
(C) of paragraph (e)(i) for such calendar quarter; or
(B) No change.
(iii) No change.
(f) No change.
(i)-(ix) No change.
(x) The term “bond ballot campaign” means any fund, organization or committee that solicits or receives contributions to be used to support initiatives seeking authorization for the issuance of municipal securities through public approval obtained by popular vote.
 Rule G-37 defines municipal securities business as: (i) the purchase of a primary offering of municipal securities from an issuer on other than a competitive bid basis; (ii) the offer or sale of a primary offering of municipal securities on behalf of any issuer; (iii) the provision of financial advisory or consultant services to or on behalf of an issuer with respect to a primary offering of municipal securities in which the dealer was chosen to provide such services on other than a competitive bid basis; or (iv) the provision of remarketing agent services to or on behalf of an issuer with respect to a primary offering of municipal securities in which the dealer was chosen to provide such services on other than a competitive bid basis.
 Rule G-37(g)(iv) defines municipal finance professional as: (A) any associated person primarily engaged in municipal securities representative activities, as defined in Rule G-3(a)(i), provided, however, that sales activities with natural persons shall not be considered to be municipal securities representative activities; (B) any associated person (including but not limited to any affiliated person of the dealer, as defined in Rule G-38) who solicits municipal securities business; (C) any associated person who is both (i) a municipal securities principal or a municipal securities sales principal and (ii) a supervisor of any persons described in (A) or (B) above; (D) any associated person who is a supervisor of any person described in (C) above up through and including, in the case of a dealer other than a bank dealer, the Chief Executive Officer or similarly situated official and, in the case of a bank dealer, the officer or officers designated by the board of directors of the bank as responsible for the day-to-day conduct of the bank’s municipal securities dealer activities, as required pursuant to Rule G-1(a); or (E) any associated person who is a member of the dealer (or, in the case of a bank dealer, the separately identifiable department or division of the bank, as defined in Rule G-1) executive or management committee or similarly situated officials, if any.
 Assistance for bond ballot measures includes in-kind services. In-kind contributions generally are treated as contributions within the meaning of Rule G-37(g)(i), although the MSRB has previously noted that personal service in connection with a campaign would not be treated as a contribution so long as dealer resources are not used in providing such service. See Rule G-37 Qs &As II.18 (May 24, 1994) and II.19 (August 18, 1994), available [on the MSRB website].
 Contributions made by MFPs to issuer officials for whom such MFP is entitled to vote will not result in a ban on municipal securities business if such contributions, in total, do not exceed $250 per election.
 Rule G-37(g)(v) defines non-MFP executive officer as an associated person in charge of a principal business unit, division or function or any other person who performs similar policy making functions for the dealer (or, in the case of a bank dealer, the separately identifiable department or division of the bank, as defined in Rule G-1), but does not include any MFP. Although Rule G-37 requires disclosure of non-MFP executive officer contributions, such contributions do not result in a ban on municipal securities business.
 All comments received will be made publicly available without change. Personal identifying information, such as names or e-mail addresses, will not be edited from submissions. Therefore, commentators should submit only information that they wish to make publicly available.
 Underlining indicates new language; strikethrough denotes deletions.
 Contributions are cash or in-kind services.