MSRB NOTICE 2005-44 (AUGUST 18, 2005)

SEC APPROVES AMENDMENTS TO RULE G-38 RELATING TO SOLICITATION OF MUNICIPAL SECURITIES BUSINESS

On August 17, 2005, the Securities and Exchange Commission approved the Municipal Securities Rulemaking Board’s (“MSRB”) amendments relating to the solicitation of municipal securities business under Rule G-38[1]. As amended, Rule G-38 prohibits a broker, dealer or municipal securities dealer (“dealer”) from paying persons who are not affiliated with the dealer for soliciting municipal securities business on its behalf. In addition, new Form G-38t has been created and certain related amendments have been made to Rule G-37, on political contributions and prohibitions on municipal securities business, and Rule G-8, on recordkeeping, as well as to Forms G-37/G-38 and G-37x. The amendments become effective on August 29, 2005.

SUMMARY OF AMENDMENTS

Summary of Amendments to Rule G-38

Prohibited Payments. Former Rule G-38, on consultants, is replaced in its entirety by new Rule G-38, on solicitation of municipal securities business. The new rule prohibits a dealer from making any direct or indirect payment to any person who is not an affiliated person of the dealer for a solicitation of municipal securities business on behalf of the dealer.

Definitions of Affiliated Person and Affiliated Company. An affiliated person of a dealer is defined as any partner, director, officer, employee or registered person of the dealer or of an affiliated company. An affiliated company of a dealer is an entity that controls, is controlled by or is under common control with the dealer and whose activities are not limited solely to the solicitation of municipal securities business. A registered person is any associated person of the dealer qualified under MSRB or NASD professional qualification requirements.

Definition of Solicitation. Solicitation is defined as a direct or indirect communication with an issuer for the purpose of obtaining or retaining municipal securities business.

Transitional Payments and New Form G-38t. Notwithstanding the foregoing, a dealer is permitted to make payments to non-affiliated persons for solicitations of municipal securities business if such payments are made with respect solely to solicitation activities undertaken by such persons on or prior to the effective date of the amendments (i.e., August 29, 2005). Such payments are permitted only if (A) the consultant has not solicited municipal securities business from any issuer on behalf of the dealer at any time after the effective date; and (B) the dealer submits to the MSRB, by the last day of the month following the end of each calendar quarter during which payments to the consultant are made or remain pending, new Form G-38t. The dealer must include on its initial and all subsequent Form G-38t submissions each item of municipal securities business for which a transitional payment remains pending and the amount of such pending payment for each item of business, together with the information previously required to be disclosed with respect to consultants under former Rule G-38.

Summary of Amendments to Rule G-37 and Forms G-37/G-38 and G-37x

Rule G-37 is amended to (i) delete references and provisions relating to consultant information provided under Rule G-38, (ii) reflect that those associated persons who solicit municipal securities business and thereby are municipal finance professionals include affiliated persons under Rule G-38, (iii) add a reference to the definition of solicitation under new Rule G-38, (iv) reflect the renaming of Form G-37/G-38 as Form G-37, and (v) make section headings consistent throughout the rule. Form G-37/G-38 is renamed as Form G-37, and Section IV and the consultant attachment to the form are deleted. In addition, Form G-37x is amended to delete references to the reporting of consultant information.

Summary of Amendments to Rule G-8

Rule G-8, on recordkeeping, is amended to require dealers to retain copies of any submitted Forms G-38t and records of their submission to the MSRB, as well as to reflect the historical nature of the records that dealers must retain with respect to the deleted consultant provisions of existing Rule G-38.

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For a more detailed discussion of the amendments and of certain supervisory issues relating to the new rule requirements, as well as to view the text of the amendments and Forms G-37, G-37x and G-38t, please see MSRB Notice 2005-41 (August 9, 2005) and MSRB Notice 2005-16 (March 15, 2005), available at www.msrb.org. Questions regarding this notice and amended Rule G-38 may be directed to Ernesto A. Lanza, Senior Associate General Counsel.

August 18, 2005

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