In the municipal securities market, political contributions by municipal securities dealers to public officials responsible for awarding bond business have the potential for creating conflicts of interest. The MSRB was a pioneer in establishing rules that seek to prevent undue influence by dealers seeking bond business from governmental entities with bond issuing authority.
The MSRB’s political contributions rule, Rule G-37, maintains the integrity of the municipal securities market and prevents pay-to-play practices by banning municipal securities dealers from engaging in municipal securities business after they have made contributions to issuer officials. The rule has served as a model in other financial markets and the MSRB continues to refine it, most recently requiring disclosure of contributions by dealers to municipal bond referenda campaigns. This change seeks to shed light on which municipal securities dealers are contributing to bond referenda campaigns and, when the campaigns are successful, are subsequently hired as underwriters.
Application of MSRB Rules
Rule G-37 prohibits dealers from engaging in municipal securities business with an issuer within two years after making certain contributions to an issuer official, other than small, allowable contributions. The only exception to the rule’s ban on business is for small ($250 per election) contributions by municipal finance professionals (MFPs) to issuer officials for whom they are entitled to vote.
Rule G-37 also requires disclosure of contributions to state and local political parties made by dealers, MFPs, their political action committees (PACs), and non-MFP executive officers. Although Rule G-37 requires disclosure of non-MFP executive officer contributions, such contributions do not result in a ban on municipal securities business. Further, the rule prohibits MFPs and dealers from taking action to circumvent the rule by contributing indirectly to those whom they could not contribute directly. Similarly, MSRB Rule G-38 prohibits dealers from providing or agreeing to provide, directly or indirectly, payment to any person who is not an affiliated person of the dealer for the solicitation of municipal securities business.
For more information on the application of MSRB's political contribution rules, read Questions and Answers about Rule G-37.
Additional Information
View political contribution disclosures submitted to the MSRB by municipal securities dealers.