Notice Regarding the Application of Rule G-37 to Presidential Campaigns of Issuer Officials

        In response to numerous calls on this subject, the Board wishes to reiterate its position on the application of rule G-37, on political contributions and prohibitions on municipal securities business, to Presidential campaigns of issuer officials. The Board directs persons interested in contributing to an issuer official's Presidential campaign to the MSRB Interpretation of May 31, 1995 ("the 1995 Interpretive Letter").⁽¹⁾

        Rule G-37, among other things, prohibits a broker, dealer or municipal securities dealer (dealer) from engaging in municipal securities business with an issuer within two years after any contribution to an official of an issuer made by the dealer; any municipal finance professional associated with the dealer; or any political action committee controlled by the dealer or any municipal finance professional. In the 1995 Interpretive Letter, the Board noted that rule G-37 is applicable to contributions given to officials of issuers who seek election to federal office, such as the Presidency. The Board also explained that the only exception to rule G-37's absolute prohibition on business is for certain contributions made to issuer officials by municipal finance professionals.⁽²⁾ Specifically, contributions by such persons to officials of issuers would not invoke application of the prohibition if the municipal finance professional is entitled to vote for such official, and provided that any contributions by such municipal finance professional do not exceed, in total, $250 to each official, per election. In the example of an issuer official running for President, any municipal finance professional in the country can contribute the de minimis amount to the official's Presidential campaign without causing a ban on municipal securities business with that issuer.

        The Board previously has stated that, if an issuer official is involved in a primary election prior to the general election, a municipal finance professional who is entitled to vote for such official may contribute up to $250 for the primary election and $250 for the general election to each such official.⁽³⁾ In the context of a Presidential campaign, the Board notes that the $250 de minimis amount applies to the entire primary process, up through and including the national party convention. While rule G-37 allows a municipal finance professional to then contribute another $250 to the party candidate's general election campaign fund, the Board understands that a Presidential candidate who has accepted public funding for the general election is prohibited under federal law from accepting any contributions to further his or her general election campaign.

        Finally, the Board also notes that rule G-37(c) provides that no dealer or municipal finance professional shall solicit any person or political action committee to make any contributions, or shall coordinate any contributions, to an official of an issuer with which the dealer is engaging or is seeking to engage in municipal securities business.

March 23, 1999

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ENDNOTES

1. The 1995 Interpretive Letter is reprinted in MSRB Rule Book (January 1, 1999) at 201-203. It also is available from the MSRB Rules/Interpretive Letters section of the Board's Web site at www.msrb.org.

2. The term "municipal finance professional" is a defined term in rule G-37 (g)(iv). The Board wishes to remind dealers that the term is broader than persons directly involved in municipal securities activities and may include certain supervisors, including in the case of a broker, dealer or municipal securities dealer other than a bank dealer, the Chief Executive Officer, 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. It also may include members of the dealer's executive or management committee or similarly situated officials. See Question and Answer number 2 dated May 24, 1994, reprinted in MSRB Rule Book (January 1, 1999) at 192; MSRB Reports, Vol. 14, No. 3 (June 1994) at 13; Question and Answer number 3 dated September 9, 1997, reprinted in MSRB Rule Book (January 1, 1999) at 199. The Questions and Answers also are available from the MSRB Rules/Interpretive Notice section of the Board's Web site at www.msrb.org.

3. See Question and Answer number 10 dated May 24, 1994, reprinted in MSRB Rule Book (January 1, 1999) at 192; MSRB Reports, Vol. 14, No. 3 (June 1994) at 13. The Question and Answer also is available from the MSRB Rules/Interpretive Notice section of the Board's Web site at www.msrb.org.

 

Copyright 2000 Municipal Securities Rulemaking Board. All Rights Reserved. Terms and Conditions of Use.

Rule G-38 Question and Answer

Agreement to Jointly Seek Underwriting Assignments

Q: Dealer Firm A and Dealer Firm B have entered into an agreement to jointly seek underwriting assignments. As part of this agreement, the two dealers have jointly submitted proposals to issuers. Dealer Firm A ultimately is selected to underwrite a negotiated sale of a primary offering of municipal securities (i.e., "municipal securities business" as defined in rule G-37). Dealer Firm B will not act as an underwriter on this offering but will assist Dealer Firm A in structuring the transaction. Dealer Firm A will compensate Dealer Firm B for the work it provides on the transaction. Is Dealer Firm B a consultant to Dealer Firm A pursuant to rule G-38, on consultants?

A: Yes. Dealer Firm B is a consultant to Dealer Firm A because, pursuant to the definition of consultant in rule G-38(a)(i), Dealer Firm B is: (1) used by Dealer Firm A to obtain municipal securities business, (2) through direct or indirect communication with an issuer on behalf of Dealer Firm A, and (3) the communication is undertaken by Dealer Firm B in exchange for, or with the understanding of receiving, payment from Dealer Firm A. Moreover, Dealer Firm B is not exempt from the definition of consultant since it is not a municipal finance professional, and its sole basis of compensation is not the actual provision of legal, accounting or engineering advice, services or assistance. In addition, the Board believes that, even though Dealer Firm B is providing substantive work on the transaction, any dealer used by another dealer (other than a member of the syndicate) to assist in obtaining or retaining municipal securities business is acting as a consultant pursuant to rule G-38.

 March 4, 1999

 

Copyright 2000 Municipal Securities Rulemaking Board. All Rights Reserved. Terms and Conditions of Use.

Amendment to Rule G-36(c)(i) Filed with the Securities and Exchange Commission

The Municipal Securities Rulemaking Board has filed with the Securities and Exchange Commission an amendment to rule G-36(c)(i) relating to official statements prepared in connection with most primary offerings exempt from Exchange Act Rule 15c2-12.

        On December 9, 1999, the Municipal Securities Rulemaking Board (the "MSRB" or the "Board") filed with the Securities and Exchange Commission (the "SEC") an amendment to rule G-36, on delivery of official statements, advance refunding documents and Forms G-36(OS) and G-36(ARD) to Board or its designee.¹ The amendment modifies the existing time frame for brokers, dealers or municipal securities dealers ("dealers") acting as underwriters of primary offerings subject to rule G-36(c)(i) (i.e., offerings exempt from Exchange Act Rule 15c2-12) to send official statements to the MSRB.² The amendment provides that an underwriter in a primary offering subject to rule G-36(c)(i) for which an official statement in final form is prepared by the issuer must send two copies of the official statement in final form, together with two copies of Form G-36(OS), to the MSRB by the later of (i) one business day after the bond closing or (ii) one business day after receipt of the official statement from the issuer.

        Rule G-36 was adopted by the MSRB for the purpose of creating a repository for official statements that would function much like a public library that stores, indexes and provides copies of official statements.³ This library, known as the Municipal Securities Information Library^� (or MSIL^�) system,⁴ is intended to serve as a central source for information regarding municipal securities trading in the primary and secondary markets. As originally adopted by the MSRB and approved by the SEC, rule G-36 applied to all primary offerings of municipal securities regardless of principal amount, other than primary offerings that qualified for exemption under section (d)(1) of Securities Exchange Act Rule 15c2-12.⁵ The MSRB subsequently amended rule G-36 to subject to its requirements certain categories of primary offerings that are exempt under Rule 15c2-12(d)(1), thereby further extending the reach of rule G-36 beyond the scope of Rule 15c2-12.⁶ The MSRB felt that, by expanding the scope of the rule to include such offerings, a more complete collection of disclosure documents would result and the overall integrity, efficiency and liquidity of the municipal securities market would be increased.

        For any primary offering subject to rule G-36(c)(i), the underwriter currently is required to send two copies of the official statement in final form, if one is prepared, together with two copies of Form G-36(OS), to the MSRB by the business day after the issuer delivers the municipal securities to the underwriter (the "bond closing"). The MSRB reviewed certain information included by underwriters on Forms G-36(OS) submitted to the MSIL^� system in 1998, including approximately 2,000 such forms submitted in connection with primary offerings subject to rule G-36(c)(i).⁷ For these offerings, the MSRB found that 96% of the official statements in final form were reported to have been delivered by issuers to underwriters within one business day after closing. The 4% of official statement deliveries by issuers to underwriters that were reported as being made more than one business day after closing and therefore too late to permit underwriters to comply with rule G-36(c)(i) constituted more than half (approximately 54%) of all underwriter failures to meet the time frame of that section.⁸

        The MSRB believes that there is significant room for improvement with respect to underwriter compliance with rule G-36(c)(i) in those situations in which the official statement is received in sufficient time to send to the MSRB on a timely basis. Underwriters experiencing problems in this area should review their internal procedures for ensuring that official statements delivered by issuers are handled in a manner that permits the accurate completion of Form G-36(OS) and the prompt sending of such form and the official statement to the MSRB.

        However, the MSRB is concerned that more than half of the instances in which underwriters have not met the time frame of rule G-36(c)(i) resulted from official statements that were reported to have been delivered by issuers more than one business day after closing. Of course, the MSRB has no authority to require that an issuer prepare an official statement or that any official statement that is prepared be delivered to underwriters within a specified time frame. In addition, the SEC excepted those primary offerings that are subject to rule G-36(c)(i) from Rule 15c2-12 and therefore no regulatory framework exists to compel, directly or indirectly, the preparation and delivery of an official statement in such offerings.

        The MSRB notes that in approximately 36% of the offerings subject to rule G-36(c)(i), the number of business days between the sale date and the business day following closing is less than ten. As a result, for these offerings, the requirement in rule G-36(c)(i) that the underwriter send the official statement to the MSRB within one business day after the bond closing provides the underwriter with less time to comply with its official statement submission requirement than the 10 business day outside time frame of rule G-36(b)(i), were such time frame applicable to these offerings.⁹ At the same time, however, issuers in these offerings generally have not contracted with underwriters to deliver official statements within seven business days of the sale date, as provided in section (b)(3) of Rule 15c2-12, since such offerings are exempt from that Rule. Thus, in more than one-third of all offerings subject to rule G-36(c)(i), underwriters are required to act more quickly than they would under rule G-36(b)(i) even though there is no concomitant obligation on the part of issuers to deliver an official statement within any particular time frame.

        As a result, the MSRB published the MSRB Notice seeking comment on, among other things, a draft amendment to rule G-36(c)(i) which the MSRB believed would address this situation. After reviewing the comments received on the MSRB Notice, the MSRB determined to adopt the draft amendment, with a minor clarifying change.¹⁰ As amended, the rule would provide that an underwriter in a primary offering subject to rule G-36(c)(i) for which an official statement in final form is prepared by the issuer must send two copies of the official statement in final form, together with two copies of Form G-36(OS), to the MSRB by the later of (i) one business day after the bond closing or (ii) one business day after receipt of the official statement from the issuer.¹¹ The amendment is intended solely to provide relief to underwriters that face violation of rule G-36(c)(i) as a result of circumstances beyond their control and is not intended to imply that underwriters and other dealers may ignore their continuing obligation to deliver official statements for new issue municipal securities to customers by settlement, as required under rule G-32.

        The MSRB received two comment letters in response to the MSRB Notice, only one of which addressed the draft amendment. TBMA states that it "strongly supports" the draft amendment.¹² TBMA further states that the change in the timing requirement "means that underwriters and issuers could schedule closings on the basis of the needs of the transaction, rather than for the purpose of allowing a sufficient number of days to increase the odds that the official statement will be ready in time for the closing."

        The MSRB strongly believes that this second statement of TBMA demonstrates a misunderstanding of the nature of the proposed amendment, the purpose of official statements in the municipal securities market and the other obligations of dealers with respect to delivery of official statements. In the MSRB Notice, the MSRB observed that, for new issue municipal securities, dealers typically seek, and customers generally expect, to settle their trades on the same day as the closing of the underwriting. As a result, underwriters need to receive the official statement from the issuer in sufficient time to ensure that the official statement can be delivered to customers by settlement of their transactions, as required under rule G-32. If an issuer is preparing an official statement in final form but does not deliver it to the underwriter by the bond closing, dealers would continue to be prohibited from settling their transactions with customers until they have delivered the official statement to the customers, with certain very limited exceptions.¹³ Thus, other than offerings falling within the narrow exceptions provided under rule G-32, the only offerings in which "the needs of the transaction" would not include delivery of the official statement by closing would be those in which underwriters expect to hold the securities in inventory until the official statement is in fact delivered and therefore made available for redelivery to customers.

        The completion and delivery of an official statement by the closing of the underwriting is not a technical requirement imposed by the MSRB. If an official statement serves no purpose in an offering that is exempt from Rule 15c2-12, then the issuer need not prepare one. Unless an issuer is preparing an official statement for reasons entirely unrelated to the offering that it describes, it is difficult to understand how completion of an official statement after the underwriters and initial customers have received delivery of their securities can be rationalized.¹⁴ Although it is possible that the submission requirement under current rule G-36(c)(i) may in some cases influence an issuer to give completion of the official statement in final form a higher priority, it is also possible that in some cases this requirement serves as a disincentive for the actual preparation of the official statement in final form since an underwriter currently can avoid a rule G-36(c)(i) violation by prevailing upon the issuer not to prepare an official statement in final form at all (e.g., an underwriter that has purchased an issue based on a preliminary official statement could advise an issuer that it need not finalize the official statement). Changing the time frame of the rule G-36(c)(i) submission requirement would eliminate this disincentive while providing relief for underwriters that may face a potential rule violation for reasons beyond their control. The official statement delivery requirement under rule G-32 would continue to provide a powerful incentive to underwriters to urge issuers to complete the official statement in final form in sufficient time to permit the underwriters and the other dealers to which they sell such new issue municipal securities to deliver the official statement to customers by settlement.

        Although TBMA supports the draft amendment to rule G-36(c)(i), it suggests that the MSRB further amend rule G-36(c)(i) to extend the one-business day time frame to two-business days. TBMA argues that "it is often logistically difficult to meet the one-day requirement" and that the MSIL^� system serves "archival rather than real-time disclosure purposes."¹⁵ In adopting rule G-36 and creating the MSIL^� system, the MSRB undertook to make available to the industry a comprehensive repository of official statements for use in both the primary and secondary markets. In addition to serving the vital archival purpose of ensuring that information regarding municipal securities is available throughout the life of the securities, the MSIL^� system serves an important function in the primary market as an alternate source (through its subscribers) of official statements for dealers seeking to fulfill their rule G-32 customer delivery obligation. Delaying the submission of official statements to the MSRB could impair the MSIL^� system’s usefulness in the primary market.¹⁶ Without a more substantial showing of hardship to the dealer community, the MSRB believes that extension of the time frame for underwriters to turn the official statement around to the MSRB is not justified at this time. The ability to meet this requirement is entirely within the control of dealers, and they should review their procedures to ensure that this task is assigned to the appropriate personnel having a clear understanding of the procedural and substantive requirements of rule G-36. To the extent that dealers experience difficulty in coordinating the actions of various personnel involved in the handling of official statements, they should consider whether they have instituted procedures that adequately provide for compliance with the rule.

December 9, 1999

 

* * * * * * * * * *

 

 

TEXT OF AMENDMENT¹⁷

Rule G-36. Delivery of Official Statements, Advance Refunding Documents and Forms G-36(OS) and G-36(ARD) to Board or its Designee

(a)-(b) No change.

(c) Delivery Requirements for Issues not Subject to Securities Exchange Act Rule 15c2-12.

        (i) Subject to paragraph (iii) below, each broker, dealer, or municipal securities dealer that acts as an underwriter in a primary offering of municipal securities not subject to Securities Exchange Act rule 15c2-12 for which an official statement in final form is prepared by or on behalf of the issuer shall send to the Board or its designee, by certified or registered mail, or some other equally prompt means that provides a record of sending, within by the later of one business day of after delivery of the securities by the issuer to the broker, dealer, or municipal securities dealer or one business day after receipt of the official statement in final form from the issuer or its designated agent, the following documents and written information: two copies of the official statement in final form, if prepared by or on behalf of the issuer; and, if an official statement in final form is prepared, two copies of completed Form G-36(OS) prescribed by the Board, including the CUSIP number or numbers for the issue.

        (ii) No change.

(d)-(f) No change.

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ENDNOTES

1. File No. SR-MSRB-99-11. Comments submitted to the SEC should refer to this file number.

2. Those primary offerings that are subject to rule G-36(c)(i) consist of offerings of municipal securities for which an official statement in final form has been prepared by or on behalf of the issuer and having (i) an aggregate principal amount of less than $1,000,000 ("Small Issue Securities"); (ii) authorized denominations of $100,000 or more if the securities have a maturity of nine months or less ("Short-Term Securities"); and (iii) authorized denominations of $100,000 or more if, at the option of the holder, the securities may be tendered to the issuer or its agent for redemption or purchase at par value or more at least as frequently as every nine months until maturity, earlier redemption, or purchase by the issuer or its agent ("Puttable Securities").

3. See Securities Exchange Act Rel. No. 28081 (June 1, 1990), 55 FR 23333 (June 7, 1990); "Delivery of Official Statements to the Board: Rules G-36 and G-8," MSRB Reports, Vol. 9, No. 3 (Nov. 1989) at 3.

4. Municipal Securities Information Library and MSIL are registered trademarks of the MSRB.

5. In primary offerings subject to Rule 15c2-12, the underwriter is required under section (b)(3) of the Rule to contract with the issuer to receive the final official statement within seven business days after any final agreement to purchase, offer or sell the municipal securities (the "sale date") and in sufficient time to accompany any confirmation that requests payment from any customer. Rule 15c2-12 does not apply to Small Issue Securities. In addition, section (d)(1) of the Rule exempts primary offerings of municipal securities if the securities are (i) in authorized denominations of $100,000 or more and are sold to no more than 35 persons with knowledge and experience in financial and business matters, capable of evaluating the merits and risks of the investment and not purchasing for more than one account or with a view to distribution ("Limited Offering Securities"); (ii) Short-Term Securities; or (iii) Puttable Securities. Thus, as originally adopted, rule G-36 applied to all primary offerings subject to Rule 15c2-12 as well as to Small Issue Securities for which an official statement in final form was prepared, but did not apply to Limited Offering Securities, Short-Term Securities and Puttable Securities.

6. See Securities Exchange Act Rel. No. 32086 (March 31, 1993), 58 FR 18290 (April 8, 1993); "Delivery of Official Statements to the Board: Rule G-36," MSRB Reports, Vol. 12, No. 3 (Sept. 1992) at 11. Thus, only primary offerings exempt from Rule 15c2-12 for which no official statement in final form is prepared and Limited Offering Securities remain exempt from rule G-36.

7. The MSRB reviewed all Forms G-36(OS) for primary offerings having sale dates in 1998 received in acceptable form by the MSIL^� system on or prior to December 31, 1998. Excluded from this review were any Forms G-36(OS) that omitted the sale date, date of receipt by the underwriter of the official statement from the issuer or date that the underwriter sent the official statement to the MSIL� system. Information provided by underwriters on Form G-36(OS) is not independently verified by the MSRB but is provided to the appropriate enforcement agency on a regular basis. Underwriters are required to certify that all information contained in each Form G-36(OS) submitted to the MSIL^� system is true and correct. Inaccuracies in the information reported by underwriters on Form G-36(OS) could subject such underwriter to appropriate enforcement action. The results of the MSRB’s review could be affected by any such inaccuracies. The full results of this review, including results relating to other provisions of rule G-36 and to the provisions of rule G-32 and Rule 15c2-12, were published in "Official Statement Deliveries Under Rules G-32 and G-36 and Exchange Act Rule 15c2-12," MSRB Reports, Vol. 19, No. 3 (Sept. 1999) at 29 (the "MSRB Notice").

8. The remaining failures consisted of situations where the issuer was reported to have delivered the official statement to the underwriter in sufficient time for the underwriter to comply with rule G-36(c)(i) but the underwriter delayed sending the official statement to the MSRB until later than the business day after the bond closing.

9. Section (b)(i) of rule G-36 requires the underwriter of a primary offering subject to Rule 15c2-12 to send two copies of the final official statement, together with two copies of Form G-36(OS), to the MSRB within one business day after receipt of the final official statement from the issuer but no later than 10 business days after the sale date.

10. The change in language makes clearer the fact that section (c)(i) will continue to apply to a primary offering only if an official statement in final form is prepared.

11. In contrast, rule G-36(c)(i) currently requires that the underwriter send the official statement to the MSRB by the business day after the bond closing, regardless of whether the underwriter has in fact received the official statement by such day.

12. The comment letter from The Bond Market Association ("TBMA") addressed the draft amendment as well as certain other issues relating to MSRB rules G-36 and G-32 and Exchange Act Rule 15c2-12. The comment letter from Charles Schwab & Co. Inc. ("Schwab") addressed certain issues relating to rule G-32. The MSRB is considering the comments received on these other matters but has not determined to take any rulemaking action with respect to rule G-32 or any provisions of rule G-36 other than section (c)(i) thereof at this time.

13. Commercial paper is wholly exempt from the rule G-32 customer delivery requirement and preliminary official statements may be delivered by settlement (with official statements in final form sent when they become available) for Puttable Securities.

14. Of course, the MSRB believes that there is significant value to the secondary market in having official statements available throughout the life of the issue. Nonetheless, the MSRB sees no way of justifying the existence of an official statement based on the needs of the secondary market while ignoring the needs of the primary market.

15. TBMA states "that it is difficult to ensure the desirable level of coordination between the underwriter personnel who are best-positioned to authenticate the official statement as the final official statement and the personnel who are responsible for filings with the Board."

16. Schwab notes that it has "found that if the dealers [from which it purchases new issue municipal securities] do not have copies of the final official statement, such copies are also generally unavailable from the managing underwriter, financial printer, Bloomberg or another Nationally Recognized Municipal Securities Information Repository." Delays in receiving official statements by the MSIL� system would further reduce their availability from these other sources.

17. Underlining indicates additions; strikethrough indicates deletions.

 

Copyright 2000 Municipal Securities Rulemaking Board. All Rights Reserved. Terms and Conditions of Use.

Amendments Approved Requiring Dealers to Obtain from Their Consultants Information on Political Contributions and Payments to Political Parties and for Dealers to Report Such Information to the Board: Rules G-38, G-37 and G-8

        On December 7, 1999, the Securities and Exchange Commission approved amendments to rules G-38, on consultants, G-37, on political contributions and prohibitions on municipal securities business, and G-8, on books and records, as well as revisions to the attachment page to Form G-37/G-38.¹ The amendments require dealers to obtain from their consultants information on the consultants’ political contributions and payments to state and local political parties and to report such information to the Board on Form G-37/G-38. The amendments will become effective on April 1, 2000.

SUMMARY OF AMENDMENTS

        The amendments require a dealer to receive and report certain contribution and payment information from the consultant;² any partner, director, officer or employee of the consultant who communicates with an issuer to obtain municipal securities business on behalf of the dealer; and any political action committee ("PAC") controlled by the consultant or any partner, director, officer or employee of the consultant who communicates with issuers to obtain municipal securities business on behalf of the dealer.³ A dealer is required to obtain information from its consultants about the contributions made to issuer officials only if the consultant has had direct or indirect communication with such issuer to obtain municipal securities business on behalf of the dealer.⁴ The political party payments required to be reported are limited to those made to political parties of states and political subdivisions that operate within the geographic area of the issuer with whom the consultant communicates on behalf of the dealer (e.g., city, county and state parties). The date that establishes the obligation for the collection of contribution information is the date of the consultant’s communication with the issuer to obtain municipal securities business on behalf of the dealer.

Consultant Agreement

        A dealer is required to include within its Consultant Agreement⁵ a statement that the consultant agrees to provide the dealer each calendar quarter with a listing of reportable political contributions to official(s) of an issuer and reportable payments to political parties of states and political subdivisions during such quarter, or a report that no reportable political contributions or reportable political party payments were made, as appropriate.⁶

"Look-Back" and "Look-Forward" Provisions

        With respect to the collection of contribution and payment information, the amendments contain a six-month "look-back" provision as well as a six-month "look-forward" provision from the date of communication with an issuer. Thus, a consultant must disclose to the dealer the contributions and payments made by the consultant during the six months prior to the date of the consultant's communication with the issuer.⁷ So too, if the consultant's communication with an issuer continues, any reportable contributions and payments are required to be disclosed. Once communication ceases, the consultant still must disclose contribution and payment information for six months.⁸ The Board believes these provisions are important in providing information for a minimum period of one year about any consultant contributions to officials of an issuer with whom the consultant communicated on behalf of a dealer to obtain municipal securities business. This should help to identify any situations in which contributions could have influenced the awarding of municipal securities business.

        A dealer’s requirement to collect contribution and payment information from its consultants ends when a Consultant Agreement has been terminated.⁹ Of course, dealers should not attempt to avoid the requirements of rule G-38 by terminating a consultant relationship after directing or soliciting the consultant to make a political contribution to an issuer official after such termination. Rule G-37(d) prohibits a dealer from doing any act indirectly which would result in a violation of rule G-37 if done directly by the dealer. Thus, a dealer may violate rule G-37 by engaging in municipal securities business with an issuer after directing or soliciting any person to make a contribution to an official of such issuer.

Disclosure on Form G-37/G-38

        The amendments require that the information obtained by dealers concerning their consultants' contributions and payments be submitted by dealers to the Board on Form G-37/G-38.¹⁰ The disclosures required by the amendments are reflected in the changes to Form G-37/G-38. The amendments require dealers to disclose on the attachment sheet for each consultant used by the dealer the contributions and payments covered by the rule or that the consultant reported that no such contributions or payments were made for such quarter. Furthermore, a dealer must disclose if a consultant has failed to provide it with a report concerning its contributions and payments. When completing a form, a dealer must disclose, in addition to the other required information, the calendar quarter and year of any reportable political contributions and reportable political party payments that were made prior to the calendar quarter of the form being completed (e.g., contributions and payments made in a prior quarter that are reportable as a result of the six-month look-back). "Look-back" contributions should be disclosed on the Form G-37/G-38 for the quarter in which the consultant has communicated with an issuer to obtain municipal securities business on behalf of a dealer.

        As noted above, the amendments will become effective on April 1, 2000. On the reports for the second quarter of 2000 (required to be sent to the Board by July 31, 2000) dealers will be required to disclose their consultants’ reportable political contributions and reportable political party payments for the second quarter of 2000 and include, pursuant to the six-month look-back, reportable political contributions and reportable political party payments since October 1, 1999. Once a contribution or payment has been disclosed on a report, a dealer should not continue to disclose that particular contribution or payment on subsequent reports.

The attachment page to Form G-37/G-38 also has been revised to require dealers to separately identify all of the municipal securities business obtained or retained by the consultant for the dealer.

"Reasonable Efforts" Provision

        The amendments contain a "reasonable efforts" provision that allows dealers to rely in good faith on information received from their consultants regarding contributions. This provision provides that a dealer will not be found to have violated rule G-38 if the dealer fails to receive from its consultants all required contribution information and thus fails to report such information to the Board if the dealer can demonstrate that it used reasonable efforts in attempting to obtain the necessary information. To avail itself of the reasonable efforts, a dealer must:

        (1) state in the Consultant Agreement that Board rules require disclosure of consultant contributions;

        (2) send quarterly reminders to consultants of the deadline for their submissions to the dealer of contribution information;

        (3) include language in the Consultant Agreement to the effect that: (a) the Consultant Agreement will be terminated if, for any calendar quarter, the consultant fails to provide the dealer with information about its reportable contributions or payments, or a report noting that the consultant made no reportable contributions or payments, and such failure continues up to the date to be determined by the dealer but no later than the date by which the 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 dealer must send its Form G-37/G-38 to the Board, and (b) the dealer may not make any further payments to the consultant, including payments owed for services performed prior to the date of termination, as of the date of such termination; and

        (4) enforce the Consultant Agreement provisions described above in a full and timely manner and indicate the reason for and date of the termination on its Form G-37/G-38 for the applicable quarter.

        The failure by a dealer to include the termination and non-payment provisions in a Consultant Agreement or to enforce any such provisions that may be contained in the Consultant Agreement, would not, in and of itself, constitute a violation of rule G-38 but would instead preclude the dealer from invoking the reasonable efforts provision as a defense against a possible violation for failing to disclose consultant contribution information, which the consultant may have withheld from the dealer.

Recordkeeping

        The amendments to rule G-8 require a dealer to maintain: (1) records of each reportable political contribution; (2) records of each reportable political party payment; (3) records indicating, if applicable, that a consultant made no reportable political contributions or no reportable political party payments; and (4) a statement, if applicable, that a consultant failed to provide any report of information to the dealer concerning reportable political contributions or reportable political party payments.

Technical amendments

    Finally, the amendments contain a clarifying amendment to rule G-38(b)(i)(B), and a technical amendment to rule G-37(e)(i)(D) to conform to the amendments to rule G-38.¹¹

December 9, 1999

 

TEXT OF AMENDMENTS¹²

Rule G-38. Consultants

(a) Definitions.

        (i)-(v) No change.

        (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, company, business address, role 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) Such 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, company, business address, role 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) – (ii) No change.

(d) (e) Disclosure to Board. Each broker, dealer and municipal securities dealer shall send to the Board by certified or registered mail, or some other equally prompt means that provides a record of sending, and the Board shall make public, reports of all consultants used by the broker, dealer or municipal securities dealer during each calendar quarter. Two copies of the 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). Such reports shall include, for each consultant, in the prescribed format, the consultant's name, company, business address, role, and 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. In addition, s Such reports shall indicate the total dollar amount of payments made to each consultant during the report period and, if any such payments are related to the consultant's efforts on behalf of the broker, dealer or municipal securities dealer which resulted in particular municipal securities business, then that business and the related dollar amount of the payment must be separately identified. 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 dealer concerning reportable political contributions or reportable political party payments.

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

Rule G-8. Books and Records to be Made by Brokers, Dealers and Municipal Securities Dealers

(a) Description of Books and Records Required to be Made. Except as otherwise specifically indicated in this rule, every broker, dealer and municipal securities dealer shall make and keep current the following books and records, to the extent applicable to the business of such broker, dealer or municipal securities dealer:

        (i) - (xvii) No change.

        (xviii) Records Concerning Consultants Pursuant to Rule G-38. Each broker, dealer and municipal securities dealer shall maintain:

        (i) (A) a listing of the name, company, business address, role and compensation arrangement of each consultant;

        (ii) (B) a copy of each Consultant Agreement referred to in rule G-38(b);

        (iii) (C) a listing of the compensation paid in connection with each such Consultant Agreement;

(iv) (D) where applicable, a listing of the municipal securities business obtained or retained through the activities of each consultant;

        (v) (E) a listing of issuers and a record of disclosures made to such issuers, pursuant to rule G-38(c)(d), concerning each consultant used by the broker, dealer or municipal securities dealer to obtain or retain municipal securities business with each such issuer; and

        (vi) (F) records of each reportable political contribution (as defined in rule G-38(a)(vi)), which records shall include:

(1) the names, city/county and state of residence of contributors;

(2) the names and titles (including any city/county/state or other political subdivision) of the recipients of such contributions; and

(3) the amounts and dates of such contributions;

    (G) records of each reportable political party payment (as defined in rule G-38(a)(vii)), which records shall include:

(1) the names, city/county and state of residence of contributors;

(2) the names and titles (including any city/county/state or other political subdivision) of the recipients of such payments; and

(3) the amounts and dates of such payments;

    (H) records indicating, if applicable, that a consultant made no reportable political contributions (as defined in rule G-38(a)(vi)) or no reportable political party payments (as defined in rule G-38(a)(vii));

    (I) a statement, if applicable, that a consultant failed to provide any report of information to the dealer concerning reportable political contributions or reportable political party payments; and

    (J) the date of termination of any consultant arrangement.

(xix) No change.

(b) - (f) No change.

 

Rule G-37. Political Contributions and Prohibitions on Municipal Securities Business

(a)–(d) No change.

(e)(i)(A) – (C) No change.

(D) any information required to be disclosed pursuant to section (d) (e) of rule G-38; and

(E) No change.

        (ii) – (iii) No change.

(f) – (i) No change.

---

ENDNOTES

1. Securities Exchange Act Release No. 42205 (December 7, 1999).

2. Rule G-38(a)(i) defines the term "consultant" as any person used by a dealer to obtain or retain municipal securities business through direct or indirect communication by such person with an issuer on the dealer’s behalf where the communication is undertaken by such person in exchange for, or with the understanding of receiving, payment from the dealer or any other person.

3. A "consultant" in rule G-38 can refer to an individual or a company. For example, if an individual is a consultant, this individual would report to the dealer only his or her contributions and payments and the contributions of any PAC controlled by such individual. If the consultant is a company, the company would report its contributions and payments to the dealer, as well as those made by any partner, director, officer or employee of the consultant who communicates with issuers to obtain municipal securities business on behalf of the dealer, and any PAC controlled by the consultant or any partner, director, officer or employee of the consultant who communicates with issuers to obtain municipal securities business on behalf of the dealer.

4. A dealer must disclose contributions with respect to those issuers from which a consultant is seeking municipal securities business on behalf of the dealer, regardless of whether contributions are going to and communications are occurring with the same or different personnel within that particular issuer.

5. Rule G-38 requires dealers that use consultants to evidence the consulting arrangement in writing (referred to as a "Consultant Agreement"). The Consultant Agreement, at a minimum, must include the name, company, role and compensation arrangement of each consultant used by the dealer. The Consultant Agreement must be entered into before a consultant engages in any direct or indirect communication with an issuer on the dealer’s behalf.

6. The de minimis exception for contributions to official(s) of an issuer provides that a consultant need not provide to a dealer information about contributions of the consultant (but only if the consultant is an individual) or by any partner, director, officer or employee of the consultant (if the consultant is a company) who communicates with issuers to obtain municipal securities business on behalf of the dealer made to any official of an issuer for whom such individual is entitled to vote if such individual’s contributions, in total, are not in excess of $250 to each official of such issuer, per election. Similarly, the de minimis exception for payments provides that a consultant need not provide to a dealer information about payments of the consultant to political parties of a state or political subdivision (but only if the consultant is an individual) or by any partner, director, officer or employee of the consultant (if the consultant is a company) who communicates with issuers to obtain municipal securities business on behalf of the dealer and who is entitled to vote in such state or political subdivision if the payments made by the individual, in total, are not in excess of $250 per political party, per year.

7. Such contributions and payments become reportable in the calendar quarter in which the consultant first communicates with the issuer. Thus, for the quarter in which a consultant first communicates with the issuer, the dealer would be required to collect from the consultant its reportable political contributions and reportable political party payments for such quarter and, pursuant to the six-month look-back, for the six-month period preceding such first communication.

8. Contributions and payments made simultaneously with or after the consultant’s first communication with the issuer are reportable in the calendar quarter in which they are made.

9. A dealer that terminates a Consultant Agreement would of course be obligated to obtain information regarding contributions and payments made up to the date of termination.

10. The amendments also require dealers to report the consultant’s business address on Form G-37/G-38.

11. Rule G-8(a)(xviii) was also amended to require a dealer to maintain a record of a consultant’s business address.

12. Underlining indicates new language; strikethrough denotes deletions.

 

Copyright 2000 Municipal Securities Rulemaking Board. All Rights Reserved. Terms and Conditions of Use.

PUBLIC REPORTING OF

INDIVIDUAL TRANSACTIONS IN FREQUENTLY TRADED

MUNICIPAL SECURITIES: RULE G-14

 

Service Approved

        On December 16, 1999, the Commission approved a service to provide a daily public report containing information on individual transactions in frequently traded municipal securities reported to the Board by dealers under Board rule G-14. To obtain a subscription to the new report service, it will be necessary to sign a subscription agreement, but there will be no fee.

        Questions about subscriptions to the service may be directed to Thomas A. Hutton, Director, Municipal Securities Information Library. Questions about rule G-14 and criteria for including trades in the Daily Transaction Report may be directed to Harold L. Johnson, Deputy General Counsel, or Larry M. Lawrence, Policy and Technology Advisor.

 

DAILY TRANSACTION REPORT

        On December 16, 1999, the Securities and Exchange Commission ("Commission") approved the Board’s plan to produce a daily report containing information on individual transactions in frequently traded municipal securities (the "Daily Transaction Report").¹ The transaction information on the report will come from dealer reports made to the Board under Board rule G-14 on transaction reporting. This rule requires dealers to report essentially all inter-dealer and customer transactions in municipal securities to the Board by midnight of trade date.

        The new report will be the third product offered by the Board to increase the amount of price transparency in the municipal securities market. Like the Board’s current Combined and Inter-Dealer Daily Reports, the Daily Transaction Report will provide information on "frequently traded" issues – issues on which at least four transaction reports were received for a given trade date. Also like the current Daily Reports, the new report will be produced and made available electronically by approximately 7:00 a.m. on the day following trade date. Electronic reports will be produced in the same three formats – printable, comma-delimited, and fixed record length – as the current Daily Reports.² However, unlike the current Daily Reports, the Daily Transaction Report will provide transaction detail on each reported trade in a frequently traded issue, rather than merely providing the daily high, low and average prices.³

Description of Report

        The Daily Transaction Report will display, for each transaction in a frequently traded security: the CUSIP number, a short description of the issue, the par value traded, the time of trade reported by the dealer, and the price of the transaction.⁴ Transactions will be categorized as in one of three transaction "types": (i) sales by dealers to customers; (ii) purchases by dealers from customers; or (iii) inter-dealer trades. Reports will be organized by issue, with the most frequently traded issues listed first. Within an issue, trades will be listed in order of time of trade, from the earliest reported time of trade to the latest.⁵ Although the size of each day's report will depend on market activity, it is expected that the Daily Transaction Report on average will provide information on approximately 9,000 individual transactions in approximately 1,000 frequently traded issues. Sample copies showing the appearance of the Daily Transaction Report can be obtained at the Board’s web site at www.msrb.org.

Subscriptions

        The Daily Transaction Report will be available by subscription. To obtain a subscription, it will be necessary to sign a subscription agreement, but there will be no fee. The subscription agreement outlines the Board’s disclaimer of liability, the proprietary nature of and usage restrictions on the CUSIP numbers and CUSIP descriptions contained in the report, and certain other matters.

       The Board expects to disseminate the Daily Transaction Report to subscribers via the Internet. Information on how to subscribe, a downloadable subscription agreement, instructions for accessing files via the Internet and a set of sample files are available from  www.msrb.org. In addition, recent Daily Transaction Reports will be available for examination, also free of charge, in the Board’s Public Access Facility in Alexandria, Virginia. The Board expects that the new Daily Transaction Report will be made available by mid-January 2000.

 

BOARD TO CONSIDER EXPANDED TRANSPARENCY

        A long-standing goal of the Board is to provide market participants with information about the value of securities.⁶ Over the past five years, with the advent of the Transaction Reporting Program, the Board has been working toward making transaction price information "transparent" in the marketplace and seeking ways to make that transparency information more comprehensive and contemporaneous.⁷ The new Daily Transaction Report represents the next step in this continuing process.

        As part of its ongoing effort, the Board intends to monitor the impact of the new report in the market. After the report has been operational for a period of time, the Board will review its operation and will consider whether to lower the "frequently traded" threshold. Doing so would have the effect of listing more issues and more prices in each day’s report and would make the report even more comprehensive in its representation of market activity.

        The Board also is reviewing various options for collecting and disseminating transaction transparency information on a more contemporaneous basis. As part of this effort, the Board has created a web-based demonstration system that simulates the kind of information that a "real-time" transparency system might provide and how it might be presented to investors. This demonstration system is available at the Board’s web site at www.msrb.org. Comments from market participants on the demonstration system are welcome. The Board will draw upon its experience with the "real-time" demonstration system as it considers further steps toward expanded municipal securities market transparency.

December 29, 1999

---

ENDNOTES

1. See Securities Exchange Act Release No. 42241 (December 16, 1999).

2. The "printable" format can be printed with little or no change by an end-user. The "comma-delimited" and "fixed record length" files can easily be sorted or converted by an end-user’s spreadsheet or other application program (e.g., Microsoft Excel).

3. The Board also will continue to use all the transaction information reported by dealers to maintain a market surveillance database. The surveillance database is available to the Commission, the National Association of Securities Dealers Regulation (NASDR) and the bank regulatory agencies responsible for enforcement of Board rules.

4. The report displays a dollar price for each transaction. If the dealer submits a yield with the transaction report, the yield is included on the Daily Transaction Report with the dollar price. There are instances, however, when yields are not reported. For example, dealers for secondary market inter-dealer transactions do not submit yields because the automated comparison system used to report inter-dealer trades cannot accept yield information on those transactions. In certain customer transactions, such as those in defaulted or variable rate securities, it also may be impossible for the dealer to submit a yield. Transactions with customers or dealers in new issues for which no settlement date has been set may be effected and reported by dealers either with a dollar price or a yield. It is not possible for the dealer to report both yield and dollar price on these transactions. The MSRB Transaction Reporting System will calculate a dollar price from yields submitted for these transactions, using an assumed settlement date if necessary. There must be, however, sufficient securities data available to make the calculation (e.g., coupon, dated date, maturity date, first interest payment date, etc.). For additional information, see "Public Reporting of Transactions in Municipal Securities: Rule G-14," MSRB Reports, Vol. 18, No. 2 (August 1998) at 25-27.

5. Where trades are submitted by dealers with an invalid time or no time of trade, the report shows the time of trade as "0."

6. See, e.g., "From the Chairman," MSRB Reports, Vol. 8, No. 5 (December 1988) at 2.

7. See, e.g., "Board to Proceed with Pilot Program to Disseminate Inter-Dealer Transaction Information," MSRB Reports, Vol. 14, No. 1 (January 1994) at 13; "Reporting Inter-Dealer Transactions to the Board: Rule G-14," MSRB Reports, Vol. 14, No. 5 (December 1994) at 3-6; and "Transaction Reporting Program for Municipal Securities," MSRB Reports, Vol. 15, No. 1 (April 1995)

 

Copyright 2000 Municipal Securities Rulemaking Board. All Rights Reserved. Terms and Conditions of Use.

Additional Questions and Answers: Rule G-37 on Political Contributions and Prohibitions on Municipal Securities Business

Transition and Inaugural Expenses

1. Q: May a municipal finance professional who is entitled to vote for an issuer official make contributions to pay for such official's transition or inaugural expenses without causing a prohibition on municipal securities business with the issuer?

A: Yes, under certain conditions. The de minimis exception allows a municipal finance professional to contribute up to $250 per candidate per election if the municipal finance professional is entitled to vote for that issuer official. The de minimis exception is keyed to an election cycle; therefore, if a municipal finance professional contributed $250 to the general election of an issuer official, the municipal finance professional would not be able to make any contributions to pay for transition or inaugural expenses without causing a prohibition on municipal securities business with the issuer. If a municipal finance professional made no contributions to an issuer official prior to the election, then the municipal finance professional may, if entitled to vote for the candidate, contribute up to $250 to pay for transition or inaugural expenses and payment of debt incurred in connection with the election without causing a prohibition on municipal securities business.

Definition of Issuer Official

2. Q: An incumbent was seeking re-election as an issuer official but she lost the election. She is now soliciting money to pay for the debt incurred in connection with this election. Would there be a prohibition on engaging in municipal securities business with the issuer if a dealer or a municipal finance professional provides money for the payment of this debt?

A: No, under certain conditions. If the incumbent is out of office at the time she is soliciting money to pay for the election debt, then she is no longer considered to be within the definition of "official of an issuer" and any monies given for the payment of debt incurred in connection with the election in this instance is not subject to rule G-37. If the incumbent still holds her issuer official position at the time she is soliciting money to pay for the election debt, then, if a municipal finance professional contributed $250 to her during the general election, the municipal finance professional would not be able to make any contributions for the payment of debt without causing a prohibition on municipal securities business with the issuer. If a municipal finance professional made no contributions to the incumbent prior to the election, then the municipal finance professional may, if entitled to vote for the candidate, contribute up to $250 for the payment of debt incurred in connection with the election while the incumbent is still in office without causing a prohibition on municipal securities business. A dealer may not contribute any monies towards the payment of debt while the incumbent is still in office without causing a prohibition on municipal securities business with the issuer.

Definitions of Municipal Finance Professional and Executive Officer

3. Q: In making the determination of which associated persons of a dealer meet the definitions of municipal finance professional and executive officer, is it correct to designate all the executives of the dealer (e.g., President, Executive Vice Presidents) under the category of executive officers?

A: No. In making the determination of whether someone is a municipal finance professional or executive officer, one must review the activities of the individual and not his or her title. Rule G-37(g)(iv) defines the term "municipal finance professional" as:

(A) any associated person primarily engaged in municipal securities representative activities, as defined in rule G-3(a)(i); (B) any associated person who solicits municipal securities business, as defined paragraph (vii); (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 subparagraphs (A) or (B); (D) any associated person who is a supervisor of any person described in subparagraph (C) up through and including, in the case of a broker, dealer or municipal securities 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 broker, dealer or municipal securities 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; provided, however, that, if the only associated persons meeting the definition of municipal finance professional are those described in this subparagraph (E), the broker, dealer or municipal securities dealer shall be deemed to have no municipal finance professionals.

Rule G-37(g)(v) defines the term "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 broker, dealer or municipal securities 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 municipal finance professional, as defined in paragraph (iv) of this section (g); provided, however, that, if no associated person of the broker, dealer or municipal securities dealer meets the definition of municipal finance professional, the broker, dealer or municipal securities dealer shall be deemed to have no executive officers.

Dealers should first review the activities of their associated persons to determine whether they are municipal finance professionals, and then, once that list of individuals has been established, conduct a review of the remaining associated persons to determine whether they are executive officers. Dealers should pay close attention to those associated persons who are soliciting municipal securities business and, thus, will be considered municipal finance professionals. The Board has previously stated that solicitation activities may include, but are not limited to, responding to issuer Requests for Proposals, making presentations of public finance and/or municipal marketing capabilities to issuer officials, and engaging in other activities calculated to appeal to issuer officials for municipal securities business, or which effectively do so. (See "Additional Rule G-37 Questions & Answers," MSRB Reports, Vol. 14, No. 5 (December 1994) at 8).

Reporting by Syndicate Members

4. Q: Rule G-37(e) requires, among other things, that dealers submit information to the Board on Form G-37/G-38 about the municipal securities business in which they engaged. Is information about the municipal securities business engaged in required to be submitted by all syndicate and selling group members, or is it only the responsibility of the manager(s) to submit such information on behalf of the syndicate?

A: All manager(s) and syndicate members (excluding selling group members) must separately report the municipal securities business in which they engaged.

September 9, 1997

 

Copyright 2000 Municipal Securities Rulemaking Board. All Rights Reserved. Terms and Conditions of Use.

The Board has filed technical amendments to rule G-37, on political contributions and prohibitions on municipal securities business, rule G-38, on consultants, and G-8, on recordkeeping.

Questions about the amendments may be directed to Ronald W. Smith, Legal Associate.

On September 30, 1997, the Board filed with the Securities and Exchange Commission (SEC) technical amendments to rules G-37, G-38 and G-8.⁽¹⁾ The amendments will become effective on October 30, 1997.

SUMMARY OF AMENDMENTS

During the past year, the Board has received questions regarding certain technical aspects of rules G-37, G-38 and G-8. Specifically, these questions have been concerned with the definitions of municipal finance professional and executive officer, and when Form G-37/G-38 is due to be filed with the Board. The amendments clarify the requirements of the rules in these areas.

Definitions of Municipal Finance Professional and Executive Officer

The Board believes that some dealers are improperly classifying, for rule G-37 purposes, certain individuals within their firms as executive officers when these individuals actually meet the definition of municipal finance professionals and should be classified as such. Contributions by executive officers must be recorded and reported but, unlike certain contributions by municipal finance professionals, would not cause a prohibition on municipal securities business. The definition of executive officer makes clear that municipal finance professionals cannot also be executive officers. To further underscore this point, the amendments revise the name of the category of individuals currently referred to as "executive officers" to "non-MFP executive officers." This change in name should help dealers avoid any misunderstandings that a person who functions as a municipal finance professional cannot be classified, for purposes of rule G-37, as an executive officer.

Due Date for Form G-37/G-38 to be Filed with the Board

Rules G-37 and G-38 state that Form G-37/G-38 must be submitted to the Board "within thirty (30) calendar days after the end of each calendar quarter (these dates correspond to January 31, April 30, July 31 and October 31)." Because of the inconsistency in the language for those months with 31 days, the amendments revise the rule language to require that the forms be sent "by the last day of the month following the end of each calendar quarter." The forms do not have to be received by the Board by the last day of the month following the end of each calendar quarter, but the amendments require that dealers must have the forms on their way to the Board by the last day of the month following the end of each calendar quarter in order to be in compliance with the delivery requirements of the rules.

The amendments also contain non-substantive, technical rule language changes to make similar requirements consistent throughout the rules.

TEXT OF AMENDMENTS⁽²⁾

Rule G-37. Political Contributions and Prohibitions on Municipal Securities Business

(a) - (d) No change.

(e)(i) Each broker, dealer or municipal securities dealer shall submit send to the Board by certified or registered mail, or some other equally prompt means that provides a record of sending, and the Board shall make public, reports on contributions to officials of issuers and on payments to political parties of states and political subdivisions that are required to be recorded pursuant to rule G-8(a)(xvi). Such reports shall include information concerning the amount of contributions to officials of issuers and payments to political parties of states and political subdivisions and an indication of the contributor category of each contribution or payment made by:

(A) the broker, dealer or municipal securities dealer;

(B) all municipal finance professionals;

(C) all non-MFP executive officers; and

(D) all political action committees controlled by the broker, dealer or municipal securities dealer or by any municipal finance professional.

Such reports also shall include information on municipal securities business engaged in and certain other information specified in this section (e), as well as other identifying information as may be determined by the Board from time to time.

(e)(ii) Two copies of the reports referred to in paragraph (i) of this section (e) must be submitted sent to the Board on Form G-37/G-38 within thirty (30) calendar days after 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), and must include, in the prescribed format, by state, the following information on contributions to each official of an issuer and payments to each political party of a state or political subdivision made and municipal securities business engaged in during the reporting period: (A) name and title (including any city/county/state or political subdivision) of each official of an issuer receiving contributions or payments; (B) contribution or payment amount made and the contributor category of the persons and entities described in paragraph (i) of this section (e); and (C) such other identifying information required by Form G-37/G-38. Such reports also must include a list of issuers with which the broker, dealer or municipal securities dealer has engaged in municipal securities business, along with the type of municipal securities business.

(f) No change.

(g) Definitions.

(i) - (iv) No changes.

(v) The term "non-MFP executive officer" means 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 broker, dealer or municipal securities 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 municipal finance professional, as defined in paragraph (iv) of this section (g); provided, however, that, if no associated person of the broker, dealer or municipal securities dealer meets the definition of municipal finance professional, the broker, dealer or municipal securities dealer shall be deemed to have no non-MFP executive officers.

Each person listed by the broker, dealer or municipal securities dealer as an a non-MFP executive officer pursuant to rule G-8(a)(xvi) is deemed to be an a non-MFP executive officer.

(vi) - (viii) No change.

(h) - (i) No change.

 

Rule G-38. Consultants

(a) - (c) No change.

(d) Disclosure to Board. Each broker, dealer and municipal securities dealer shall submit send to the Board by certified or registered mail, or some other equally prompt means that provides a record of sending, and the Board shall make public, reports of all consultants used by the broker, dealer or municipal securities dealer during each calendar quarter. Two copies of the reports must be submitted sent to the Board on Form G-37/G-38 within thirty (30) calendar days after 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). Such reports shall include, for each consultant, in the prescribed format, the consultant's name, company, role and compensation arrangement. In addition, such reports shall indicate the dollar amount of payments made to each consultant during the report period and, if any such payments are related tot he consultant's efforts on behalf of the broker, dealer or municipal securities dealer which resulted in particular municipal securities business, then that business and the related dollar amount of the payment must be separately identified.

 

Rule G-8. Books and Records to be Made by Brokers, Dealers and Municipal Securities Dealers

(a) Description of Books and Records Required to be Made. Except as otherwise specifically indicated in this rule, every broker, dealer and municipal securities dealer shall make and keep current the following books and records, to the extent applicable to the business of such broker, dealer or municipal securities dealer:

(i)-(xv) No change.

(xvi) Records Concerning Political Contributions and Prohibitions on Municipal Securities Business Pursuant to Rule G-37. Records reflecting:

(A) No change.

(B) a listing of the names, titles, city/county and state of residence of all non-MFP executive officers;

(C) - (E) No change.

(F) the contributions, direct or indirect, to officials of an issuer made by each municipal finance professional and non-MFP executive officer for the current and year and separate listings for each of the previous two calendar years, which records shall include: (i) the names, titles, city/county and state of residence of contributors, (ii) the names, and titles (including any city/county/state or other political subdivision) of the recipients of such contributions, and (iii) the amounts and dates of such contributions; provided, however, that such records need not reflect any contribution made by a municipal finance professional or non-MFP executive officer to officials of an issuer for whom such person is entitled to vote if the contributions made by such person, in total, are not in excess of $250 to any official of an issuer, per election; and

(G) the payments, direct or indirect, to political parties of states and political subdivisions made by all municipal finance professionals and non-MFP executive officers for the current year and separate listings for each of the previous two calendar years, which records shall include: (i) the names, titles, city/county and state of residence of contributors, (ii) the names, and titles (including any city/county/state or other political subdivision) of the recipients of such payments and (iii) the amounts and dates of such payments; provided, however, that such records need not reflect those payments made by any municipal finance professional or non-MFP executive officer to a political party of a state or political subdivision in which such persons are entitled to vote if the payments made by such person, in total, are not in excess of $250 per political party, per year.

(H) Dealers shall maintain copies of the Forms G-37/G-38 submitted sent to the Board along with the certified or registered mail receipt or other record of sending such forms to the Board.

(I) - (J) No change.

(xvii) - (xix) No change.

(b) - (f) No change.

September 30, 1997

 

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Endnotes:

1. File No. SR-MSRB-97-6. Comments sent to the SEC should refer to the file number.

2. Underlining indicates new language; strikethrough denotes deletions.

Copyright 2000 Municipal Securities Rulemaking Board. All Rights Reserved. Terms and Conditions of Use.

 

 

The Board has filed proposed amendments to rule G-37, on political contributions and prohibitions on municipal securities business, rule G-8, on recordkeeping, and rule G-38, on consultants

On December 18, 1997, the Board filed with the Securities and Exchange Commission ("SEC") proposed amendments to rule G-37, on political contributions and prohibitions on municipal securities business, rule G-8, on recordkeeping, and rule G-38, on consultants, that would (1) exempt dealers that have not engaged in municipal securities business for a period of at least two years from the Form G-37/G-38 submission requirement relating to rule G-37 (but not rule G-38) and related recordkeeping requirements under rule G-8; (2) require dealers that newly engage in municipal securities business to disclose certain political contributions and payments during the preceding two-year period; (3) exempt dealers that have no information to report in any calendar quarter from the Form G-37/G-38 submission requirement for such quarter; and (4) make certain technical and clarifying amendments to rules G-37 and G-38.⁽¹⁾

Rule G-37, on political contributions and prohibitions on municipal securities business, prohibits a dealer that effects transactions in municipal securities from engaging in municipal securities business⁽²⁾ with an issuer within two years after certain contributions to an official of such issuer made by the dealer, any municipal finance professional ("MFP") associated with such dealer (other than certain de minimis contributions) or any political action committee ("PAC") controlled by the dealer or any MFP. In addition, rule G-37 and rule G-38, on consultants, require dealers to make disclosures of certain contributions to issuer officials, payments to political parties of states and political subdivisions, consultant arrangements and municipal securities business on Form G-37/G-38, and rule G-8, on recordkeeping, requires dealers to create records of such contributions, payments, consultants and municipal securities business.

Although the Board continues to be vigilant for any evidence that political contributions may affect the awarding of municipal securities business, the Board believes that the direct connection between political contributions to issuer officials and the awarding of municipal securities business has been substantially reduced during the last three years by rule G-37. The Board also is sensitive to the burden imposed on dealers by the requirements of rules G-37 and G-8 and is committed to reducing this burden whenever possible as long as the effectiveness of the rules is not impaired.

Thus, the Board is proposing amendments to rules G-37 and G-8 that would exempt dealers that have not engaged in municipal securities business for a period of at least two years from the reporting requirements of rule G-37 and from certain related recordkeeping requirements under rule G-8. However, dealers would continue to be subject to the rule G-38 reporting requirements. Although rule G-37 is intended only to regulate dealer engagements in municipal securities business (as defined in the rule), every dealer is currently required to comply with the reporting requirements under rule G-37 and the related recordkeeping requirements under rule G-8, even if a dealer does not engage in any such municipal securities business.

To prevent dealers that do in fact engage in municipal securities business from circumventing rule G-37 - including in particular the ban on municipal securities business - by means of this exemption, the proposed amendments would require any dealer that engages in municipal securities business to record and to disclose on Form G-37/G-38 certain contributions to issuer officials and payments to political parties of states and political subdivisions during the two-year period preceding its engagement in municipal securities business, to the extent not previously disclosed.

In addition, the Board is proposing amendments to rule G-37 to codify a previously recognized exemption to the Form G-37/G-38 submission requirement for any quarter in which a dealer has no information to report. The Board is also proposing certain technical amendments to rules G-37 and G-38 to consolidate the provisions relating to submission of Form G-37/G-38 and to clarify rule G-37 by eliminating certain cross-referencing to rule G-8.

Form G-37/G-38 Submission and Recordkeeping Exemption for Dealers Not Engaged in Municipal Securities Business

As amended, rule G-37(e)(ii)(A)(1) would provide that, if a dealer has not engaged in municipal securities business for a period of at least two years, the dealer would not be required to send Form G-37/G-38 to the Board for so long as it refrains from engaging in municipal securities business, even if the dealer had made political contributions or political party payments that would otherwise be reportable under rule G-37. In addition, new clause (K) of rule G-8(a)(xvi) would provide that such dealer would not be subject to the recordkeeping requirements of paragraph (a)(xvi) of rule G-8, relating to records concerning political contributions and prohibitions on municipal securities business, for so long as it refrains from engaging in municipal securities business.⁽³⁾ The submission exemption and recordkeeping exemption are referred to collectively as the "No Business Exemption." The No Business Exemption would apply both to dealers that have never undertaken municipal securities business and to dealers that have previously undertaken such business but have ceased for the requisite period of time.⁽⁴⁾

If, in any quarter during which a dealer qualifies for the No Business Exemption, such dealer uses a consultant to attempt to obtain municipal securities business, such dealer would be required under amended rule G-37(e)(ii)(B) to submit Form G-37/G-38 to the Board but would only be required to report information relating to such use of consultants as required under rule G-38.

The No Business Exemption would not provide an exemption from the operation of sections (b) and (c) of rule G-37. Thus, under certain circumstances, a political contribution (other than an MFP's de minimis contribution) to an official of an issuer that was not disclosed on Form G-37/G-38 and not recorded under rule G-8(a)(xvi) by virtue of the No Business Exemption could trigger the ban on municipal securities business with such issuer.

In addition, once a dealer does in fact engage in municipal securities business, the dealer would become subject to the new Look Back Disclosure Requirement described below and would be required to send Form G-37/G-38 to the Board for the calendar quarter in which such business was undertaken and for each quarter thereafter unless the dealer qualifies for the No Information Exemption described below or again qualifies for the No Business Exemption. Furthermore, such dealer would be required to create records of political contributions and payments to political parties of states and political subdivisions under rule G-8(a)(xvi) for the then current calendar year and the two preceding calendar years and to continue to create such records thereafter unless the dealer again qualifies for the No Business Exemption. Before engaging in municipal securities business with an issuer, such dealer would need to review the newly created records to ensure that it has not been banned from business with the issuer as a result of a contribution to an official of the issuer during the period that the dealer had invoked the No Business Exemption.⁽⁵⁾

In proposing the elimination of the requirement to disclose political contributions and payments to political parties where the dealer has not engaged in municipal securities business for a period of at least two years, the Board recognizes that the filing of Form G-37/G-38 and compliance with the underlying recordkeeping requirements under such circumstances may not substantially further the purpose of exposing to public scrutiny contributions and payments that may be linked to the awarding of municipal securities business.

Disclosure Requirement With Respect to Dealers Newly Engaging in Municipal Securities Business

In conjunction with the proposed No Business Exemption, the proposed amendments would institute a new "Look Back Disclosure Requirement." If in any calendar quarter a dealer engages in municipal securities business, the dealer would be required under amended rule G-37(e)(iii) to report on Form G-37/G-38 for such quarter all reportable contributions to issuer officials and payments to political parties of states and political subdivisions made during the preceding two years by the dealer, any MFP, any non-MFP executive officer or any dealer-controlled or MFP-controlled PAC, to the extent not previously reported during the two-year period.⁽⁶⁾ A disclosure obligation should arise under the Look Back Disclosure Requirement only if a dealer engages in municipal securities business after either (i) having invoked the No Business Exemption during the preceding two-year period or (ii) having become a new dealer that is for the first time subject to the rules of the Board.

The Look Back Disclosure Requirement is intended to promote public scrutiny of all contributions to issuer officials and payments to political parties of states and political subdivisions (other than qualifying de minimis contributions and payments) that may affect the awarding of municipal securities business to any dealer that is newly engaging in, or is again becoming engaged in, municipal securities business.

Form G-37/G-38 Submission Exemption for Dealers With No Information to Report

Amended rule G-37(e)(ii)(A)(2) would codify a previously recognized exemption to the quarterly Form G-37/G-38 submission requirement by providing that a dealer would not be required to send Form G-37/G-38 to the Board for any calendar quarter in which all of the following conditions apply: (1) the dealer has not engaged in municipal securities business, (2) the dealer has no reportable political contributions to issuer officials or payments to political parties of states and political subdivisions, and (3) the dealer has no reportable use of consultants (the "No Information Exemption"). The No Information Exemption would continue to obviate the need for a dealer to submit a Form G-37/G-38 that reflects no reportable activity under all category headings. However, a dealer would be required to send Form G-37/G-38 to the Board in any subsequent calendar quarter in which it does not qualify for the No Information Exemption, unless the dealer qualifies for the No Business Exemption.

Technical Amendments Relating to Form G-37/G-38 Submission Procedures

Amended rule G-37(e)(i) would consolidate the Form G-37/G-38 submission procedures that are currently set forth separately in paragraphs (i) and (ii) of rule G-37(e) and in rule G-38(d). Amended rule G-38(d) would include certain related amendments.

Clarifying Technical Amendments

The existing exemption from the reporting requirements under rule G-37 for de minimis contributions made by MFPs and non-MFP executive officers to officials of issuers⁽⁷⁾ and to political parties of states and political subdivisions⁽⁸⁾ is effected by a cross-reference to the recording requirements of rule G-8(a)(xvi). To clarify the nature of such de minimis exemption, amended rule G-37(e)(i)(A) incorporates into the language of rule G-37, but does not change, the specific requirements of the de minimis exemption.

December 18, 1997

 

Text of Amendments⁽⁹⁾

Rule G-37. Political Contributions and Prohibitions on Municipal Securities Business

(a) - (d) No change.

(e)(i) Except as otherwise provided in paragraph (e)(ii), each 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 by certified or registered mail, or some other equally prompt means that provides a record of sending, and the Board shall make public, reports on contributions to officials of issuers and on payments to political parties of states and political subdivisions that are required to be recorded pursuant to rule G-8(a)(xvi). Such reports shall include information concerning the amount of, two copies of Form G-37/G-38 setting forth, in the prescribed format, the following information:

(A) for contributions to officials of issuers (other than a contribution made by a municipal finance professional or a non-MFP executive officer to an official of an issuer for whom such person is entitled to vote if all contributions by such person to such official of an issuer, in total, do not exceed $250 per election) and payments to political parties of states and political subdivisions (other than a payment made by a municipal finance professional or a non-MFP executive officer to a political party of a state or political subdivision in which such person is entitled to vote if all payments by such person to such political party, in total, do not exceed $250 per year): and an indication of the contributor category of each contribution or payment made by:

(A) the broker, dealer or municipal securities dealer;

(B) all municipal finance professionals;

(C) all non-MFP executive officers; and

(D) all political action committees controlled by the broker, dealer or municipal securities dealer or by any municipal finance professional.

Such reports also shall include information on municipal securities business engaged in and certain other information specified in this section (e), as well as other identifying information as may be determined by the Board from time to time.

(ii) Two copies of the reports referred to in paragraph (i) of this section (e) 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), and must include, in the prescribed format, by state, the following information on contributions to each official of an issuer and payments to each political party of a state or political subdivision made and municipal securities business engaged in during the reporting period:

(A) (1) the name and title (including any city/county/state or political subdivision) of each official of an issuer and political party receiving contributions or payments during such calendar quarter, listed by state;

(B) (2) the contribution or payment amount made and the contributor category of each of the following persons and entities described in paragraph (i) of this section (e); and (C) such other identifying information required by Form G-37/G-38. Such reports also must include making such contributions or payments 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;

(B) a list of issuers with which the broker, dealer or municipal securities dealer has engaged in municipal securities business during such calendar quarter, listed by state, along with the type of municipal securities business;

(C) any information required to be included on Form G-37/G-38 for such calendar quarter pursuant to paragraph (e)(iii);

(D) any information required to be disclosed pursuant to section (d) of rule G-38; and

(E) such other identifying information required by Form G-37/G-38.

The Board shall make public a copy of each Form G-37/G-38 received from any broker, dealer or municipal securities dealer.

(ii)(A) Subject to clause (B) of this paragraph (e)(ii), no broker, dealer or municipal securities dealer shall be required to send Form G-37/G-38 to the Board for any calendar quarter in which either:

(1) such broker, dealer or municipal securities dealer has not engaged in municipal securities business, but only if such broker, dealer or municipal securities dealer had not engaged in municipal securities business during the seven consecutive calendar quarters immediately preceding such calendar quarter; or

(2) such broker, dealer or municipal securities dealer has no information that is required to be reported pursuant to clauses (A) through (D) of paragraph (e)(i) for such calendar quarter.

(B) If for any calendar quarter a broker, dealer or municipal securities dealer has met the requirements of clause (A)(1) of this paragraph (e)(ii) but has information that is required to be reported pursuant to clause (D) of paragraph (e)(i), then such broker, dealer or municipal securities dealer shall be required to send Form G-37/G-38 to the Board for such quarter setting forth only such information as is required to be reported pursuant to clauses (D) and (E) of paragraph (e)(i).

(iii) If a broker, dealer or municipal securities dealer engages in municipal securities business during any calendar quarter, such broker, dealer or municipal securities dealer shall include on Form G-37/G-38 for such calendar quarter, to the extent not previously reported on Form G-37/G-38, the information described in clause (A) of paragraph (e)(i) (including year and calendar quarter of contribution or payment) for each contribution or payment made during the two-year period preceding such calendar quarter. This paragraph (e)(iii) shall not relieve any broker, dealer or municipal securities dealer of its obligation to send Form G-37/G-38 to the Board for any calendar quarter for which such Form G-37/G-38 is required to be sent to the Board and to include in any such Form G-37/G-38 all information required to be set forth therein by this rule.

(f) - (i) No change.

Rule G-8. Books and Records to be Made by Brokers, Dealers and Municipal Securities Dealers

(a) Description of Books and Records Required to be Made. Except as otherwise specifically indicated in this rule, every broker, dealer and municipal securities dealer shall make and keep current the following books and records, to the extent applicable to the business of such broker, dealer or municipal securities dealer:

(i) - (xv) No change.

(xvi)(A) - (J) No change.

(K) No broker, dealer or municipal securities dealer shall be subject to the requirements of this paragraph (a)(xvi) in any calendar quarter in which such broker, dealer or municipal securities dealer has not engaged in municipal securities business, but only if such broker, dealer or municipal securities dealer had not engaged in municipal securities business during the seven consecutive calendar quarters immediately preceding such calendar quarter. At such time as a broker, dealer or municipal securities dealer that has been exempted by this clause (K) from the requirements of this paragraph (a)(xvi) engages in any municipal securities business, all requirements of this paragraph (a)(xvi) covering the full periods of time set forth herein shall become applicable to such broker, dealer or municipal securities dealer.

(xvii) - (xix) No change.

(b) - (f) No change.

Rule G-38. Consultants

(a) - (c) No change.

(d) Disclosure to Board. Each broker, dealer or and municipal securities dealer shall send to the Board, in the manner and at the times prescribed in paragraph (e)(i) of rule G-37, by certified or registered mail, or some other equally prompt means that provides a record of sending, and the Board shall make public, reports on Form G-37/G-38 of all consultants used by the broker, dealer or municipal securities dealer during each calendar quarter. Two copies of the 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). Such reports shall include, for each consultant, in the prescribed format, the consultant's name, company, role and compensation arrangement. In addition, such reports shall indicate the dollar amount of payments made to each consultant during such calendar quarter the report period and, if any such payments are related to the consultant's efforts on behalf of the broker, dealer or municipal securities dealer which resulted in particular municipal securities business, then that business and the related dollar amount of the payment must be separately identified.

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ENDNOTES

1. File No. SR-MSRB-97-12. Comments sent to the SEC should refer to the file number.

2. Municipal securities business is defined in rule G-37 to consist of negotiated underwritings or private placements of an issue of municipal securities, or financial advisory, consultant or remarketing agent services with respect to an issue of municipal securities retained on a negotiated basis. The range of activities of a dealer that constitutes effecting transactions in municipal securities may be significantly broader than those activities encompassed by the term municipal securities business.

3. Dealers would be required to continue to preserve any records that had previously been created relating to rule G-37 in the manner and for the period of time set forth in rule G-9, on preservation of records.

4. A dealer that has been subject to the rules of the Board for a period of less than two years (for example, because it came into existence during such period or because it did not previously effect municipal securities transactions) would of necessity not have engaged in municipal securities business prior to becoming a dealer. Therefore, so long as a new dealer has not engaged in any municipal securities business since becoming a dealer, such dealer would automatically satisfy the requirements for the No Business Exemption.

5. This obligation to create records and to review such records prior to engaging in municipal securities business is identical to the current requirement imposed upon new dealers immediately upon becoming subject to the rules of the Board. The proposed amendments would permit a new dealer to defer this obligation until it begins to engage in municipal securities business and would treat an existing dealer that, after not having engaged in municipal securities business for at least two years, again engages in such business in the same manner as a new dealer first engaging in municipal securities business.

6. A dealer would not be required to include in such report contributions or payments made more than two years prior to such quarter, even if not previously reported.

7. A de minimis contribution to an official of an issuer not requiring disclosure consists of a contribution made by an MFP or a non-MFP executive officer to an official of an issuer for whom such person is entitled to vote if all contributions by such person to such official of an issuer, in total, do not exceed $250 per election.

8. A de minimis payment to a political party of a state or political subdivision not requiring disclosure consists of a payment made by an MFP or a non-MFP executive officer to a political party of a state or political subdivision in which such person is entitled to vote if all payments by such person to such political party, in total, do not exceed $250 per year.

9. Underlining indicates additions; strikethrough denotes deletions.

Copyright 2000 Municipal Securities Rulemaking Board. All Rights Reserved. Terms and Conditions of Use.