Technical Amendment Filed to Rule G-37, on Political Contributions and Prohibitions on Municipal Securities Business

On June 2, 2005, the Municipal Securities Rulemaking Board (“MSRB”) filed with the Securities and Exchange Commission (“SEC”) a proposed rule change to amend Rule G-37, on political contributions and prohibitions on municipal securities business.  The rule change is a technical amendment that is intended to clarify the language of Rule G-37(b)(iii) to ensure that political contributions made by municipal finance professionals (within the meaning of clause (C), (D) or (E) of Rule G-37(g)(iv)) to issuer officials after they have become municipal finance professionals are fully subject to the provisions of Rule G-37, including the ban on municipal securities business.[1]  The rule change becomes operative on July 5, 2005.

SUMMARY OF PROPOSED AMENDMENT

Rule G-37 provides that contributions to officials of an issuer by a municipal finance professional (“MFP”) of a dealer can result in the dealer being banned from municipal securities business with such issuer for a period of two years.  When a person first becomes an MFP, the rule imposes a “look back” in which certain contributions made by such person prior to becoming an MFP (in addition to contributions made after becoming an MFP) can result in the imposition of the ban.  The nature of such look back varies depending on the type of MFP.  In the case of persons who become MFPs solely as a result of their supervisory activities or firm leadership positions within the meaning of clause (C), (D) or (E) of Rule G-37(g)(iv) (“supervisor MFPs”), the look back period established in Rule G-37(b)(iii) is limited to the six month period prior to becoming an MFP.

The MSRB has learned that some people may read the language in Rule G-37(b)(iii) literally to provide that the only contributions of supervisor MFPs that can result in a ban on business are those made during the six month look back period, and that contributions made after becoming such an MFP are excluded.  This interpretation clearly was not the intent of this provision.  The proposed rule change clarifies this language to ensure that those contributions made after becoming an MFP are also subject to the potential ban.

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Questions concerning this notice should be directed to Ghassan Hitti, Assistant General Counsel.

June 2, 2005

 

TEXT OF AMENDMENT[2]

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

(a)  No change.

(b)(i)-(ii)  No change.

            (iii)  For an individual designated as a municipal finance professional solely pursuant to subparagraph[s] (C), (D) or (E) of paragraph (g)(iv) of this rule, the provisions of paragraph (b)(i) shall apply only to contributions made during the period beginning six months prior to the individual becoming a municipal finance professional.

(c)-(j) No change.

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