MSRB Proposes Changes to Pay-to-Play Rule for MAs

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WASHINGTON — The Municipal Securities Rulemaking Board is proposing to extend its pay-to-play rule to cover municipal advisors — a move dealer-affiliated MAs have long called a key step in creating a level playing field among them and non-dealer MAs.

The draft amendments to the MSRB's Rule G-37 on political contributions and prohibitions on municipal securities business closely parallel the existing rule for dealers. They would generally prohibit MAs from engaging in municipal advisory business with state or local governments for two years after making political contributions to officials of those entities who can influence the award of MA business.

Under the proposed amendments, municipal advisors would be prohibited from soliciting or coordinating contributions from others to an official or political party of a state or locality the MA is doing business with or seeking to do business with. The proposal also would extend the rule's existing anti-circumvention provision to MAs by prohibiting them from doing indirectly what they are prohibited from doing directly. The proposal would also extend existing public disclosure provisions to municipal advisors, requiring them to make quarterly disclosures of their political contributions and advisory activities.

"Addressing corruption, or the appearance of corruption, in the awarding of municipal advisory business is a fundamental goal of the MSRB's comprehensive regulatory framework for municipal advisors," said MSRB executive director Lynnette Kelly. "Applying our well-established dealer pay-to-play rule to municipal advisors will help ensure that all regulated municipal market entities and professionals are held to the same high standards of integrity."

But the proposal does make some changes to the core rule for both dealer and non-dealer MAs. The draft amendments require a link between a ban on muni securities business and a contribution made to an official with the ability to influence the awarding of that type of business. They also require a link between a ban on muni advisory business and a contribution made to an official with the ability to influence the awarding of that type of business. The proposal modifies the two-year ban by shifting the end date of the ban in cases where the dealer or MA is engaging in business with the state or locality at the time of a triggering contribution. In such cases, the ban would end two years after the date on which the dealer's or MA's business with the municipality ends.

Bans could be triggered by contributions from a dealer, an MA, municipal finance or municipal advisory professionals at those firms, third-party professionals who solicit business on behalf of muni advisory firms, or by political action committee controlled by a firm or a professional at a firm.

The proposal retains and extends to MAs certain exceptions, including the de minimis provision that allows professionals to give up to $250 per election to an official for whom he or she is entitled to vote.

The MSRB is also proposing related draft amendments to Rules G-8 on books and records and G-9, on preservation of records. Those draft amendments would saddle muni advisors with "substantially the same recordkeeping requirements as currently exist for dealers."

Comments on the proposal are due Oct. 1.

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