WASHINGTON — The Municipal Securities Rulemaking Board has filed a new proposed rule with the Securities and Exchange Commission that would bar municipal advisors from engaging in pay-to-play practices: making political contributions to state and local government officials to influence the award of advisory business.
Proposed Rule G-42, which is modeled after Rule G-37 for dealers but contains some significant changes, would not take affect until six months after the SEC approves final registration rules that define the term “municipal advisor.”
However, no contributions made prior to the effective date would result in a ban on business for compensation.
The new proposed rule would apply to firms that advise state and local governments and public pension plans on muni securities and financial products, including derivatives, as well as muni advisors that solicit pension fund or other business from municipal entities for third parties.
Under the proposed rule, muni advisors would be barred from conducting business with issuers or other municipal entities for compensation for a certain period of time if they make significant political contributions to state or local officials with authority to hire them. The ban on compensation would begin on the date the contribution was made and would extend until two years after the advisory work with the government was terminated.
In addition, advisors who make political contributions to solicit third party business from a pension fund or other muni entity would be barred from receiving compensation for two years and also would be prohibited from receiving compensation for previous solicitations.
The proposed rule would provide a de minimis exception similar to the one in Rule G-37 for dealers, in that, individual muni advisors would be allowed to contribute up to $250 per election, primary and general, to anyone for whom they could vote.
The SEC will seek public comments on the proposed rule and would have to approve it before it becomes effective.
