WASHINGTON — The Municipal Securities Rulemaking Board issued draft amendments to its Rule G-20 on Tuesday that generally would bar muni advisers from giving gifts and gratuities in excess of $100 per year to individuals or entities who could influence the award of advisory business.

The MSRB also proposed related draft amendments to Rules G-8 and G-9 that would impose record preservation and books-and-records requirements for gifts and gratuities on muni advisers.

Just as the board's existing Rule G-20 aims to ensure arms' length municipal-securities transactions by dealers, the proposed rule seeks to reduce the potential for conflicts of interest in municipal advisory activities.

"The draft amendments to Rule G-20 would help to ensure that engagements of municipal advisers, as well as engagements of dealers, municipal advisers and investment advisers for which municipal advisers serve as solicitors, are awarded on the basis of merit and not as a result of gifts made to employees controlling the award of such business," the MSRB said in its notice.

The board set an April 5 deadline for comments on the draft amendments.

Dodd-Frank authorized the MSRB to implement comprehensive regulations for muni advisers. Under the act, a "muni adviser" is a person who provides advice to or on behalf of a municipal entity or other borrower with respect to municipal financial products or the issuance of municipal securities.

The act requires the MSRB to adopt muni adviser rules designed to prevent fraud and manipulation and promote just and equitable principles of trade. It also expands the board's mission to include protecting municipal entities and borrowers.

Market participants reacted favorably to the proposed G-20 amendments, saying they are good for the market.

"I don't think there's any surprise here," said Robert Doty, president of AGFS. "I think what the board has been doing on muni advisers is pretty good stuff."

The National Association of Independent Public Finance Advisors welcomed the proposed rules as well.

"NAIPFA aggressively supports rules written to eliminate conflicts of interest and personal inducements that interfere with the workings of a fair, competitive and vibrant marketplace for municipal securities issuers and investors," a spokesman wrote in an e-mail.

The existing Rule G-20 bars brokers-dealers and banks from providing gifts and gratuities worth more than $100 per year to a person other than an employee or partner of the broker-dealer or bank, if the payments are "in relation to" the municipal securities activities of the recipient's employer.

The amendments to Rule G-20 would cover a broad array of municipal advisory activities, including providing advice to municipal entities and borrowers as well as soliciting municipal entities on behalf of third parties.

It would prohibit muni advisers from giving gifts or gratuities to a person other than an employee or partner of the muni adviser, if such payments are "in relation to" the municipal advisory activities, including the solicitation of potential engagements.

Even if a municipal adviser is "not then engaging" in any municipal advisory activities with a municipal entity or borrower, Rule G-20 would cover a gift "that could be reasonably viewed as an attempt by the municipal adviser to curry favor with a municipal entity or obligated person for the purpose of becoming engaged to undertake municipal advisory activities at some point in the future," the board said in its notice.

For example, the rule would apply to gifts and entertainment provided by a muni adviser to employees of a municipal entity who are being solicited to award business to a client of the adviser.

This would include gifts to employees of a public pension fund who could influence its decision to invest in a private equity fund represented by the muni adviser, according to the notice.

Draft amendments to Rule G-20 carve out exceptions for "occasional gifts" of meals or tickets to theatrical, sporting and other entertainment hosted by the muni adviser as well as "legitimate business functions" sponsored by the adviser that are recognized as deductible business expenses by the Internal Revenue Service. Gifts of "reminder advertising," such as deal mementos, also are exempt.

The proposed rule would permit certain contracts of employment or compensation for services rendered by a person other than an employee of the muni adviser.

Municipal advisers would not be subject to Rule G-20(d), relating to non-cash compensation — such as sales contests — in connection with primary offerings.

The MSRB based its amendments to Rule G-20 on Dodd-Frank's statutory definition of muni adviser, without regard to a broader interpretation floated by the Securities and Exchange Commission last December in its proposed rules for a permanent registration system for muni advisers.

If the SEC adopts the registration rules in their current form, the MSRB said it may revise its draft amendments to G-20 and seek public comment on the revisions.

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