The Municipal Securities Rulemaking Board has filed proposed rule changes with the Securities and Exchange Commission that would require dealers to disclose more information about contributions to issuers’ bond ballot campaigns and resulting underwriting agreements.
The proposal, which amends Rule G-37 on political contributions and Rule G-8 on books and records, has a few modifications from the initial version that the MSRB released for public comment in August.
Among them are a clarification of “in kind” contributions, a more-precise definition of selection dates and provisions that apply to contributions made by dealer employees during the previous two years, even if they worked at a different firm.
Comments are due to the SEC by March 7.
Rule G-37 already requires the disclosure of contributions by dealers to bond ballot campaigns and issuer officials, as well as the disclosure of contributions in excess of $250 from municipal finance professionals and non-MFP executives.
The amendments would require dealers to disclose the identity of the municipal issuer selling the bonds on the ballot to which ballot campaign contributions were made, and a description of primary offerings resulting from the campaign.
In a change from the earlier version of the proposal, dealers who make bond ballot contributions would need to disclose the “reportable date of selection,” defined as the first date on which either an engagement letter is executed, a bond purchase agreement is executed, or a dealer is formally notified that its has been hired by an issuer.
The MSRB created the term in response to a letter from the Securities Industry and Financial Markets Association, which said the date a dealer is engaged for work is not always clear.
The proposal would also require dealers to disclose the value and nature of “in kind” contributions, which the MSRB clarified to mean goods and services “provided to, on behalf of, or in furtherance of” bond ballot campaigns, and the date the contributions were made.
SIFMA had said dealers should not need to report contributions related to underwriting or other muni business.
The MSRB added a two-year “look back” provision to the proposal, meaning it would capture contributions made by municipal finance professionals or non-MFP executives before they were employed by their current firm.
Dealers also would need to disclose if those employees received payments or reimbursements related to the campaign.
Disclosures would have to be reported in the calendar quarter in which the bond issuance closed.
The MSRB recommended that the amendments take effect no later than the start of the second quarter after SEC approval.
Many market participants had supported the MSRB’s August proposal, though some called for stricter reporting requirements.
A letter from the National Association of Independent Public Finance Advisors said the proposal didn’t do enough, and urged the MSRB to limit or ban underwriters’ bond-ballot contributions.
Municipal advisors like Timothy Schaefer of Newport Beach, Calif.-based Magis Advisors and Robert Doty of Government Financial Strategies Inc., said dealers should be required to report contributions more promptly. They also called for bond ballot rules for municipal advisors.
Doty suggested the MSRB require underwriters to report payments channeled through bond campaigns to financial advisors; Schaefer said issuers should report conflicts of interests.
Mike Nicholas, CEO of Bond Dealers of American, issued a statement Thursday saying the group “supports transparency of political contributions.”
BDA will work for “a reasonable solution that doesn’t inordinately increase the burdens on dealers, and yet also addresses any suggestion of impropriety,” Nicholas said.
