Whether a Municipal Securities Rulemaking Board rule concerning political contributions – MSRB Rule G-37 – should also be rescinded was a question Commissioner Hester Peirce posed in her statement last week on the Securities and Exchange Commission's proposal to rescind its "pay-to-play' rule relating to investment advisers.
On Sept. 3, the SEC proposed the rescission of the "pay-to-play" rule under the Investment Advisers Act of 1940 that bans investment advisers from providing investment advisory services for compensation to a government client for two years after making a political contribution to certain elected officials or candidates.
Peirce, in a statement issued the same day, said she was "thrilled" that the SEC is proposing to eliminate rather than just amend the rule, "which always has bothered" her "First Amendment sensibilities."
"Although ensuring that campaign donations are not driving adviser selection makes sense, the rule effectively functions as a restriction on political speech," Peirce said, adding that the rescission of the rule pertaining to investment advisers, if adopted, "would not pave the way for adviser pay-to-play practices." Such practices "would still be prohibited by other laws, including the antifraud provisions of the Advisers Act," she said.
In her statement, Peirce said she looks forward to receiving comments on the SEC's proposal "from advisers, advisory personnel, state and local government entities and officials, and other interested parties." Among things she would welcome feedback on is whether certain other rules – including MSRB Rule G-37 – should be rescinded as well.
"As noted in the Proposing Release, the Pay-to-Play Rule was modeled, in large part, on the Municipal Securities Rulemaking Board rule G-37," Peirce's statement said.
Rescinding Rule G-37 would mean doing away with an MSRB rule regarding political contributions that was adopted more than three decades ago. The MSRB adopted Rule G-37 in 1994. The rule was later amended to extend core standards under the rule to municipal advisors.
Rule G-37 prohibits dealers from engaging in muni securities business and MAs from engaging in muni advisory business with municipal entities if certain contributions have been made to officials of such municipal entities within the preceding two years. The rule also requires dealers and MAs to disclose certain political contributions and other information.
The MSRB on Tuesday declined to comment regarding Peirce's statement.
Two trade groups, however, were willing to comment when asked about the commissioner's statement.
"MSRB Rule G-37 is a well-established part of the underwriter regulation framework," Michael Decker, senior vice president for research and public policy at the Bond Market Association, a trade association formerly known as the Bond Dealers of America, said on Friday.
"Firms have sound compliance plans around the rule that have been in place for decades," Decker said. "The consensus among BMA members is that Rule G-37 is workable and effective as it is."
However, if the SEC or the MSRB "pursues reform, we will look forward to working with them on it," he said.
The Securities Industry and Financial Markets Association "recognizes the burdens of the SEC's 'pay-to-play' Rule 206(4)-5 under the Investment Advisers Act of 1940 and will be responding to the SEC's proposal," Leslie Norwood, managing director, associate general counsel and head of municipal securities at SIFMA, said in statement Tuesday.
"The municipal securities market is unique with a long history of regulated market participants doing business with state and local governments," Norwood said.
Back in 1993, the Public Securities Association, a predecessor of SIFMA, "led a voluntary initiative, which included 42 municipal securities broker-dealers, to freeze political contributions to state and local officials until regulatory guidance could be established," she said.
"This initiative led to the adoption of MSRB Rule G-37," Norwood said. "As Rule G-37, the municipal securities market, and constitutional law have all evolved over time, SIFMA will be considering the rule in light of Commissioner Peirce's statement and discussing next steps with its members."
Peirce's time as a commissioner is coming to a close, however, as she noted in remarks delivered in June. She is scheduled to join Regent University School of Law as an associate professor in November, according to a May 19 Regent University press release.
