Muni Pay-to-Play Rules – Stricter than Before?

• Date: March 19, 2010
• Source: Admin

Released in December 2009, the ‘Pay-to-Play’ rule of SEC was intended “to ensure that the high standards and integrity of the municipal securities industry are maintained, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to perfect a free and open market and to protect investors and the public interest by: (i) prohibiting brokers, dealers and municipal securities dealers from engaging in municipal securities business with issuers if certain political contributions have been made to officials of such issuers; and (ii) requiring brokers, dealers and municipal securities dealers to disclose certain political contributions, as well as other information, to allow public scrutiny of political contributions and the municipal securities business of a broker, dealer or municipal securities dealer.”

In an announcement made on March 18, 2010, SEC clarifies that the municipal securities rule of pay-to-play does not only apply to just a firm's employees, rather affiliated financial firms also come in its purview.  

According to the pay-to-play rule, MSRB Rule G-37, firms should restrict themselves from underwriting municipal bonds for an issuer for two years after a municipal finance professional (MFP) involved with that firm makes a campaign contribution to an elected official of that municipality.

In fact, as per the rule, an investment adviser who makes a political contribution to an elected official in a position to influence the selection of the adviser can be barred for two years from providing advisory services for compensation, either directly or through a fund.

However, through its Report of Investigation, SEC clears that any executive supervising the activities of a broker, municipal securities or dealers will not be exempted from MSRB's pay-to-play rule just because he or she may be outside the firm's corporate governance structure.

Source:

http://www.sec.gov/news/press/2010/2010-42.htm

http://www.sec.gov/news/press/2009/2009-168.htm