Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change Relating to Amendments to MSRB Rules G-37 and G-8 and Form G-37, 10656-10663 [2013-03385]
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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Notices
a result of an Extraordinary Event Halt,
trading and quotations in the OTC
market for the OTC Equity Security may
resume when FINRA determines that
the basis for the halt no longer exists, or
when ten business days have elapsed
from the date FINRA initiated the
trading and quotation halt in the
security, whichever occurs first. In
addition, FINRA will be permitted to
extend an Extraordinary Event Halt for
subsequent periods of up to ten business
days each if, at the time of any such
extension, FINRA finds that the
extraordinary event is ongoing and
determines that the continuation of the
halt beyond the prior ten business day
period is necessary in the public interest
and for the protection of investors.16
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III. Discussion and Commission’s
Findings
After careful review of the proposed
rule change, the Commission finds that
the proposed rule change is consistent
with the requirements of Section 15A(b)
of the Act 17 and the rules and
regulations thereunder applicable to a
national securities association.18 In
particular, the Commission finds that
the proposed rule change is consistent
with Section 15A(b)(6) of the Act,19
which requires, among other things, that
FINRA rules be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, and, in general, to protect
investors and the public interest, and
Section 15A(b)(11) of the Act,20 which
requires, among other things, that
FINRA rules relating to quotations be
designed to produce fair and
informative quotations, to prevent
fictitious or misleading quotations, and
to promote orderly procedures for
collecting, distributing, and publishing
quotations.
The Commission believes that
FINRA’s trading and quotation halt rule
for OTC Equity Securities, when
16 See proposed FINRA Rule 6440,
Supplementary Material .01. FINRA believes that
the authority to halt beyond the initial ten business
day period is vital in the OTC marketplace where
concerns regarding settlement and clearance,
pricing, or other extraordinary events can take time
to be resolved. See Notice, supra note 3, 77 FR at
77164.
17 15 U.S.C. 78o–3(b).
18 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
19 15 U.S.C. 78o–3(b)(6).
20 15 U.S.C. 78o–3(b)(11).
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appropriately applied under the
circumstances specified in the rule, as
proposed to be amended, is designed to
promote the protection of investors and
the public interest and to produce fair
and informative quotations, and to
prevent fictitious or misleading
quotations, for OTC Equity Securities.
Permitting FINRA to initiate a trading
and quotation halt as a result of a
Foreign Regulatory Halt that is imposed
for news pending should enable FINRA
to initiate trading and quotation halts in
OTC Equity Securities under a broader
set of circumstances than currently
exists, which could help to reduce the
potential that investors may trade on
incomplete or inaccurate information in
these securities. In addition, permitting
FINRA to initiate a halt as a result of a
Foreign Regulatory Halt or Derivative
Halt upon notice from another reliable
third-party source where FINRA can
validate the information provided
should allow FINRA to initiate a halt
more promptly when such a halt is
warranted.
The Commission further believes that
the provisions relating to the duration of
a trading and quotation halt are
reasonably designed to protect investors
and the public interest and to produce
fair and informative quotations, and to
prevent fictitious or misleading
quotations, for OTC Equity Securities.
The Commission believes that it is
reasonable for a halt in an OTC Equity
Security as a result of a Foreign
Regulatory Halt or a Derivative Halt to
run concurrently with, and for as long
as, the halt imposed on the security in
the market on which it is listed or
registered. In addition, allowing FINRA
to extend an Extraordinary Event Halt
for subsequent periods of up to ten
business days will help allow for
resolution of the event before trading
and quoting in the OTC market for the
OTC Equity Security resumes. The
Commission notes that FINRA would be
permitted to extend an Extraordinary
Event Halt only if it finds that the
extraordinary event is ongoing and
determines that the continuation of the
halt beyond the initial ten business day
halt period is necessary and appropriate
in the public interest and for the
protection of investors.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,21 that the
proposed rule change (SR–FINRA–
2012–010) is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–03387 Filed 2–13–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68872; File No. SR–MSRB–
2013–01]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed
Rule Change Relating to Amendments
to MSRB Rules G–37 and G–8 and
Form G–37
February 8, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on February
4, 2013, the Municipal Securities
Rulemaking Board (‘‘MSRB’’ or
‘‘Board’’) filed with the Securities and
Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the MSRB. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The MSRB is filing with the
Commission a proposed rule change
consisting of amendments to Rules G–
37, on political contributions and
prohibitions on municipal securities
business, and G–8, on books and
records, and Form G–37 (the ‘‘proposed
rule change’’). The MSRB requested an
effective date for the proposed rule
change of no later than the start of the
second calendar quarter following the
date of SEC approval.
The text of the proposed rule change
is available on the MSRB’s Web site at
www.msrb.org/Rules-andInterpretations/SEC-Filings/2013Filings.aspx, at the MSRB’s principal
office, and at the Commission’s Public
Reference Room.
22 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
21 15
PO 00000
U.S.C. 78s(b)(2).
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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Notices
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
MSRB included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. The MSRB has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
engaged in by dealers resulting from
voter approval of the bond ballot
measure to which such contributions
were given. The additional information
will be required to be reported on
revised MSRB Form G–37 6 and
submitted to the MSRB.7 The proposed
rule change also amends Rule G–8 to
require dealers to maintain records
pertaining to the additional information
disclosed under the proposed
amendments to Rule G–37. The
proposed rule change is further
described below under ‘‘Summary of
Proposed Rule Change’’ and under
‘‘Discussion of Comments.’’
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
Background
Rule G–37, in effect since 1994, has
provided substantial benefits to the
industry and the investing public by
greatly reducing the direct connection
between political contributions given to
issuer officials 8 and the awarding of
municipal securities business to dealers.
Rule G–37 requires dealers to disclose
(on Form G–37) certain contributions to
issuer officials, contributions to bond
ballot campaigns, and payments to
political parties of states and political
subdivisions made by covered parties.
The rule prohibits dealers from engaging
in municipal securities business with an
issuer within two years after
contributions to an official of such
1. Purpose
The proposed rule change amends
Rule G–37 to require the public
disclosure of additional information
related to contributions made by
brokers, dealers and municipal
securities dealers (‘‘dealers’’), their
municipal finance professionals
(‘‘MFPs’’),3 political action committees
(‘‘PACs’’) controlled by the dealer or
their MFPs and non-MFP executive
officers 4 (individually, a ‘‘covered
party’’ and collectively, ‘‘covered
parties’’) to bond ballot campaigns and
the municipal securities business 5
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3 Rule
G–37(g)(iv) defines municipal finance
professional as: (A) Any associated person
primarily engaged in municipal securities
representative activities (exclusive of sales activities
with natural persons); (B) any associated person
(including but not limited to any affiliated person
of the dealer, as defined in Rule G–38) who solicits
municipal securities business; (C) any associated
person who is both (i) a municipal securities
principal or a municipal securities sales principal
and (ii) a supervisor of any persons described in (A)
or (B) above; (D) any associated person who is a
supervisor of any person described in (C) above up
through and including, in the case of a dealer other
than a bank dealer, the Chief Executive Officer or
similarly situated official and, in the case of a bank
dealer, the officer or officers designated by the
board of directors of the bank as responsible for the
day-to-day conduct of the bank’s municipal
securities dealer activities; or (E) any associated
person who is a member of the dealer (or, in the
case of a bank dealer, the separately identifiable
department or division of the bank) executive or
management committee or similarly situated
officials, if any.
4 Rule G–37(g)(v) defines non-MFP executive
officer as an associated person in charge of a
principal business unit, division or function or any
other person who performs similar policy making
functions for the dealer (or, in the case of a bank
dealer, the separately identifiable department or
division of the bank, as defined in Rule G–1), but
does not include any MFP. Although Rule G–37
requires disclosure of non-MFP executive officer
contributions, such contributions do not result in a
ban on engaging in municipal securities business.
5 Rule G–37(g)(vii) defines municipal securities
business as: (A) The purchase of a primary offering
of municipal securities from an issuer on other than
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a competitive bid basis (e.g., a negotiated
underwriting); (B) the offer or sale of a primary
offering of municipal securities on behalf of any
issuer (e.g., a private placement); (C) the provision
of financial advisory or consultant services to or on
behalf of an issuer with respect to a primary
offering of municipal securities in which the dealer
was chosen to provide such services on other than
a competitive bid basis; or (D) the provision of
remarketing agent services to or on behalf of an
issuer with respect to a primary offering of
municipal securities in which the dealer was
chosen to provide such services on other than a
competitive bid basis.
6 MSRB Form G–37 is the document pursuant to
which dealers disclose contribution information as
currently required by Rule G–37. The form is being
revised to conform to the requirements resulting
from the proposed rule change.
7 Form G–37 is submitted by dealers through the
existing MSRB Political Contribution Submission
Service, which is the current system that accepts
the submissions of Form G–37. Submitted Forms G–
37 are made publicly available through the MSRB
Web site.
8 Rule G–37(g)(vi) defines ‘‘official of such issuer’’
or ‘‘official of an issuer’’ as any person (including
any election committee for such person) who was,
at the time of the contribution, an incumbent,
candidate or successful candidate: (A) For elective
office of the issuer which office is directly or
indirectly responsible for, or can influence the
outcome of, the hiring of a broker, dealer or
municipal securities dealer for municipal securities
business by the issuer; or (B) for any elective office
of a state or of any political subdivision, which
office has authority to appoint any person who is
directly or indirectly responsible for, or can
influence the outcome of, the hiring of a broker,
dealer or municipal securities dealer for municipal
securities business by an issuer.
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10657
issuer are made by certain covered
parties (other than certain permitted de
minimis contributions).9 The rule’s
prohibition on engaging in municipal
securities business is not triggered by
contributions that are made to bond
ballot campaigns by covered parties.
Bond Ballot Contributions
Since February 1, 2010,10 the MSRB
has required disclosure, under Rule G–
37, of non-de minimis contributions 11
to bond ballot campaigns made by
covered parties. Rule G–37 also requires
dealers to maintain records of such
reportable contributions to bond ballot
campaigns pursuant to Rule G–8. The
2010 amendments to Rule G–37 and the
corresponding amendments to Rule G–
8 resulted, in part, from concerns that
contributions by covered parties to bond
ballot campaigns could assist dealers
with obtaining municipal securities
business. The amendments also resulted
from the MSRB’s concern about the lack
of effective transparency regarding bond
ballot campaign contributions.12
Some industry participants and
market observers continue to express
concerns regarding the potential adverse
effect on the integrity of the municipal
securities market from dealer and dealer
personnel contributions to bond ballot
campaigns.13 The proposed rule change
addresses these concerns by augmenting
the disclosures currently required under
Rule G–37. These more detailed
disclosures also will help inform the
Board whether further action regarding
bond ballot campaign contributions is
warranted, up to and including a
corresponding ban on engaging in
9 Contributions made by MFPs to issuer officials
for whom such MFP is entitled to vote will not
result in a ban on municipal securities business if
such contributions, in total, do not exceed $250 to
each issuer official, per election.
10 See Securities Exchange Act Release No. 61381
(January 20, 2010), 75 FR 4126 (January 26, 2010)
(File No. SR–MSRB–2009–18).
11 Dealers are not required to disclose
contributions made by MFPs and non-MFP
executive officers to a bond ballot campaign for a
ballot initiative with respect to which such person
is entitled to vote if such contributions, in total, do
not exceed $250 per ballot initiative.
12 The MSRB noted that the lack of effective
transparency results from political contribution
disclosure requirements that vary from state to state
and the difficulty of locating and extracting the
relevant dealer-related and bond initiative-related
information from the various public disclosure
facilities. See MSRB Notice 2009–35 (June 22,
2009).
13 Similar concerns have been expressed with
regard to such contributions made by some
municipal advisors. The Board expects to consider
undertaking parallel rulemaking with respect to
municipal advisor contributions to bond ballot
campaigns when it develops additional rules for
municipal advisors.
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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Notices
municipal securities business as a result
of certain contributions.
Summary of Proposed Rule Change
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The MSRB requested comment on a
draft of the proposed rule change on
August 15, 2012.14 The description of
the proposed rule change below revises
certain provisions of the draft that was
provided for comment in the Request for
Comment based on the MSRB’s review
of comment letters, as further described
below and in ‘‘Discussion of
Comments’’ below. The proposed rule
change revises Rule G–37(e)(i)(B)(2) to
provide that, in disclosing the
contribution amount made to a bond
ballot campaign, the dealer also must
include, in the case of in-kind
contributions, the value and nature of
the goods or services provided,
including any ancillary services
provided to, on behalf of, or in
furtherance of the bond ballot campaign.
The proposed rule change also requires
dealers to disclose the specific date on
which such contributions to bond ballot
campaigns were made.
Proposed Rule G–37(e)(i)(B) requires
dealers to disclose the full issuer name
and full issue description of any
primary offering resulting from voter
approval of a bond ballot measure to
which a contribution required to be
disclosed has been made. All
information is required to be reported in
the calendar quarter in which the
closing date for the issuance that was
authorized by the bond ballot measure
occurred. The proposed rule change
contains a look-back provision for bond
ballot campaign contributions that are
made by an MFP or a non-MFP
executive officer during the two years
prior to an individual becoming an MFP
or a non-MFP executive officer of a
dealer.15 The look-back provision will
limit the additional disclosures required
under proposed Rule G–37(e)(i)(B) to
those items that would have been
required to be disclosed if such
individual had been an MFP or a nonMFP executive officer at the time of
such contribution. Proposed Rule G–
37(e)(i)(B) also requires dealers to
disclose both the amount and source of
any payments or reimbursements
related to any bond ballot contribution,
14 See MSRB Notice 2012–43 (August 15, 2012)
(‘‘Request for Comment’’).
15 There is a similar look-back provision in
current Rule G–37 for contributions to issuer
officials. See Rule G–37(b)(i). As with that
provision, disclosure is only required with respect
to municipal securities business that results from
the bond ballot measure after the effective date of
the proposed rule change.
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received by a dealer or its MFPs from
any third party.16
The proposed rule change revises
Rule G–37(g) to expand the definition of
‘‘contribution’’ and create a new term,
the ‘‘reportable date of selection.’’ The
proposed amendments to the definition
of ‘‘contribution’’ distinguish between
contributions made to an official of an
issuer and contributions made to a bond
ballot campaign. The term ‘‘reportable
date of selection’’ is defined to refer to
the specific date on which a dealer is
selected, either in writing or orally, to
engage in municipal securities business
that must be reported on Form G–37.
Lastly, conforming amendments to
Rule G–8(a)(xvi)(H) and (I) require
dealers to maintain records of the
supplemental information related to
bond ballot campaign contributions that
are required to be disclosed on Form G–
37 under the proposed rule change.
Effective Date Of Proposed Rule Change
The MSRB requested an effective date
for the proposed rule change no later
than the start of the second calendar
quarter following the date of SEC
approval.
2. Statutory Basis
The MSRB believes that the proposed
rule change is consistent with Section
15B(b)(2)(C) of the Act, which provides
that the MSRB’s rules shall:
be designed to prevent fraudulent and
manipulative acts and practices, to promote
just and equitable principles of trade, to
foster cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with respect
to, and facilitating transactions in municipal
securities and municipal financial products,
to remove impediments to and perfect the
mechanism of a free and open market in
municipal securities and municipal financial
products, and, in general, to protect
investors, municipal entities, obligated
persons, and the public interest.
The MSRB believes that the proposed
rule change is consistent with Section
15B(b)(2)(C) of the Act because it is
intended to protect investors and the
public interest and prevent fraudulent
and manipulative acts and practices by
adding greater specificity to the public
disclosures surrounding contributions
made by covered parties to bond ballot
campaigns, and any municipal
securities business awarded pursuant to
such bond ballot measure. Access to
such information in a centralized format
on the MSRB’s Web site (through Form
G–37) has and will continue to
substantially increase the amount of
information available to market
participants, thereby increasing market
16 Third
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parties include issuers.
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transparency and strengthening market
integrity. The revisions also will assist
the MSRB in its on-going review of Rule
G–37 and potential conflicts of interest
or other practices that may present
challenges to the integrity of the
municipal securities market related to
political contributions by dealers and
dealer personnel.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The MSRB does not believe that the
proposed rule change would impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act. The MSRB solicited
comment on the potential burdens of
the proposed rule change in the Request
for Comment. Among the questions
asked were:
• Would the draft amendments help
to protect the integrity of the municipal
securities market, and are there specific
benefits that issuers, investors and the
public (including taxpayers) would
realize from adopting the draft
amendments?
• Would the draft amendments have
any negative effects on issuers, investors
and the public, or on the fairness,
efficiency or overall integrity of the
municipal securities market? If so,
please describe in detail.
• Dealers are already required to
collect, report and retain records of
certain information in connection with
bond ballot campaigns under the
current provisions of Rules G–37 and G–
8. What would be the incremental
additional burden, if any, to dealers to
collect, report and retain records of the
additional items of information that
would be required under the draft
amendments?
• Are there alternative methods to
providing the protections sought under
the draft amendments that the MSRB
should consider and that would be more
effective and/or less burdensome?
The specific comments and responses
thereto are discussed in Part 5. Of those
commenters addressing issues of
burdens, two stated that any burden in
connection with the proposed rule
change would be outweighed by the
benefits, and five commenters
supported even more expansive
regulation to, among other things, ban
dealers from making contributions to
bond ballot campaigns. The MSRB
addressed those commenters that were
critical of the burdens from the
proposed rule change by clarifying
certain definitions and allowing
additional time for implementation. The
MSRB also notes that dealers already are
required to report information on
certain contributions and municipal
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securities business on Form G–37. The
proposed rule change augments existing
Rule G–37 by providing greater clarity
and context to the information already
provided under the rule. The MSRB
believes that the burdens resulting from
the proposed new disclosures are
outweighed by the benefits accruing to
investors and the marketplace in
general.
The MSRB believes that these
incremental burdens are necessary and
appropriate to address ongoing concerns
of pay-to-play practices with respect to
bond ballot campaign contributions.
The additional information required to
be reported under the proposed rule
change should be readily available to
dealers and the public and is generally
consistent with the type of information
currently required to be reported under
Rule G–37.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
In the Request for Comment,17 the
MSRB requested comment on a draft of
the proposed rule change. Specifically,
the MSRB sought comment on whether
the proposed revisions to Rule G–37 and
Rule G–8, as described herein, that
would require additional public
disclosure of certain information related
to contributions made by covered
parties to bond ballot campaigns, and
the municipal securities business
engaged in by dealers resulting from the
bond ballot campaign to which they
contributed, on revised Form G–37, and
the maintenance of records related to
such contributions, would be useful and
helpful to the market in monitoring and
accessing such dealer contribution
information. In addition, the Board
sought comments from the industry and
other interested parties on all aspects of
the proposed rule change and the range
of practices that are undertaken by
dealers, municipal advisors and other
market participants in connection with
contributions to bond ballot campaigns
and related activities that can give rise
to concerns regarding the integrity of the
municipal securities market.
Discussion Of Comments
Comments on the Request for
Comment were received from: (1)
Barclays; (2) California Association of
County Treasurers and Tax Collectors
(‘‘CACTTC’’); (3) Center for Competitive
Politics (‘‘CCP’’); (4) Government
Financial Strategies Inc. (‘‘GFS’’); (5)
Magis Advisors (‘‘Magis’’); (6) Morgan
Stanley; (7) National Association of
17 See
footnote 14.
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Independent Public Finance Advisors
(‘‘NAIPFA’’); and (8) Securities Industry
and Financial Markets Association
(‘‘SIFMA’’). Summaries of these
comments and the MSRB’s responses
follow.
General Support
Comments: Barclays stated the ‘‘Board
has clearly identified the legitimate
concerns of industry participants and
market observers regarding the adverse
effect bond ballot activity by dealers and
MFPs has on the integrity of the
municipal securities market. Such
concerns have a tendency to extend
beyond issuances supported by bond
ballot campaigns and reflect poorly on
our industry as a whole.’’ GFS stated
that the disclosures contemplated by the
proposed rule change would be an
important step in preventing pay-to-play
activities related to bond ballot
campaign contributions. The MSRB
discusses additional comments from
these and other commenters below.
The Board should consider
amendments to Rule G–37 to ban dealer
contributions to bond ballot campaigns,
or impose a ban on future business
similar to that for certain dealer
campaign contributions to issuer
officials.
Comments: CACTTC recommended
that the MSRB consider amendments to
the rule that would include, ‘‘an
outright ban on brokers, dealers, or any
other municipal finance professionals
from contributing to bond ballot
measures and/or their related
committees’’ and argued that such a
‘‘ban would simply expand the existing
ban on political contributions to public
officials involved in approving related
bond transactions.’’ 18 CACTTC stated
that pay-to-play activities in municipal
bond elections and transactions
undermines the competitive process
that ensures that taxpayer money is
spent in the most efficient and effective
manner and suggested that the MSRB
amend Rule G–37 to ‘‘either shed light
on or eliminate pay-to-play activities.’’
Magis expressed opposition to any
circumstance where any market
professional is permitted to directly, or
indirectly, contribute to bond ballot
campaigns that serve the interests of
such a participant.
Barclays asked the Board to seek a
more direct means to ‘‘address conflicts
of interest, actual and apparent, raised
by cash and in-kind contributions of
18 CACTTC indicated that the bond ballot
contribution problem is most prevalent for school
district financings in California due to proposition
39. The proposition was enacted in 2000 and,
lowered to 55% from 66%, the amount of voter
approval needed to approve a bond ballot measure.
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10659
dealers and their municipal finance
personnel (‘‘MFPs’’) to bond ballot
campaigns.’’ Barclays suggested that the
Board consider measures that would
prohibit dealers from engaging in
municipal securities business for a
clearly defined period of time after the
dealer or any of its MFPs has made a
non-de minimis cash or in-kind
contribution to support a bond ballot
campaign authorizing such municipal
securities business. Barclays argued that
the terms of such a prohibition should
not turn on whether a dealer expects to
be, or is, reimbursed for such
contributions, and should apply with
respect to the kinds of support activities
identified in the Request for Comment 19
(e.g., polling) whether or not local law
would permit an issuer to engage in
such activity.
Morgan Stanley cited a San Francisco
Chronicle article that observed that ‘‘in
150 of 155 cases (97%) where a dealer
contributed to support a bond ballot
election that authorized the bonds the
underwriter was hired to underwrite’’
and stated that ‘‘[t]he continued
allowance of this widely perceived payto-play practice damages the integrity of
the municipal marketplace and allows
outsiders (regulators, journalists and
politicians) to question the practices of
our marketplace.’’ NAIPFA stated that
the proposed amendments to Rule G–37
do not go far enough in terms of
curtailing the practice of contributing to
bond ballot campaign committees and
will likely not have a significant impact
on such contributions. NAIPFA also
stated that it is unsure how the
amendments alone will benefit issuers
or the public interest since the proposed
rule change does not prohibit or limit
the practice of contributions to bond
ballot campaigns. Finally, NAIPFA
stated that bond ballot contributions are
often made, ‘‘for the purpose of
influencing the selection or retention of
underwriters, and are thus the
equivalent of the impermissible pay-toplay contributions already banned
under current Rule G–37.’’ GFS believes
that further action will be warranted as
the Board continues to examine this
area of rulemaking.
MSRB Response: The MSRB believes
that the additional disclosures required
by the proposed rule change are an
appropriate regulatory response to the
concerns identified. The MSRB believes
that providing public access to
disclosures of dealer contributions to
bond ballot campaigns in a centralized
format on the MSRB’s Web site (through
Form G–37) has substantially increased
the amount of information available to
19 See
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market participants, thereby increasing
market transparency and strengthening
market integrity.
The information gathered pursuant to
the proposed rule change, coupled with
the existing requirements of Rule G–37,
will assist the Board as it continues to
monitor dealer and dealer personnel
contribution disclosures. Such
monitoring will allow the Board to
determine, in the future, whether a
corresponding ban on business, as a
result of such contributions, would be
necessary to address any real or
perceived linkage between such
contributions to bond ballot campaigns
(and related activities) and the award of
municipal securities business.
The MSRB should amend Rule G–37
to request certain additional disclosures
related to dealers’ and their MFPs’
contributions to bond ballot campaigns.
Comments: CACTTC supported the
additional disclosure requirements for
bond ballot campaigns and stated that
an amendment to Rule G–37 is
‘‘necessary to reduce the perception of
pay-to-play and to help ensure that
underwriters and other municipal
financial professionals are not awarded
bond transactions because they have
contributed to related bond ballot
measures.’’ SIFMA 20 also supported the
proposed rule change to require
disclosure of whether a dealer or any of
its MFPs or non-MFP executive officers
received payments or reimbursements,
related to any bond issuance resulting
from a bond ballot campaign to which
the dealer, its MFP or non-MFP
executive officer or applicable PAC
contributed, from any third party.
SIFMA stated that these payments or
reimbursements are not common and
should be disclosed. SIFMA stated that
such payments would be known to the
dealer and disclosure would not cause
much burden on the dealer and it would
be material if any such payments were
made. SIFMA also supported the
proposed rule change to require dealers
to provide the complete name of the
entity that will issue the bonds that
were authorized by the bond ballot
campaign, to which a contribution was
made by the dealer, its MFP or non-MFP
executive officer (other than a de
minimis contribution) or applicable
PAC. SIFMA stated that the name of the
issuer is always known by the dealer
and would be beneficial if disclosed on
Form G–37 and that such increased
transparency would create more benefits
than burdens on the regulated dealer
community.
20 Morgan Stanley supports the SIFMA comment
letter.
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GFS expressed concern about the lack
of transparency in school bond
campaign fundings and how it leads to
corruption. GFS stated that it would be
helpful to place in the public record
information regarding the specific
issuers and bond issues implicated
through the actions of MFPs. GFS
suggested requiring the disclosure, ‘‘of
compensation in excess of general
industry compensation practices
* * *.’’ GFS also suggested requiring
the disclosure of relevant information to
investors when firms participating in
the bond issue have contributed to
election campaigns and the election
campaigns to which the underwriters
have contributed are administered by
municipal advisors. Magis stated that
there may be compelling reasons to
require that disclosure of potential
conflicts of interest also be made in
official statements ‘‘in order to avoid
introducing error or omission to the
issuer’s official statement.’’ GFS also
recommended requiring reporting of
payments made by underwriters to (not
only payments received from) other
professionals, such as financial advisors
and election advisors and channeled
through bond ballot campaigns.
MSRB Response: The MSRB believes
that the additional disclosures that will
be required under the proposed rule
change provide the appropriate types of
information that should be disclosed to
the general public, including investors,
about when firms participating in bond
issues have contributed to election
campaigns, by providing additional
information that has not previously
been collected and made available to the
public. Such additional information
includes: (a) Requiring dealers to
disclose the full issuer name and the
full issue description, which will
provide increased public disclosure of
the specific primary offering or offerings
that resulted from the bond ballot
campaign to which the dealer, or their
personnel, contributed and was required
to disclose under existing Rule G–37;
and (b) requiring dealers to disclose
additional information about in-kind
contributions that are made to bond
ballot campaigns, including the value
and nature of goods and services that
are provided to the campaign and any
ancillary services that are provided to,
on behalf of, or in furtherance of the
bond ballot campaign by a dealer.
The MSRB does not believe there
presently is a readily accessible
standard or a ‘‘base-line’’ level of
compensation for municipal securities
transactions that would allow disclosure
of ‘‘excess’’ compensation as urged by
GFS. In response to comments
suggesting that dealers should disclose
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whether a bond ballot campaign is
administered by a municipal advisor,
the MSRB believes that actual
knowledge of whether the bond ballot
campaign is administered by a
municipal advisor would be required,
and that such information is not
generally known or available to support
a comprehensive disclosure standard for
the industry at this time.
In response to Magis’s suggestion to
require the disclosure of potential
conflicts of interest in official
statements, the MSRB notes that it does
not have regulatory authority over
issuers, and therefore does not have the
authority to establish requirements
regarding the content of official
statements. The MSRB believes that
GFS’s recommendation to report the
payments made by underwriters to other
professionals that may be channeled
through bond election campaigns is not
necessary because, to the extent that
such payments would represent indirect
contributions by the dealer to a bond
ballot campaign, such indirect
contributions already are required to be
disclosed under current Rule G–37.
The proposed amendments to Rule G–
37 raise constitutional concerns.
Comments: CCP noted its concerns
that ‘‘the Board may take further action
regarding dealer and dealer personnel
contributions to bond ballot campaigns,
up to and including a corresponding
ban on business as a result of certain
contributions.’’ CCP stated that the
Board has overlooked the long-standing
constitutional distinction between
contributions to candidates and those
given to support or oppose ballot
initiatives. ‘‘Simply put, ballot measure
committees receive stronger
constitutional protection against
government regulation than do
candidates.’’ CCP also argued that the
MSRB’s concern about certain practices
related to bond ballot campaigns have
nothing to do with the creation of a quid
pro quo arrangement between the bond
ballot measure committee and the
contributors because the bond ballot
measure committee is, under the law, an
entirely separate entity from the issuer.
‘‘There is no identity of interests
between the person supported for
election and the person making hiring
and issuing decisions, as is the case in
the candidate context and as the D.C.
Circuit required in Blount. The Board’s
announcement and analysis make no
mention of this crucial distinction.’’
CCP suggested that the Board take into
consideration the fact that ‘‘ballot issue,
ballot measure, and independent
expenditure committees are granted far
more constitutional protection than are
candidate committees.’’
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MSRB Response: The MSRB
recognizes the distinctions between
contributions to candidates and bond
ballot campaigns. The MSRB believes
that the requirement under the proposed
rule change to have dealers provides
additional, basic information pertaining
to contributions to bond ballot
campaigns and any subsequent
municipal securities business does not
impinge upon the First Amendment
rights of individuals and/or firms that
will be responsible for providing
disclosure of bond ballot campaign
contributions.21 As noted previously,
the proposed rule change only will
require disclosure of additional
information pertaining to contributions
to, and municipal securities business
from, bond ballot campaigns and will
not prohibit contributions to such
campaigns.
Certain dealer and dealer personnel
contributions to, and activities related
to, bond ballot campaigns violate state
laws in certain jurisdictions.
Comments: Magis cited an opinion of
the California Legislative Counsel’s
Office that ‘‘a school district or other
local agency may not condition the
award of an agreement to provide bond
underwriting services on the
underwriter also providing campaign
services in support of that bond measure
or another bond measure proposed by
the school district or other local
agency.’’ Magis also stated that
California law prohibits the expenditure
of public monies on electioneering.
GFS argued that certain bond ballot
campaign practices are contrary to the
Best Practice recommendation of the
Government Finance Officers
Association and that
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[t]here are variations in bond election
contribution patterns. Other underwriters
simply administer bond election campaigns
themselves. In doing so, those firms provide
both monetary and in-kind value. Those
underwriters may advertise this function as
a ‘‘service’’ provided to issuers. Yet, in
California and other states the issuers cannot
administer bond election campaigns
themselves. Still, in those facts and
circumstances, the issuers invariably employ
those underwriters to underwrite the bonds
the voters approve. The practice has the
appearance of those issuers doing indirectly
through municipal finance professionals
what the issuers cannot do directly.
21 In Blount v. Securities and Exchange
Commission, 61 F.3d 938, 948 (DC Cir. 1995), the
District Court determined that existing Rule G–37
advanced a compelling governmental interest to
protect investors that did not abridge First
Amendment rights and stated that ‘‘municipal
finance professionals are not in any way restricted
from engaging in the vast majority of political
activities, including making direct expenditures for
the expression of their views * * *.’’
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MSRB Response: The MSRB has
previously stated that contributions and
expenditures by certain dealers and
dealer personnel may assist an issuer in
avoiding state law restrictions, and
depending on the totality of the facts
and circumstances, could
independently violate Rule G–17, even
if not precluded by Rule G–37.22 The
MSRB does not believe that any
additional changes in Rule G–37 are
necessary at this time.
The proposed amendments to the
definitions of ‘‘contribution’’ and ‘‘de
minimis’’ in Rule G–37 are problematic.
Comments: SIFMA stated that
including election services or collateral
work provided on behalf of an issuer, in
addition to work done on behalf of a
bond ballot campaign committee, in the
revised definition of ‘‘contribution’’ to
include the full range of cash and inkind contributions is a significant
change that greatly expands the scope of
the reporting obligations to cover
frequent routine communications
between issuers and underwriters.
SIFMA believes the proposed
amendment blurs the line between work
done for the bond ballot campaign
committee which is to be reported on
Form G–37 and traditional work for the
issuer completed as part of the public
finance transaction. SIFMA stated that
only in-kind contributions to the bond
ballot committee itself should be
reportable and that references to work
provided to the issuer should be struck
from the proposed rule change. SIFMA
argued that it would be burdensome on
the dealer community to separately
distinguish, track, quantify and report
such information to the MSRB. SIFMA
agreed that work done for or
contributions made to the actual bond
ballot campaign committee should be
disclosed, as the bond ballot campaign
committee is a separate legal entity from
the issuer.
22 MSRB Rule G–17 provides that, in the conduct
of its municipal securities or municipal advisory
activities, each dealer and municipal advisor shall
deal fairly with all persons and shall not engage in
any deceptive, dishonest, or unfair practice. These
principles of fair practice have previously been
viewed as applicable in the context of the MSRB’s
efforts to eliminate pay-to-play activities in the
municipal securities market. See, e.g., MSRB Notice
2003–32 (August 6, 2003); In the Matter of Pryor,
McClendon, Counts & Co. et al., Order Making
Findings and Imposing Remedial Sanctions and a
Cease-and-Desist Order (February 6, 2002) (brokerdealer violated Rule G–17 by concealing certain
political contributions that would have triggered a
ban on business under Rule G–37). See also MSRB
Reports, Draft Rule G–37, Concerning Political
Contributions in the Municipal Securities Market,
Volume 13, Number 4 (August, 1993); Testimony of
Charles W. Fish, Chairman, Municipal Securities
Rulemaking Board before the Subcommittee on
Telecommunications and Finance of the Committee
on Energy and Commerce, United States House of
Representatives (September 7, 1993) at 59, n.86.
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NAIPFA stated its support of the
MSRB’s proposed amendment to
address ‘‘in-kind’’ contributions. GFS
stated that it would be helpful to
include reporting of in-kind
contributions and the value of in-kind
contributions, which are excluded from
current reporting requirements under
Rule G–37.
MSRB Response: The MSRB believes
the public disclosure of all political
contributions, including cash and inkind services, will allow for greater
public scrutiny of such contributions
and the potential connection between
them and the awarding of municipal
securities business. However, the MSRB
agrees that the definition of
‘‘contribution’’ should not include work
provided to or on behalf of the issuer
that is related to the completion of
municipal securities business. The
MSRB has amended the proposed rule
change to clarify the appropriate nexus
between ancillary services provided to,
on behalf of, or in furtherance of a bond
ballot campaign by a dealer or dealer
personnel. The revisions will assist with
clarifying that in-kind contributions that
would be required to be reported by
dealers will solely be required with
respect to activities related to a bond
ballot campaign and not with respect to
activities undertaken to complete the
associated municipal securities
business.
The MSRB also notes that the term
‘‘contribution,’’ as defined in Rule G–37,
includes anything of value, which has
been interpreted to include in-kind
contributions.23 The proposed rule
change will establish that the disclosure
of in-kind contributions must include
both the value and the nature of the
goods or services provided.
The proposed amendments will
impose undue burdens on dealers.
Comment: CCP stated that the
proposed rule change would impose
only recordkeeping burdens and would
do little to advance the MSRB’s
anticorruption mission. CCP stated that
the recordkeeping requirements for inkind contributions do little to prevent
corruption and would chill a kind of
political participation—volunteer work.
In addition, CCP stated that by requiring
recordkeeping of non-de minimis
contributions, and defining such
contributions at the same rate as those
23 See Rule G–37 Interpretations, Questions and
Answers Concerning Political Contributions and
Prohibitions on Municipal Securities Business: Rule
G–37, Question II. 18 (May 24, 1994). For example,
if a MFP uses dealer’s resources (e.g., a political
position paper prepared by dealer personnel) or
incurs expenses in the conduct of dealer volunteer
work (e.g., hosting a reception), then the value of
such resources or expenses would constitute a
contribution.
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for candidates, the proposed revisions
conflate contributions to candidates
with those to support or oppose ballot
initiatives.
MSRB Response: The MSRB believes
the requirements of the proposed rule
change are necessary and appropriate
and will assist the Board and the public
in determining whether the awarding of
municipal securities business is linked
to certain dealer and dealer personnel
contributions to bond ballot campaigns.
The proposed rule change will assist
with advancing the anticorruption
objective of Rule G–37. The MSRB
believes that potential burdens that may
be caused by the recordkeeping
requirements of the proposed rule
change will be offset by the benefits to
the MSRB and the public through
greater clarity and context to existing
bond ballot campaign contribution
disclosures. The MSRB notes that
dealers currently report certain political
campaign contributions and the
increased reporting and submission
requirements of the proposed rule
change will only involve a slight,
incremental increase to existing
requirements.
The MSRB also notes that certain
dealers also are required to report bond
ballot contribution information at the
state and local level. These
requirements demonstrate the strong
public interest for reporting such
contributions, and for dealers in such
jurisdictions, the burdens of the
proposed rule change are arguably even
lower.
The MSRB does not believe that the
proposed rule change will prohibit or
regulate personal volunteer work by
dealers and MFPs nor will it chill
volunteer work as suggested by CCP.
The proposed rule change will require
the disclosure of the contribution
amounts that are made to bond ballot
campaigns by covered parties which, in
the case of in-kind contributions,
include both the value and the nature of
the goods or services provided,
including any ancillary services
provided to, on behalf of, or in
furtherance of the bond ballot campaign.
As with existing Rule G–37, the
proposed rule change does not prohibit
or restrict individual personal volunteer
work.24
24 Ibid. The MSRB has previously provided
guidance regarding the treatment of contributions as
the use of dealer resources or the incurrence of
expenses by dealers in connection with a political
campaign. The MSRB has made clear that Rule G–
37 does not prohibit or limit individuals from
providing volunteer services in support of an issuer
official, and has also noted that certain incidental
expenses incurred by such individual would
generally not be treated as a contribution. See Rule
G–37 Question and Answer II.18 (May 24, 1994).
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The MSRB does not agree with CCP’s
comment that defining de minimis
contributions at the same level as those
for candidates, and the attendant
recordkeeping requirements for in-kind
contributions, is improper. Rather, the
MSRB believes that there are
efficiencies in maintaining consistent de
minimis levels for Rule G–37, even with
respect to in-kind contributions.
Comment: SIFMA stated that
requiring the dealer to provide the
specific date on which a contribution
was given by the dealer to the bond
ballot campaign is burdensome
depending upon the number of non-de
minimis reportable contributions that
need to be tracked and reported to the
MSRB. SIFMA requested that the MSRB
not expand the Form G–37 disclosure to
include the specific date the dealer was
selected to engage in municipal
securities business because the date the
dealer was selected to engage in such
municipal securities business may not
be clear or ascertainable by the dealer.
SIFMA believes that each issuer
typically has its own method for the
selection and final approval of
underwriters, which makes it difficult
or impossible to standardize the
process.
MSRB Response: In response to
SIFMA’s concern over difficulties in
identifying the precise date when a
dealer is selected to engage in a
municipal securities business, the
MSRB has proposed defining a new
term: ‘‘reportable date of selection.’’
Specifically, the ‘‘reportable date of
selection’’ will be the date of the earliest
to occur of (i) The execution of an
engagement letter, (ii) the execution of
a bond purchase agreement, or (iii) the
receipt of formal notification (provided
either in writing or orally) from, or on
behalf of, the issuer that the dealer has
been selected to engage in municipal
securities business.
Comments: SIFMA requested that any
rule change be applied from its effective
date forward, with no contributions
made, or transactions sold or issued
before the effective date of the rule, be
For example, personal expenses incurred by an
MFP in the conduct of volunteer work, which
expenses are purely incidental to the volunteer
work and are unreimbursed by the dealer (e.g., cab
fares and personal meals), would not constitute a
contribution. Also see Rule G–37, Question II.19
(August 18, 1994). An employee of a dealer
generally can donate their time to an issuer
official’s campaign without such time being viewed
as a contribution by the dealer to the official, so
long as the employee is volunteering his or her time
during non-work hours, or is using previously
accrued vacation time or the dealer is not otherwise
paying the employee’s salary (e.g., an unpaid leave
of absence). These principles would apply equally
to individuals providing volunteer services in
connection with a bond ballot campaign.
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subject to reporting. SIFMA proposed ‘‘a
two-year look back for contributions by
current individual MFPs or non-MFPs
executive officers for bond ballot
campaign contributions that result in a
municipal bond offering underwritten
by the dealer, to be phased in from the
effective date of the rule.’’ 25 SIFMA also
proposed a limitation on reporting
municipal securities business resulting
from a bond ballot campaign to which
a contribution was made so that the
dealer would only be required to look
back two years prior to the business
being undertaken, and that
‘‘transactions underwritten by the dealer
after a contribution was made to a bond
ballot campaign committee by a former
employee should not need to be
reported.’’
NAIPFA stated that ‘‘any burden,
incremental or otherwise, placed upon
municipal market participants in
connection with the imposition of the
Amendments will be outweighed by the
benefits that the Amendments will have
to the municipal market in terms of
improving hiring practices, market
transparency, and the policing’’ of
dealer contributions to bond ballot
campaigns. Similarly, GFS stated that it
does not believe the disclosure
requirements that are contemplated by
the proposed rule change would impose
undue burdens on underwriters, nor
would a future extension of the
disclosure requirements to municipal
advisors.
MSRB Response: The MSRB believes
that the proposed rule change should
only apply with respect to municipal
securities business with a sale or
issuance date on or after the effective
date of the proposed rule change. As a
result, dealers will not be required to
supplement the bond ballot campaign
disclosures made with respect to
offerings prior to the effective date.
However, with respect to offerings after
the effective date, dealers must look
back at any contribution made by a
covered party on or after February 1,
2010 (the date on which dealers were
first required to record and disclose
contributions to bond ballot
campaigns).26
In addition, the MSRB believes that
the look-back provisions for
contributions made by an individual
prior to becoming an MFP or a non-MFP
executive officer of a dealer should be
limited to two years, consistent with the
existing timeframe for which such
25 SIFMA also stated any applicable look back
provision should not take into account
contributions made, or transactions sold or issued
before the effective date of the rule.
26 See footnote 10.
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contributions are ordinarily attributable
to the dealer under Rule G–37. The
MSRB also believes that dealers must
continue to report primary offerings
pertaining to bond ballot campaign
contributions of an MFP or non-MFP
executive officer that left the dealer, as
such contributions are properly
attributable to such dealer.
The proposed amendments to Rule G–
37 should apply to municipal advisors.
Comments: NAIPFA believes that
municipal advisors should be subject to
the proposed amendments when and if
adopted. In addition, NAIPFA
supported the inclusion of municipal
advisors within the provisions of
current Rule G–37 and, in particular,
those portions contained within Rule G–
37(c) and (d) in order to prevent
municipal advisors from circumventing
their disclosure obligations as well as
the ban on campaign contributions. GFS
stated that ‘‘[a]mong other things, once
the definition of the ‘municipal advisor’
concept is finalized by the Securities
and Exchange Commission, financial
advisors and other municipal advisors
can be brought within the scope of the
regulation.’’ Magis and SIFMA also
supported the application of the
proposed amendments to municipal
advisors.
MSRB Response: The MSRB
previously proposed a new rule that
would apply pay-to-play restrictions to
municipal advisors but withdrew such
proposal pending final rulemaking by
the SEC on a permanent municipal
advisor registration rule and related
definitional matters.27 The MSRB will
consider including the same types of
disclosures required by the proposed
rule change in any such rule it may
propose in the future with regard to
municipal advisors.
Rule G–37 should have more timely
and/or expansive reporting
requirements.
Comments: GFS recommended that
the Board consider requiring reporting
promptly after contributions are made,
and in any event, prior to elections and
in time to inform the electorate. Magis
expressed concern that existing Form
G–37 submissions by underwriters
occur only quarterly and suggested that
the Board consider ‘‘more timely
disclosure of these conflicts of interest
prior to the bond election. * * *’’
MSRB Response: The MSRB believes
that the current quarterly reporting
scheme required under Rule G–37
provides adequate and timely
information about dealer and dealer
personnel contributions to bond ballot
27 See MSRB Notice 2011–46 (August 19, 2011);
MSRB Notice 2011–51 (September 12, 2011).
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campaigns and does not intend to
expand the reporting requirements at
this time.
The EMMA system should provide for
easier access to the disclosures
submitted by dealers relating to bond
ballot campaign contributions and
related information.
Comments: GFS stated that ‘‘EMMA’s
online campaign contribution report
records are difficult to search in a
systematic manner. For example,
EMMA’s records cannot be searched at
present by issuer names or titles of bond
issues, which voters may wish to do.’’
GFS recommended making campaign
contribution reports more easily
searchable on EMMA by issuer name
and by titles of bond issues. Magis also
stated that EMMA is exceedingly
difficult to search by issuer name
because the records are ‘‘dealer namecentric.’’ Magis supports the ability to
access Form G–37 information by state
or type of issuer.
MSRB Response: Comments about the
usability and functionality of disclosure
on EMMA are beyond the scope of the
proposed rule change. The MSRB is
continually evaluating the effectiveness
of EMMA and may consider initiating
such changes in the future.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
such proposed rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–MSRB–2013–01. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the MSRB. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–MSRB–
2013–01 and should be submitted on or
before March 7, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–03385 Filed 2–13–13; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–MSRB–2013–01 on the
subject line.
PO 00000
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CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 78, Number 31 (Thursday, February 14, 2013)]
[Notices]
[Pages 10656-10663]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-03385]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68872; File No. SR-MSRB-2013-01]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed Rule Change Relating to
Amendments to MSRB Rules G-37 and G-8 and Form G-37
February 8, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on February 4, 2013, the Municipal Securities Rulemaking Board
(``MSRB'' or ``Board'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the MSRB. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The MSRB is filing with the Commission a proposed rule change
consisting of amendments to Rules G-37, on political contributions and
prohibitions on municipal securities business, and G-8, on books and
records, and Form G-37 (the ``proposed rule change''). The MSRB
requested an effective date for the proposed rule change of no later
than the start of the second calendar quarter following the date of SEC
approval.
The text of the proposed rule change is available on the MSRB's Web
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2013-Filings.aspx, at the MSRB's principal office, and at the Commission's
Public Reference Room.
[[Page 10657]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the MSRB included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The MSRB has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The proposed rule change amends Rule G-37 to require the public
disclosure of additional information related to contributions made by
brokers, dealers and municipal securities dealers (``dealers''), their
municipal finance professionals (``MFPs''),\3\ political action
committees (``PACs'') controlled by the dealer or their MFPs and non-
MFP executive officers \4\ (individually, a ``covered party'' and
collectively, ``covered parties'') to bond ballot campaigns and the
municipal securities business \5\ engaged in by dealers resulting from
voter approval of the bond ballot measure to which such contributions
were given. The additional information will be required to be reported
on revised MSRB Form G-37 \6\ and submitted to the MSRB.\7\ The
proposed rule change also amends Rule G-8 to require dealers to
maintain records pertaining to the additional information disclosed
under the proposed amendments to Rule G-37. The proposed rule change is
further described below under ``Summary of Proposed Rule Change'' and
under ``Discussion of Comments.''
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\3\ Rule G-37(g)(iv) defines municipal finance professional as:
(A) Any associated person primarily engaged in municipal securities
representative activities (exclusive of sales activities with
natural persons); (B) any associated person (including but not
limited to any affiliated person of the dealer, as defined in Rule
G-38) who solicits municipal securities business; (C) any associated
person who is both (i) a municipal securities principal or a
municipal securities sales principal and (ii) a supervisor of any
persons described in (A) or (B) above; (D) any associated person who
is a supervisor of any person described in (C) above up through and
including, in the case of a dealer other than a bank dealer, the
Chief Executive Officer or similarly situated official and, in the
case of a bank dealer, the officer or officers designated by the
board of directors of the bank as responsible for the day-to-day
conduct of the bank's municipal securities dealer activities; or (E)
any associated person who is a member of the dealer (or, in the case
of a bank dealer, the separately identifiable department or division
of the bank) executive or management committee or similarly situated
officials, if any.
\4\ Rule G-37(g)(v) defines non-MFP executive officer as an
associated person in charge of a principal business unit, division
or function or any other person who performs similar policy making
functions for the dealer (or, in the case of a bank dealer, the
separately identifiable department or division of the bank, as
defined in Rule G-1), but does not include any MFP. Although Rule G-
37 requires disclosure of non-MFP executive officer contributions,
such contributions do not result in a ban on engaging in municipal
securities business.
\5\ Rule G-37(g)(vii) defines municipal securities business as:
(A) The purchase of a primary offering of municipal securities from
an issuer on other than a competitive bid basis (e.g., a negotiated
underwriting); (B) the offer or sale of a primary offering of
municipal securities on behalf of any issuer (e.g., a private
placement); (C) the provision of financial advisory or consultant
services to or on behalf of an issuer with respect to a primary
offering of municipal securities in which the dealer was chosen to
provide such services on other than a competitive bid basis; or (D)
the provision of remarketing agent services to or on behalf of an
issuer with respect to a primary offering of municipal securities in
which the dealer was chosen to provide such services on other than a
competitive bid basis.
\6\ MSRB Form G-37 is the document pursuant to which dealers
disclose contribution information as currently required by Rule G-
37. The form is being revised to conform to the requirements
resulting from the proposed rule change.
\7\ Form G-37 is submitted by dealers through the existing MSRB
Political Contribution Submission Service, which is the current
system that accepts the submissions of Form G-37. Submitted Forms G-
37 are made publicly available through the MSRB Web site.
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Background
Rule G-37, in effect since 1994, has provided substantial benefits
to the industry and the investing public by greatly reducing the direct
connection between political contributions given to issuer officials
\8\ and the awarding of municipal securities business to dealers. Rule
G-37 requires dealers to disclose (on Form G-37) certain contributions
to issuer officials, contributions to bond ballot campaigns, and
payments to political parties of states and political subdivisions made
by covered parties. The rule prohibits dealers from engaging in
municipal securities business with an issuer within two years after
contributions to an official of such issuer are made by certain covered
parties (other than certain permitted de minimis contributions).\9\ The
rule's prohibition on engaging in municipal securities business is not
triggered by contributions that are made to bond ballot campaigns by
covered parties.
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\8\ Rule G-37(g)(vi) defines ``official of such issuer'' or
``official of an issuer'' as any person (including any election
committee for such person) who was, at the time of the contribution,
an incumbent, candidate or successful candidate: (A) For elective
office of the issuer which office is directly or indirectly
responsible for, or can influence the outcome of, the hiring of a
broker, dealer or municipal securities dealer for municipal
securities business by the issuer; or (B) for any elective office of
a state or of any political subdivision, which office has authority
to appoint any person who is directly or indirectly responsible for,
or can influence the outcome of, the hiring of a broker, dealer or
municipal securities dealer for municipal securities business by an
issuer.
\9\ Contributions made by MFPs to issuer officials for whom such
MFP is entitled to vote will not result in a ban on municipal
securities business if such contributions, in total, do not exceed
$250 to each issuer official, per election.
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Bond Ballot Contributions
Since February 1, 2010,\10\ the MSRB has required disclosure, under
Rule G-37, of non-de minimis contributions \11\ to bond ballot
campaigns made by covered parties. Rule G-37 also requires dealers to
maintain records of such reportable contributions to bond ballot
campaigns pursuant to Rule G-8. The 2010 amendments to Rule G-37 and
the corresponding amendments to Rule G-8 resulted, in part, from
concerns that contributions by covered parties to bond ballot campaigns
could assist dealers with obtaining municipal securities business. The
amendments also resulted from the MSRB's concern about the lack of
effective transparency regarding bond ballot campaign
contributions.\12\
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\10\ See Securities Exchange Act Release No. 61381 (January 20,
2010), 75 FR 4126 (January 26, 2010) (File No. SR-MSRB-2009-18).
\11\ Dealers are not required to disclose contributions made by
MFPs and non-MFP executive officers to a bond ballot campaign for a
ballot initiative with respect to which such person is entitled to
vote if such contributions, in total, do not exceed $250 per ballot
initiative.
\12\ The MSRB noted that the lack of effective transparency
results from political contribution disclosure requirements that
vary from state to state and the difficulty of locating and
extracting the relevant dealer-related and bond initiative-related
information from the various public disclosure facilities. See MSRB
Notice 2009-35 (June 22, 2009).
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Some industry participants and market observers continue to express
concerns regarding the potential adverse effect on the integrity of the
municipal securities market from dealer and dealer personnel
contributions to bond ballot campaigns.\13\ The proposed rule change
addresses these concerns by augmenting the disclosures currently
required under Rule G-37. These more detailed disclosures also will
help inform the Board whether further action regarding bond ballot
campaign contributions is warranted, up to and including a
corresponding ban on engaging in
[[Page 10658]]
municipal securities business as a result of certain contributions.
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\13\ Similar concerns have been expressed with regard to such
contributions made by some municipal advisors. The Board expects to
consider undertaking parallel rulemaking with respect to municipal
advisor contributions to bond ballot campaigns when it develops
additional rules for municipal advisors.
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Summary of Proposed Rule Change
The MSRB requested comment on a draft of the proposed rule change
on August 15, 2012.\14\ The description of the proposed rule change
below revises certain provisions of the draft that was provided for
comment in the Request for Comment based on the MSRB's review of
comment letters, as further described below and in ``Discussion of
Comments'' below. The proposed rule change revises Rule G-
37(e)(i)(B)(2) to provide that, in disclosing the contribution amount
made to a bond ballot campaign, the dealer also must include, in the
case of in-kind contributions, the value and nature of the goods or
services provided, including any ancillary services provided to, on
behalf of, or in furtherance of the bond ballot campaign. The proposed
rule change also requires dealers to disclose the specific date on
which such contributions to bond ballot campaigns were made.
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\14\ See MSRB Notice 2012-43 (August 15, 2012) (``Request for
Comment'').
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Proposed Rule G-37(e)(i)(B) requires dealers to disclose the full
issuer name and full issue description of any primary offering
resulting from voter approval of a bond ballot measure to which a
contribution required to be disclosed has been made. All information is
required to be reported in the calendar quarter in which the closing
date for the issuance that was authorized by the bond ballot measure
occurred. The proposed rule change contains a look-back provision for
bond ballot campaign contributions that are made by an MFP or a non-MFP
executive officer during the two years prior to an individual becoming
an MFP or a non-MFP executive officer of a dealer.\15\ The look-back
provision will limit the additional disclosures required under proposed
Rule G-37(e)(i)(B) to those items that would have been required to be
disclosed if such individual had been an MFP or a non-MFP executive
officer at the time of such contribution. Proposed Rule G-37(e)(i)(B)
also requires dealers to disclose both the amount and source of any
payments or reimbursements related to any bond ballot contribution,
received by a dealer or its MFPs from any third party.\16\
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\15\ There is a similar look-back provision in current Rule G-37
for contributions to issuer officials. See Rule G-37(b)(i). As with
that provision, disclosure is only required with respect to
municipal securities business that results from the bond ballot
measure after the effective date of the proposed rule change.
\16\ Third parties include issuers.
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The proposed rule change revises Rule G-37(g) to expand the
definition of ``contribution'' and create a new term, the ``reportable
date of selection.'' The proposed amendments to the definition of
``contribution'' distinguish between contributions made to an official
of an issuer and contributions made to a bond ballot campaign. The term
``reportable date of selection'' is defined to refer to the specific
date on which a dealer is selected, either in writing or orally, to
engage in municipal securities business that must be reported on Form
G-37.
Lastly, conforming amendments to Rule G-8(a)(xvi)(H) and (I)
require dealers to maintain records of the supplemental information
related to bond ballot campaign contributions that are required to be
disclosed on Form G-37 under the proposed rule change.
Effective Date Of Proposed Rule Change
The MSRB requested an effective date for the proposed rule change
no later than the start of the second calendar quarter following the
date of SEC approval.
2. Statutory Basis
The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Act, which provides that the MSRB's rules
shall:
be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect
to, and facilitating transactions in municipal securities and
municipal financial products, to remove impediments to and perfect
the mechanism of a free and open market in municipal securities and
municipal financial products, and, in general, to protect investors,
municipal entities, obligated persons, and the public interest.
The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Act because it is intended to protect
investors and the public interest and prevent fraudulent and
manipulative acts and practices by adding greater specificity to the
public disclosures surrounding contributions made by covered parties to
bond ballot campaigns, and any municipal securities business awarded
pursuant to such bond ballot measure. Access to such information in a
centralized format on the MSRB's Web site (through Form G-37) has and
will continue to substantially increase the amount of information
available to market participants, thereby increasing market
transparency and strengthening market integrity. The revisions also
will assist the MSRB in its on-going review of Rule G-37 and potential
conflicts of interest or other practices that may present challenges to
the integrity of the municipal securities market related to political
contributions by dealers and dealer personnel.
B. Self-Regulatory Organization's Statement on Burden on Competition
The MSRB does not believe that the proposed rule change would
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The MSRB solicited comment on
the potential burdens of the proposed rule change in the Request for
Comment. Among the questions asked were:
Would the draft amendments help to protect the integrity
of the municipal securities market, and are there specific benefits
that issuers, investors and the public (including taxpayers) would
realize from adopting the draft amendments?
Would the draft amendments have any negative effects on
issuers, investors and the public, or on the fairness, efficiency or
overall integrity of the municipal securities market? If so, please
describe in detail.
Dealers are already required to collect, report and retain
records of certain information in connection with bond ballot campaigns
under the current provisions of Rules G-37 and G-8. What would be the
incremental additional burden, if any, to dealers to collect, report
and retain records of the additional items of information that would be
required under the draft amendments?
Are there alternative methods to providing the protections
sought under the draft amendments that the MSRB should consider and
that would be more effective and/or less burdensome?
The specific comments and responses thereto are discussed in Part
5. Of those commenters addressing issues of burdens, two stated that
any burden in connection with the proposed rule change would be
outweighed by the benefits, and five commenters supported even more
expansive regulation to, among other things, ban dealers from making
contributions to bond ballot campaigns. The MSRB addressed those
commenters that were critical of the burdens from the proposed rule
change by clarifying certain definitions and allowing additional time
for implementation. The MSRB also notes that dealers already are
required to report information on certain contributions and municipal
[[Page 10659]]
securities business on Form G-37. The proposed rule change augments
existing Rule G-37 by providing greater clarity and context to the
information already provided under the rule. The MSRB believes that the
burdens resulting from the proposed new disclosures are outweighed by
the benefits accruing to investors and the marketplace in general.
The MSRB believes that these incremental burdens are necessary and
appropriate to address ongoing concerns of pay-to-play practices with
respect to bond ballot campaign contributions. The additional
information required to be reported under the proposed rule change
should be readily available to dealers and the public and is generally
consistent with the type of information currently required to be
reported under Rule G-37.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
In the Request for Comment,\17\ the MSRB requested comment on a
draft of the proposed rule change. Specifically, the MSRB sought
comment on whether the proposed revisions to Rule G-37 and Rule G-8, as
described herein, that would require additional public disclosure of
certain information related to contributions made by covered parties to
bond ballot campaigns, and the municipal securities business engaged in
by dealers resulting from the bond ballot campaign to which they
contributed, on revised Form G-37, and the maintenance of records
related to such contributions, would be useful and helpful to the
market in monitoring and accessing such dealer contribution
information. In addition, the Board sought comments from the industry
and other interested parties on all aspects of the proposed rule change
and the range of practices that are undertaken by dealers, municipal
advisors and other market participants in connection with contributions
to bond ballot campaigns and related activities that can give rise to
concerns regarding the integrity of the municipal securities market.
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\17\ See footnote 14.
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Discussion Of Comments
Comments on the Request for Comment were received from: (1)
Barclays; (2) California Association of County Treasurers and Tax
Collectors (``CACTTC''); (3) Center for Competitive Politics (``CCP'');
(4) Government Financial Strategies Inc. (``GFS''); (5) Magis Advisors
(``Magis''); (6) Morgan Stanley; (7) National Association of
Independent Public Finance Advisors (``NAIPFA''); and (8) Securities
Industry and Financial Markets Association (``SIFMA''). Summaries of
these comments and the MSRB's responses follow.
General Support
Comments: Barclays stated the ``Board has clearly identified the
legitimate concerns of industry participants and market observers
regarding the adverse effect bond ballot activity by dealers and MFPs
has on the integrity of the municipal securities market. Such concerns
have a tendency to extend beyond issuances supported by bond ballot
campaigns and reflect poorly on our industry as a whole.'' GFS stated
that the disclosures contemplated by the proposed rule change would be
an important step in preventing pay-to-play activities related to bond
ballot campaign contributions. The MSRB discusses additional comments
from these and other commenters below.
The Board should consider amendments to Rule G-37 to ban dealer
contributions to bond ballot campaigns, or impose a ban on future
business similar to that for certain dealer campaign contributions to
issuer officials.
Comments: CACTTC recommended that the MSRB consider amendments to
the rule that would include, ``an outright ban on brokers, dealers, or
any other municipal finance professionals from contributing to bond
ballot measures and/or their related committees'' and argued that such
a ``ban would simply expand the existing ban on political contributions
to public officials involved in approving related bond transactions.''
\18\ CACTTC stated that pay-to-play activities in municipal bond
elections and transactions undermines the competitive process that
ensures that taxpayer money is spent in the most efficient and
effective manner and suggested that the MSRB amend Rule G-37 to
``either shed light on or eliminate pay-to-play activities.'' Magis
expressed opposition to any circumstance where any market professional
is permitted to directly, or indirectly, contribute to bond ballot
campaigns that serve the interests of such a participant.
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\18\ CACTTC indicated that the bond ballot contribution problem
is most prevalent for school district financings in California due
to proposition 39. The proposition was enacted in 2000 and, lowered
to 55% from 66%, the amount of voter approval needed to approve a
bond ballot measure.
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Barclays asked the Board to seek a more direct means to ``address
conflicts of interest, actual and apparent, raised by cash and in-kind
contributions of dealers and their municipal finance personnel
(``MFPs'') to bond ballot campaigns.'' Barclays suggested that the
Board consider measures that would prohibit dealers from engaging in
municipal securities business for a clearly defined period of time
after the dealer or any of its MFPs has made a non-de minimis cash or
in-kind contribution to support a bond ballot campaign authorizing such
municipal securities business. Barclays argued that the terms of such a
prohibition should not turn on whether a dealer expects to be, or is,
reimbursed for such contributions, and should apply with respect to the
kinds of support activities identified in the Request for Comment \19\
(e.g., polling) whether or not local law would permit an issuer to
engage in such activity.
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\19\ See footnote 14.
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Morgan Stanley cited a San Francisco Chronicle article that
observed that ``in 150 of 155 cases (97%) where a dealer contributed to
support a bond ballot election that authorized the bonds the
underwriter was hired to underwrite'' and stated that ``[t]he continued
allowance of this widely perceived pay-to-play practice damages the
integrity of the municipal marketplace and allows outsiders
(regulators, journalists and politicians) to question the practices of
our marketplace.'' NAIPFA stated that the proposed amendments to Rule
G-37 do not go far enough in terms of curtailing the practice of
contributing to bond ballot campaign committees and will likely not
have a significant impact on such contributions. NAIPFA also stated
that it is unsure how the amendments alone will benefit issuers or the
public interest since the proposed rule change does not prohibit or
limit the practice of contributions to bond ballot campaigns. Finally,
NAIPFA stated that bond ballot contributions are often made, ``for the
purpose of influencing the selection or retention of underwriters, and
are thus the equivalent of the impermissible pay-to-play contributions
already banned under current Rule G-37.'' GFS believes that further
action will be warranted as the Board continues to examine this area of
rulemaking.
MSRB Response: The MSRB believes that the additional disclosures
required by the proposed rule change are an appropriate regulatory
response to the concerns identified. The MSRB believes that providing
public access to disclosures of dealer contributions to bond ballot
campaigns in a centralized format on the MSRB's Web site (through Form
G-37) has substantially increased the amount of information available
to
[[Page 10660]]
market participants, thereby increasing market transparency and
strengthening market integrity.
The information gathered pursuant to the proposed rule change,
coupled with the existing requirements of Rule G-37, will assist the
Board as it continues to monitor dealer and dealer personnel
contribution disclosures. Such monitoring will allow the Board to
determine, in the future, whether a corresponding ban on business, as a
result of such contributions, would be necessary to address any real or
perceived linkage between such contributions to bond ballot campaigns
(and related activities) and the award of municipal securities
business.
The MSRB should amend Rule G-37 to request certain additional
disclosures related to dealers' and their MFPs' contributions to bond
ballot campaigns.
Comments: CACTTC supported the additional disclosure requirements
for bond ballot campaigns and stated that an amendment to Rule G-37 is
``necessary to reduce the perception of pay-to-play and to help ensure
that underwriters and other municipal financial professionals are not
awarded bond transactions because they have contributed to related bond
ballot measures.'' SIFMA \20\ also supported the proposed rule change
to require disclosure of whether a dealer or any of its MFPs or non-MFP
executive officers received payments or reimbursements, related to any
bond issuance resulting from a bond ballot campaign to which the
dealer, its MFP or non-MFP executive officer or applicable PAC
contributed, from any third party. SIFMA stated that these payments or
reimbursements are not common and should be disclosed. SIFMA stated
that such payments would be known to the dealer and disclosure would
not cause much burden on the dealer and it would be material if any
such payments were made. SIFMA also supported the proposed rule change
to require dealers to provide the complete name of the entity that will
issue the bonds that were authorized by the bond ballot campaign, to
which a contribution was made by the dealer, its MFP or non-MFP
executive officer (other than a de minimis contribution) or applicable
PAC. SIFMA stated that the name of the issuer is always known by the
dealer and would be beneficial if disclosed on Form G-37 and that such
increased transparency would create more benefits than burdens on the
regulated dealer community.
---------------------------------------------------------------------------
\20\ Morgan Stanley supports the SIFMA comment letter.
---------------------------------------------------------------------------
GFS expressed concern about the lack of transparency in school bond
campaign fundings and how it leads to corruption. GFS stated that it
would be helpful to place in the public record information regarding
the specific issuers and bond issues implicated through the actions of
MFPs. GFS suggested requiring the disclosure, ``of compensation in
excess of general industry compensation practices * * *.'' GFS also
suggested requiring the disclosure of relevant information to investors
when firms participating in the bond issue have contributed to election
campaigns and the election campaigns to which the underwriters have
contributed are administered by municipal advisors. Magis stated that
there may be compelling reasons to require that disclosure of potential
conflicts of interest also be made in official statements ``in order to
avoid introducing error or omission to the issuer's official
statement.'' GFS also recommended requiring reporting of payments made
by underwriters to (not only payments received from) other
professionals, such as financial advisors and election advisors and
channeled through bond ballot campaigns.
MSRB Response: The MSRB believes that the additional disclosures
that will be required under the proposed rule change provide the
appropriate types of information that should be disclosed to the
general public, including investors, about when firms participating in
bond issues have contributed to election campaigns, by providing
additional information that has not previously been collected and made
available to the public. Such additional information includes: (a)
Requiring dealers to disclose the full issuer name and the full issue
description, which will provide increased public disclosure of the
specific primary offering or offerings that resulted from the bond
ballot campaign to which the dealer, or their personnel, contributed
and was required to disclose under existing Rule G-37; and (b)
requiring dealers to disclose additional information about in-kind
contributions that are made to bond ballot campaigns, including the
value and nature of goods and services that are provided to the
campaign and any ancillary services that are provided to, on behalf of,
or in furtherance of the bond ballot campaign by a dealer.
The MSRB does not believe there presently is a readily accessible
standard or a ``base-line'' level of compensation for municipal
securities transactions that would allow disclosure of ``excess''
compensation as urged by GFS. In response to comments suggesting that
dealers should disclose whether a bond ballot campaign is administered
by a municipal advisor, the MSRB believes that actual knowledge of
whether the bond ballot campaign is administered by a municipal advisor
would be required, and that such information is not generally known or
available to support a comprehensive disclosure standard for the
industry at this time.
In response to Magis's suggestion to require the disclosure of
potential conflicts of interest in official statements, the MSRB notes
that it does not have regulatory authority over issuers, and therefore
does not have the authority to establish requirements regarding the
content of official statements. The MSRB believes that GFS's
recommendation to report the payments made by underwriters to other
professionals that may be channeled through bond election campaigns is
not necessary because, to the extent that such payments would represent
indirect contributions by the dealer to a bond ballot campaign, such
indirect contributions already are required to be disclosed under
current Rule G-37.
The proposed amendments to Rule G-37 raise constitutional concerns.
Comments: CCP noted its concerns that ``the Board may take further
action regarding dealer and dealer personnel contributions to bond
ballot campaigns, up to and including a corresponding ban on business
as a result of certain contributions.'' CCP stated that the Board has
overlooked the long-standing constitutional distinction between
contributions to candidates and those given to support or oppose ballot
initiatives. ``Simply put, ballot measure committees receive stronger
constitutional protection against government regulation than do
candidates.'' CCP also argued that the MSRB's concern about certain
practices related to bond ballot campaigns have nothing to do with the
creation of a quid pro quo arrangement between the bond ballot measure
committee and the contributors because the bond ballot measure
committee is, under the law, an entirely separate entity from the
issuer. ``There is no identity of interests between the person
supported for election and the person making hiring and issuing
decisions, as is the case in the candidate context and as the D.C.
Circuit required in Blount. The Board's announcement and analysis make
no mention of this crucial distinction.'' CCP suggested that the Board
take into consideration the fact that ``ballot issue, ballot measure,
and independent expenditure committees are granted far more
constitutional protection than are candidate committees.''
[[Page 10661]]
MSRB Response: The MSRB recognizes the distinctions between
contributions to candidates and bond ballot campaigns. The MSRB
believes that the requirement under the proposed rule change to have
dealers provides additional, basic information pertaining to
contributions to bond ballot campaigns and any subsequent municipal
securities business does not impinge upon the First Amendment rights of
individuals and/or firms that will be responsible for providing
disclosure of bond ballot campaign contributions.\21\ As noted
previously, the proposed rule change only will require disclosure of
additional information pertaining to contributions to, and municipal
securities business from, bond ballot campaigns and will not prohibit
contributions to such campaigns.
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\21\ In Blount v. Securities and Exchange Commission, 61 F.3d
938, 948 (DC Cir. 1995), the District Court determined that existing
Rule G-37 advanced a compelling governmental interest to protect
investors that did not abridge First Amendment rights and stated
that ``municipal finance professionals are not in any way restricted
from engaging in the vast majority of political activities,
including making direct expenditures for the expression of their
views * * *.''
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Certain dealer and dealer personnel contributions to, and
activities related to, bond ballot campaigns violate state laws in
certain jurisdictions.
Comments: Magis cited an opinion of the California Legislative
Counsel's Office that ``a school district or other local agency may not
condition the award of an agreement to provide bond underwriting
services on the underwriter also providing campaign services in support
of that bond measure or another bond measure proposed by the school
district or other local agency.'' Magis also stated that California law
prohibits the expenditure of public monies on electioneering.
GFS argued that certain bond ballot campaign practices are contrary
to the Best Practice recommendation of the Government Finance Officers
Association and that
[t]here are variations in bond election contribution patterns.
Other underwriters simply administer bond election campaigns
themselves. In doing so, those firms provide both monetary and in-
kind value. Those underwriters may advertise this function as a
``service'' provided to issuers. Yet, in California and other states
the issuers cannot administer bond election campaigns themselves.
Still, in those facts and circumstances, the issuers invariably
employ those underwriters to underwrite the bonds the voters
approve. The practice has the appearance of those issuers doing
indirectly through municipal finance professionals what the issuers
cannot do directly.
MSRB Response: The MSRB has previously stated that contributions
and expenditures by certain dealers and dealer personnel may assist an
issuer in avoiding state law restrictions, and depending on the
totality of the facts and circumstances, could independently violate
Rule G-17, even if not precluded by Rule G-37.\22\ The MSRB does not
believe that any additional changes in Rule G-37 are necessary at this
time.
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\22\ MSRB Rule G-17 provides that, in the conduct of its
municipal securities or municipal advisory activities, each dealer
and municipal advisor shall deal fairly with all persons and shall
not engage in any deceptive, dishonest, or unfair practice. These
principles of fair practice have previously been viewed as
applicable in the context of the MSRB's efforts to eliminate pay-to-
play activities in the municipal securities market. See, e.g., MSRB
Notice 2003-32 (August 6, 2003); In the Matter of Pryor, McClendon,
Counts & Co. et al., Order Making Findings and Imposing Remedial
Sanctions and a Cease-and-Desist Order (February 6, 2002) (broker-
dealer violated Rule G-17 by concealing certain political
contributions that would have triggered a ban on business under Rule
G-37). See also MSRB Reports, Draft Rule G-37, Concerning Political
Contributions in the Municipal Securities Market, Volume 13, Number
4 (August, 1993); Testimony of Charles W. Fish, Chairman, Municipal
Securities Rulemaking Board before the Subcommittee on
Telecommunications and Finance of the Committee on Energy and
Commerce, United States House of Representatives (September 7, 1993)
at 59, n.86.
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The proposed amendments to the definitions of ``contribution'' and
``de minimis'' in Rule G-37 are problematic.
Comments: SIFMA stated that including election services or
collateral work provided on behalf of an issuer, in addition to work
done on behalf of a bond ballot campaign committee, in the revised
definition of ``contribution'' to include the full range of cash and
in-kind contributions is a significant change that greatly expands the
scope of the reporting obligations to cover frequent routine
communications between issuers and underwriters. SIFMA believes the
proposed amendment blurs the line between work done for the bond ballot
campaign committee which is to be reported on Form G-37 and traditional
work for the issuer completed as part of the public finance
transaction. SIFMA stated that only in-kind contributions to the bond
ballot committee itself should be reportable and that references to
work provided to the issuer should be struck from the proposed rule
change. SIFMA argued that it would be burdensome on the dealer
community to separately distinguish, track, quantify and report such
information to the MSRB. SIFMA agreed that work done for or
contributions made to the actual bond ballot campaign committee should
be disclosed, as the bond ballot campaign committee is a separate legal
entity from the issuer.
NAIPFA stated its support of the MSRB's proposed amendment to
address ``in-kind'' contributions. GFS stated that it would be helpful
to include reporting of in-kind contributions and the value of in-kind
contributions, which are excluded from current reporting requirements
under Rule G-37.
MSRB Response: The MSRB believes the public disclosure of all
political contributions, including cash and in-kind services, will
allow for greater public scrutiny of such contributions and the
potential connection between them and the awarding of municipal
securities business. However, the MSRB agrees that the definition of
``contribution'' should not include work provided to or on behalf of
the issuer that is related to the completion of municipal securities
business. The MSRB has amended the proposed rule change to clarify the
appropriate nexus between ancillary services provided to, on behalf of,
or in furtherance of a bond ballot campaign by a dealer or dealer
personnel. The revisions will assist with clarifying that in-kind
contributions that would be required to be reported by dealers will
solely be required with respect to activities related to a bond ballot
campaign and not with respect to activities undertaken to complete the
associated municipal securities business.
The MSRB also notes that the term ``contribution,'' as defined in
Rule G-37, includes anything of value, which has been interpreted to
include in-kind contributions.\23\ The proposed rule change will
establish that the disclosure of in-kind contributions must include
both the value and the nature of the goods or services provided.
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\23\ See Rule G-37 Interpretations, Questions and Answers
Concerning Political Contributions and Prohibitions on Municipal
Securities Business: Rule G-37, Question II. 18 (May 24, 1994). For
example, if a MFP uses dealer's resources (e.g., a political
position paper prepared by dealer personnel) or incurs expenses in
the conduct of dealer volunteer work (e.g., hosting a reception),
then the value of such resources or expenses would constitute a
contribution.
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The proposed amendments will impose undue burdens on dealers.
Comment: CCP stated that the proposed rule change would impose only
recordkeeping burdens and would do little to advance the MSRB's
anticorruption mission. CCP stated that the recordkeeping requirements
for in-kind contributions do little to prevent corruption and would
chill a kind of political participation--volunteer work. In addition,
CCP stated that by requiring recordkeeping of non-de minimis
contributions, and defining such contributions at the same rate as
those
[[Page 10662]]
for candidates, the proposed revisions conflate contributions to
candidates with those to support or oppose ballot initiatives.
MSRB Response: The MSRB believes the requirements of the proposed
rule change are necessary and appropriate and will assist the Board and
the public in determining whether the awarding of municipal securities
business is linked to certain dealer and dealer personnel contributions
to bond ballot campaigns. The proposed rule change will assist with
advancing the anticorruption objective of Rule G-37. The MSRB believes
that potential burdens that may be caused by the recordkeeping
requirements of the proposed rule change will be offset by the benefits
to the MSRB and the public through greater clarity and context to
existing bond ballot campaign contribution disclosures. The MSRB notes
that dealers currently report certain political campaign contributions
and the increased reporting and submission requirements of the proposed
rule change will only involve a slight, incremental increase to
existing requirements.
The MSRB also notes that certain dealers also are required to
report bond ballot contribution information at the state and local
level. These requirements demonstrate the strong public interest for
reporting such contributions, and for dealers in such jurisdictions,
the burdens of the proposed rule change are arguably even lower.
The MSRB does not believe that the proposed rule change will
prohibit or regulate personal volunteer work by dealers and MFPs nor
will it chill volunteer work as suggested by CCP. The proposed rule
change will require the disclosure of the contribution amounts that are
made to bond ballot campaigns by covered parties which, in the case of
in-kind contributions, include both the value and the nature of the
goods or services provided, including any ancillary services provided
to, on behalf of, or in furtherance of the bond ballot campaign. As
with existing Rule G-37, the proposed rule change does not prohibit or
restrict individual personal volunteer work.\24\
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\24\ Ibid. The MSRB has previously provided guidance regarding
the treatment of contributions as the use of dealer resources or the
incurrence of expenses by dealers in connection with a political
campaign. The MSRB has made clear that Rule G-37 does not prohibit
or limit individuals from providing volunteer services in support of
an issuer official, and has also noted that certain incidental
expenses incurred by such individual would generally not be treated
as a contribution. See Rule G-37 Question and Answer II.18 (May 24,
1994). For example, personal expenses incurred by an MFP in the
conduct of volunteer work, which expenses are purely incidental to
the volunteer work and are unreimbursed by the dealer (e.g., cab
fares and personal meals), would not constitute a contribution. Also
see Rule G-37, Question II.19 (August 18, 1994). An employee of a
dealer generally can donate their time to an issuer official's
campaign without such time being viewed as a contribution by the
dealer to the official, so long as the employee is volunteering his
or her time during non-work hours, or is using previously accrued
vacation time or the dealer is not otherwise paying the employee's
salary (e.g., an unpaid leave of absence). These principles would
apply equally to individuals providing volunteer services in
connection with a bond ballot campaign.
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The MSRB does not agree with CCP's comment that defining de minimis
contributions at the same level as those for candidates, and the
attendant recordkeeping requirements for in-kind contributions, is
improper. Rather, the MSRB believes that there are efficiencies in
maintaining consistent de minimis levels for Rule G-37, even with
respect to in-kind contributions.
Comment: SIFMA stated that requiring the dealer to provide the
specific date on which a contribution was given by the dealer to the
bond ballot campaign is burdensome depending upon the number of non-de
minimis reportable contributions that need to be tracked and reported
to the MSRB. SIFMA requested that the MSRB not expand the Form G-37
disclosure to include the specific date the dealer was selected to
engage in municipal securities business because the date the dealer was
selected to engage in such municipal securities business may not be
clear or ascertainable by the dealer. SIFMA believes that each issuer
typically has its own method for the selection and final approval of
underwriters, which makes it difficult or impossible to standardize the
process.
MSRB Response: In response to SIFMA's concern over difficulties in
identifying the precise date when a dealer is selected to engage in a
municipal securities business, the MSRB has proposed defining a new
term: ``reportable date of selection.'' Specifically, the ``reportable
date of selection'' will be the date of the earliest to occur of (i)
The execution of an engagement letter, (ii) the execution of a bond
purchase agreement, or (iii) the receipt of formal notification
(provided either in writing or orally) from, or on behalf of, the
issuer that the dealer has been selected to engage in municipal
securities business.
Comments: SIFMA requested that any rule change be applied from its
effective date forward, with no contributions made, or transactions
sold or issued before the effective date of the rule, be subject to
reporting. SIFMA proposed ``a two-year look back for contributions by
current individual MFPs or non-MFPs executive officers for bond ballot
campaign contributions that result in a municipal bond offering
underwritten by the dealer, to be phased in from the effective date of
the rule.'' \25\ SIFMA also proposed a limitation on reporting
municipal securities business resulting from a bond ballot campaign to
which a contribution was made so that the dealer would only be required
to look back two years prior to the business being undertaken, and that
``transactions underwritten by the dealer after a contribution was made
to a bond ballot campaign committee by a former employee should not
need to be reported.''
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\25\ SIFMA also stated any applicable look back provision should
not take into account contributions made, or transactions sold or
issued before the effective date of the rule.
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NAIPFA stated that ``any burden, incremental or otherwise, placed
upon municipal market participants in connection with the imposition of
the Amendments will be outweighed by the benefits that the Amendments
will have to the municipal market in terms of improving hiring
practices, market transparency, and the policing'' of dealer
contributions to bond ballot campaigns. Similarly, GFS stated that it
does not believe the disclosure requirements that are contemplated by
the proposed rule change would impose undue burdens on underwriters,
nor would a future extension of the disclosure requirements to
municipal advisors.
MSRB Response: The MSRB believes that the proposed rule change
should only apply with respect to municipal securities business with a
sale or issuance date on or after the effective date of the proposed
rule change. As a result, dealers will not be required to supplement
the bond ballot campaign disclosures made with respect to offerings
prior to the effective date. However, with respect to offerings after
the effective date, dealers must look back at any contribution made by
a covered party on or after February 1, 2010 (the date on which dealers
were first required to record and disclose contributions to bond ballot
campaigns).\26\
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\26\ See footnote 10.
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In addition, the MSRB believes that the look-back provisions for
contributions made by an individual prior to becoming an MFP or a non-
MFP executive officer of a dealer should be limited to two years,
consistent with the existing timeframe for which such
[[Page 10663]]
contributions are ordinarily attributable to the dealer under Rule G-
37. The MSRB also believes that dealers must continue to report primary
offerings pertaining to bond ballot campaign contributions of an MFP or
non-MFP executive officer that left the dealer, as such contributions
are properly attributable to such dealer.
The proposed amendments to Rule G-37 should apply to municipal
advisors.
Comments: NAIPFA believes that municipal advisors should be subject
to the proposed amendments when and if adopted. In addition, NAIPFA
supported the inclusion of municipal advisors within the provisions of
current Rule G-37 and, in particular, those portions contained within
Rule G-37(c) and (d) in order to prevent municipal advisors from
circumventing their disclosure obligations as well as the ban on
campaign contributions. GFS stated that ``[a]mong other things, once
the definition of the `municipal advisor' concept is finalized by the
Securities and Exchange Commission, financial advisors and other
municipal advisors can be brought within the scope of the regulation.''
Magis and SIFMA also supported the application of the proposed
amendments to municipal advisors.
MSRB Response: The MSRB previously proposed a new rule that would
apply pay-to-play restrictions to municipal advisors but withdrew such
proposal pending final rulemaking by the SEC on a permanent municipal
advisor registration rule and related definitional matters.\27\ The
MSRB will consider including the same types of disclosures required by
the proposed rule change in any such rule it may propose in the future
with regard to municipal advisors.
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\27\ See MSRB Notice 2011-46 (August 19, 2011); MSRB Notice
2011-51 (September 12, 2011).
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Rule G-37 should have more timely and/or expansive reporting
requirements.
Comments: GFS recommended that the Board consider requiring
reporting promptly after contributions are made, and in any event,
prior to elections and in time to inform the electorate. Magis
expressed concern that existing Form G-37 submissions by underwriters
occur only quarterly and suggested that the Board consider ``more
timely disclosure of these conflicts of interest prior to the bond
election. * * *''
MSRB Response: The MSRB believes that the current quarterly
reporting scheme required under Rule G-37 provides adequate and timely
information about dealer and dealer personnel contributions to bond
ballot campaigns and does not intend to expand the reporting
requirements at this time.
The EMMA system should provide for easier access to the disclosures
submitted by dealers relating to bond ballot campaign contributions and
related information.
Comments: GFS stated that ``EMMA's online campaign contribution
report records are difficult to search in a systematic manner. For
example, EMMA's records cannot be searched at present by issuer names
or titles of bond issues, which voters may wish to do.'' GFS
recommended making campaign contribution reports more easily searchable
on EMMA by issuer name and by titles of bond issues. Magis also stated
that EMMA is exceedingly difficult to search by issuer name because the
records are ``dealer name-centric.'' Magis supports the ability to
access Form G-37 information by state or type of issuer.
MSRB Response: Comments about the usability and functionality of
disclosure on EMMA are beyond the scope of the proposed rule change.
The MSRB is continually evaluating the effectiveness of EMMA and may
consider initiating such changes in the future.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-MSRB-2013-01 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-MSRB-2013-01. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the MSRB. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-MSRB-2013-01 and should be
submitted on or before March 7, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03385 Filed 2-13-13; 8:45 am]
BILLING CODE 8011-01-P
