In February 2016, the SEC approved amendments to MSRB Rule G-37, on political contributions and prohibitions on municipal securities business, and related amendments to MSRB Rules G-8 and G-9.

On its effective date of August 17, 2016, the Rule G-37 amendments will extend the core standards under Rule G-37 to municipal advisors, their political contributions and the provision of municipal advisory business.  The amendments are designed to address potential “pay-to-play” practices by municipal advisors consistently with the MSRB’s existing regulation of dealers.

Specifically, amended MSRB Rule G-37 will extend the core standards under Rule G-37 to municipal advisors by:

  • Prohibiting a municipal advisor from engaging in municipal advisory business with a municipal entity for two years, subject to exceptions, following the making of a contribution to certain officials of the municipal entity by the municipal advisor, a municipal advisor professional (MAP) of the municipal advisor, or a political action committee (PAC) controlled by the municipal advisor or a MAP of the municipal advisor;
  • Prohibiting municipal advisors and MAPs from soliciting contributions, or coordinating contributions, to certain officials of a municipal entity with which the municipal advisor is engaging, or seeking to engage, in municipal advisory business;
  • Requiring a nexus that links the influence that may be exercised by an official of a municipal entity – the influence in the awarding of business to the municipal advisor (or the dealer, municipal advisor or investment adviser clients of a defined municipal advisor third-party solicitor) – and the contributions received by the official;
  • Prohibiting municipal advisors and certain MAPs from soliciting payments, or coordinating payments, to political parties of states and localities with which the municipal advisor is engaging in, or seeking to engage in, municipal advisory business;
  • Prohibiting municipal advisors and MAPs from committing indirect violations of amended Rule G-37;
  • Requiring quarterly disclosures to the MSRB of certain contributions and related information;
  • Providing for certain exemptions from a ban on municipal advisory business; and
  • Extending applicable interpretive guidance under Rule G-37 to municipal advisors.

Recently, the MSRB filed an amendment to Rule G-37 with the SEC to clarify that contributions by persons who become associated with a dealer and become municipal finance professionals of the dealer, if made prior to August 17, 2016 (the effective date of the Rule G-37 Amendments) are subject to the two-year look-back in Rule G-37 and may subject a dealer to a prohibition on municipal securities business.

The clarification is made in MSRB Rule G-37(h), which had been amended in the Rule G-37 amendments to reflect the extension of the rule to municipal advisory business.  Specifically, Rule G-37(h) is amended to provide that the prohibitions on engaging in municipal securities business and municipal advisory business “shall result from a contribution and be of the scope and length of time as provided under Rule    G-37 as in effect at the time that such contribution is made.”  The amendment is consistent with the intent of the Rule G-37 amendments to achieve implementation of such amendments without any interruption of the current regulatory policy regarding a two-year look-back applicable to dealers and their municipal finance professionals in Rule G-37.