Corrected to conform to the Federal Register version

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 275 

Release No. IA-3418; File No. S7-18-09 

RIN 3235-AK39

Political Contributions by Certain Investment Advisers: Ban on Third-Party Solicitation; 

Extension of Compliance Date 

AGENCY: Securities and Exchange Commission. 

ACTION: Final rule; extension of compliance date.

SUMMARY: The Securities and Exchange Commission (“Commission” or “SEC”) is 

extending the date by which advisers must comply with the ban on third-party solicitation in rule 

206(4)-5 under the Investment Advisers Act of 1940, the “pay to play” rule. The Commission is 

extending the compliance date in order to ensure an orderly transition for advisers and third-party 

solicitors as well as to provide additional time for them to adjust compliance policies and 

procedures after the transition.

DATES: Effective date: The effective date for this release is June 11, 2012.

The effective date for the ban on third-party solicitation under rule 206(4)-5 of the 

Investment Advisers Act of 1940 remains September 13, 2010. 

Compliance date: The compliance date for the ban on third-party solicitation is extended until 

nine months after the compliance date of a final rule adopted by the Commission by which 
2 

municipal advisor firms must register under the Securities Exchange Act of 1934. Once such 

final rule is adopted, we will issue the new compliance date for the ban on third-party solicitation 

in a notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Vanessa M. Meeks, Attorney-Adviser, or 

Melissa A. Roverts, Branch Chief, at (202) 551-6787 or IArules@sec.gov, Office of Investment 

Adviser Regulation, Division of Investment Management, U.S. Securities and Exchange 

Commission, 100 F Street, NE, Washington, DC 20549-8549. 

SUPPLEMENTARY INFORMATION: On July 1, 2010, the Commission adopted rule 

206(4)-5 [17 CFR 275.206(4)-5] (the “Pay to Play Rule”) under the Investment Advisers Act of 

1940 [15 USC 80b] (“Advisers Act”) to prohibit an investment adviser from providing advisory 

services for compensation to a government client for two years after the adviser or certain of its 

executives or employees (“covered associates”) make a contribution to certain elected officials or 

candidates.1

 As adopted, rule 206(4)-5 also prohibited an adviser and its covered associates from 

providing or agreeing to provide, directly or indirectly, payment to any third-party for a 

solicitation of advisory business from any government entity on behalf of such adviser, unless 

such third-party was an SEC-registered investment adviser or a registered broker or dealer 

subject to pay to play restrictions adopted by a registered national securities association (the 

“third-party solicitor ban”).2

 

1

 Political Contributions by Certain Investment Advisers, Investment Advisers Act Rel. No. 3043 

(July 1, 2010) [75 FR 41018 (July 14, 2010)] (“Pay to Play Release”).

 Rule 206(4)-5 became effective on September 13, 2010, and, as 

adopted, the third-party solicitor ban’s compliance date was September 13, 2011. This 

2

 See id. at Section II.B.2.(b). The Commission must find, by order, that those restrictions: (i) 

impose substantially equivalent or more stringent restrictions on broker-dealers than the Pay to 

Play Rule imposes on investment advisers; and (ii) are consistent with the objectives of the Pay to 

Play Rule. 
3 

compliance date was intended to provide advisers and third-party solicitors with sufficient time 

to conform their business practices to the rule, and to revise their compliance policies and 

procedures to prevent a violation. In addition, the transition period was intended to provide an 

opportunity for a registered national securities association to adopt a pay to play rule and for the 

Commission to assess whether that rule met the requirements of rule 206(4)-5(f)(9)(ii)(B).3

 It 

was our understanding at the time, and it still is, that FINRA is planning to propose a rule that 

would meet those requirements, but we also suggested that we may need to take further action to 

ensure an orderly transition.4

Not long after the Pay to Play Rule was adopted, Congress created a new category of 

Commission registrants called “municipal advisors” in the Dodd-Frank Act. The statutory 

definition of municipal advisor includes persons that undertake “a solicitation of a municipal 

entity.”5 These solicitors would be registered with us and also subject to regulation by the 

Municipal Securities Rulemaking Board (“MSRB”). In September 2010, we adopted an interim 

final rule establishing a temporary means for municipal advisors to satisfy the registration 

requirement.6

 

3

 See note 

 In December 2010, we proposed permanent rules and forms that would interpret 

the term “municipal advisor” and create a new process by which municipal advisors must 

2. While rule 206(4)-5 applies to any registered national securities association, the 

Financial Industry Regulatory Authority, or FINRA, is currently the only registered national 

securities association under section 19(a) of the Securities Exchange Act of 1934 [15 U.S.C. 

78s(b)]. As such, for convenience, we will refer directly to FINRA in this Release when 

describing the exception for certain broker-dealers from the third-party solicitor ban.

4

 See id. at Section III.B.

5

 See Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 

Stat. 1376 (2010) at section 975. 

6

 The Dodd-Frank Act required municipal advisors to be registered with the Commission by 

October 2010. See section 975 of the Dodd-Frank Act. 
4 

register with the SEC.7 On January 14, 2011, the MSRB requested comment on a draft proposal 

to establish a number of rules applicable to municipal advisors, including a pay to play rule.8

 In 

December 2011, we extended the expiration date of the interim final rule to September 30, 

2012.9

With the understanding that municipal advisors would be subject to permanent 

registration requirements with the Commission and could be subject to an MSRB pay to play 

rule, on June 22, 2011, we amended the Pay to Play Rule to add municipal advisors to the 

categories of registered entities—referred to as “regulated persons”—excepted from the rule’s 

third-party solicitor ban.

 

10

 

7

 See Registration of Municipal Advisors, Exchange Act Release No. 63576 (Dec. 20, 2010) [76 

FR 824, (Jan. 6, 2011)]. 

 For a municipal advisor to qualify as a “regulated person,” it must be 

registered with us as such and subject to a pay to play rule adopted by the MSRB. In addition, 

the Commission must find, by order, that the MSRB rule: (i) imposes substantially equivalent or 

more stringent restrictions on municipal advisors than the Pay to Play Rule imposes on 

investment advisers; and (ii) is consistent with the objectives of the Advisers Act Pay to Play 

Rule. The Commission also extended the date by which advisers must comply with the ban on 

third-party solicitation from September 13, 2011 to June 13, 2012 due to the expansion of the 

8

 See MSRB, Request for Comment on Pay to Play Rule for Municipal Advisors, MSRB Notice 

2011-04 (Jan. 14, 2011) available at http://www.msrb.org/Rules-and-Interpretations/RegulatoryNotices/2011/2011-04.aspx?n=1. 

9

 Extension of Temporary Registration of Municipal Advisors, Exchange Act Release No. 66020 

(Dec. 21, 2011) [76 FR 80733 (Dec. 27, 2011)].

10 Rules Implementing Amendments to the Investment Advisers Act of 1940, Investment Advisers 

Act Rel. No. 3221 (June 22, 2011) [76 FR 42950 (July 19, 2011)] (“Implementing Release”). 
5 

definition of “regulated persons.” The extension was intended, again, to provide sufficient time 

for an orderly transition.11

 Soon thereafter, on August 19, 2011, the MSRB filed a proposal with the Commission 

that included a new pay to play rule regarding the solicitation activities of municipal advisors 

and amendments to several existing MSRB rules related to pay to play practices.12 On 

September 9, 2011, the MSRB withdrew the proposals, stating that it intends to resubmit them 

upon our adoption of a permanent definition of the term “municipal advisor.”13

 In order to ensure an orderly transition for advisers and third-party solicitors as well as to 

provide additional time for them to adjust compliance policies and procedures after the 

transition, we believe that an extension of the compliance date for the Pay to Play Rule’s thirdparty solicitor ban is appropriate until nine months after the compliance date of a final rule 

adopted by the Commission by which municipal advisor firms must register under the Securities 

Exchange Act of 1934. Final rules as to who must register as a municipal advisor, and the 

 

11 See id. at section II.D.1. 

12 See Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of 

Proposed New Rule G-42, on Political Contributions and Prohibitions on Municipal Advisory 

Activities; Proposed Amendments to Rules G-8, on Books and Records, G-9, on Preservation of 

Records, and G-37, on Political Contributions and Prohibitions on Municipal Securities 

Business; Proposed Form G-37/G-42 and Form G-37x/G-42x; and a Proposed Restatement of a 

Rule G-37 Interpretive Notice, Exchange Act Release No. 65255 (Sept. 2, 2011) [76 FR 55976 

(Sept. 9, 2011)]; MSRB, MSRB Files Pay to Play Rule for Municipal Advisors and Changes to 

Dealer Pay to Play Rule, MSRB Notice 2011-46 (Aug. 19, 2011) available at 

http://www.msrb.org/Rules-and-Interpretations/Regulatory-Notices/2011/2011-46.aspx. The 

proposal consisted of (i) proposed MSRB Rule G-42 (on political contributions and prohibitions 

on municipal advisory activities); (ii) proposed amendments that would make conforming 

changes to MSRB Rules G-8 (on books and records), G-9 (on preservation of records), and G-37 

(on political contributions and prohibitions on municipal securities business); (iii) proposed Form

G-37/G-42 and Form G-37x/G-42x; and (iv) a proposed restatement of a Rule G-37 interpretive 

notice issued by the MSRB in 1997. 

13 See MSRB, MSRB Withdraws Pending Municipal Advisor Rule Proposals, MSRB Notice 2011-

51 (Sept. 12, 2011) available at http://www.msrb.org/Rules-and-Interpretations/RegulatoryNotices/2011/2011-51.aspx. 
6 

process for doing so, will provide clarity to persons who may qualify as municipal advisors, and 

the investment advisers who may hire them, as to status and registration obligations under these 

future Commission rules. The new compliance date will also allow all solicitors to assess 

compliance obligations with pay to play rules that may be adopted by FINRA or the MSRB. 

 The Commission finds that, for good cause and the reasons cited above, notice and 

solicitation of comment regarding the extension of the compliance date for the ban on third-party 

solicitation under rule 206(4)-5 are impracticable, unnecessary, or contrary to the public 

interest.14

By the Commission.

 In this regard, the Commission also notes that investment advisers need to be 

informed as soon as possible of the extension in order to plan and adjust their implementation 

process accordingly. 

 Kevin M. O’Neill

 Deputy Secretary

Dated: June 8, 2012 

 

14 See Section 553(b)(3)(B) of the Administrative Procedure Act (5 U.S.C. 553(b)(3)(B)) (“APA”) 

(an agency may dispense with prior notice and comment when it finds, for good cause, that notice 

and comment are “impracticable, unnecessary, or contrary to the public interest”). This finding 

also satisfies the requirements of 5 U.S.C. 808(2), allowing the rules to become effective 

notwithstanding the requirement of 5 U.S.C. 801 (if a federal agency finds that notice and public 

comment are “impractical, unnecessary or contrary to the public interest,” a rule “shall take effect 

at such time as the federal agency promulgating the rule determines”). Also, because the 

Regulatory Flexibility Act (5 U.S.C. 601 – 612) only requires agencies to prepare analyses when 

the APA requires general notice of rulemaking, that Act does not apply to the actions that we are 

taking in this release. The change to the compliance date is effective upon publication in the 

Federal Register. This date is less than 30 days after publication in the Federal Register, in 

accordance with the APA, which allows effectiveness in less than 30 days after publication for “a 

substantive rule which grants or recognizes an exemption or relieves a restriction.” See 5 U.S.C. 

553(d)(1).