Document ID: SEC-2010-1578-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Municipal Securities Rulemaking Board
Posted Date: 2010-10-18T04:00Z

[Federal Register: October 18, 2010 (Volume 75, Number 200)]
[Notices]               
[Page 63873-63874]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18oc10-113]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63073, File No. SR-MSRB-2010-07]

 
Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of Proposed Rule Change Relating to Rule 
G-37, on Political Contributions and Prohibitions on Municipal 
Securities Business

October 12, 2010.

I. Introduction

    On August 25, 2010, the Municipal Securities Rulemaking Board 
(``MSRB''), filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change which consists of an interpretive 
notice regarding Rule G-37, on political contributions and prohibitions 
on municipal securities business. The proposed rule change was 
published for comment in the Federal Register on September 9, 2010.\3\ 
The

[[Page 63874]]

Commission received no comment letters about the proposed rule change. 
This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 62830 (September 2, 
2010), 75 FR 54930 (the ``Commission's Notice'').
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II. Description of the Proposed Rule Change

    The proposed rule change consists of an interpretive notice 
regarding Rule G-37, on political contributions and prohibitions on 
municipal securities business.\4\ Under Rule G-37, certain 
contributions to elected officials of municipal securities issuers made 
by brokers, dealers and municipal securities dealers (``dealers''), 
municipal finance professionals (``MFPs'') associated with dealers, and 
political action committees (``PACs'') controlled by dealers and their 
MFPs (``dealer-controlled PACs'') \5\ may result in prohibitions on 
dealers from engaging in municipal securities business with such 
issuers for a period of two years from the date of any triggering 
contributions.
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    \4\ Rule G-37 defines municipal securities business as: (i) The 
purchase of a primary offering of municipal securities from an 
issuer on other than a competitive bid basis; (ii) the offer or sale 
of a primary offering of municipal securities on behalf of an 
issuer; (iii) 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 (iv) 
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.
    \5\ The MSRB has previously stated that the matter of control 
depends upon whether or not the dealer or the MFP has the ability to 
direct or cause the direction of the management or policies of the 
PAC (MSRB Question & Answer No. IV. 24--Dealer Controlled PAC). 
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    Rule G-37 requires dealers to disclose certain contributions to 
issuer officials, state or local political parties, and bond ballot 
campaigns, as well as other information, on Form G-37 to allow public 
scrutiny of such contributions and the municipal securities business of 
a dealer. In addition, dealers and MFPs generally are prohibited from 
soliciting others (including affiliates of the dealer or any PACs) to 
make contributions to officials of issuers with which the dealer is 
engaging or seeking to engage in municipal securities business, or to 
political parties of a state or locality where the dealer is engaging 
or seeking to engage in municipal securities business. Dealers and MFPs 
are prohibited from circumventing Rule G-37 by direct or indirect 
actions through any other persons or means.\6\
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    \6\ Rule G-37(d) provides that no broker, dealer or municipal 
securities dealer or any municipal finance professional shall, 
directly or indirectly, through or by any other person or means, do 
any act which would result in a violation of sections (b) or (c) of 
the rule. Section (b) relates to the ban on business and Section (c) 
relates to the prohibition on soliciting and coordinating 
contributions.
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    Due to changes in the financial markets since the adoption of Rule 
G-37 and recent market turmoil, many dealers have become affiliated 
with a broad range of other entities in increasingly diverse 
organizational structures. Some of these affiliated entities (including 
but not limited to banks, bank holding companies, insurance companies 
and investment management companies) have formed or otherwise maintain 
relationships with PACs (``affiliated PACs'') and other political 
organizations, many of which may make contributions to issuer 
officials. Such relationships raise questions regarding the extent to 
which affiliated PACs may effectively be controlled by dealers or their 
MFPs and thereby constitute dealer-controlled PACs whose contributions 
are subject to Rule G-37. Further, such relationships raise concerns 
regarding whether the contributions of such affiliated PACs, even if 
not viewed as dealer-controlled PACs, may be used by dealers or their 
MFPs to circumvent Rule G-37 as indirect contributions for the purpose 
of obtaining or retaining municipal securities business. As a result, 
the MSRB has filed the proposed rule change to provide additional 
guidance with regard to the potential for affiliated PACs to be viewed 
as dealer-controlled PACs. A more complete description of the proposal 
is contained in the Commission's Notice.
    The MSRB has requested an effective date for the proposed rule 
change of sixty days after Commission approval of the proposed rule 
change.

 III. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change 
and finds that the proposed rule change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to the MSRB \7\ and, in particular, the 
requirements of Section 15B(b)(2)(C) of the Exchange Act \8\ and the 
rules and regulations thereunder. Section 15B(b)(2)(C) of the Exchange 
Act requires, among other things, that the MSRB's 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 municipal securities, to remove impediments to and perfect the 
mechanism of a free and open market in municipal securities, and, in 
general, to protect investors and the public interest.\9\ The 
Commission believes that the proposed rule change is consistent with 
the Exchange Act because it will help to inhibit practices constituting 
real and perceived attempts to influence the awarding of municipal 
securities business through contributions made by or through dealer-
affiliated PACs. The Commission also believes that the proposed rule 
change will facilitate dealer compliance with Rule G-37 and Rule G-27, 
on supervision. The proposal will become effective sixty days after 
Commission approval of the proposed rule change, as requested by the 
MSRB.
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    \7\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition and capital formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78o-4(b)(2)(C).
    \9\ Id.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\10\ that the proposed rule change (SR-MSRB-2010-07), be, 
and it hereby is, approved.
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    \10\ 15 U.S.C. 78s(b)(2).
    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-26131 Filed 10-15-10; 8:45 am]
BILLING CODE 8011-01-P