[Federal Register Volume 75, Number 200 (Monday, October 18, 2010)]
[Notices]
[Pages 63873-63874]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-26131]
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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