[Federal Register Volume 61, Number 167 (Tuesday, August 27, 1996)]
[Notices]
[Pages 44098-44100]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21816]
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SECURITIES AND EXCHANGE COMMISSION
[Docket No. 34-37591; File No. SR-MSRB-96-8]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Municipal Securities
Rulemaking Board Relating to Interpretation of Rule G-37 on Political
Contributions and Prohibitions on Municipal Securities Business
August 21, 1996.
On August 6, 1996, the Municipal Securities Rulemaking Board
(``Board'' or ``MSRB'') filed with the Securities and Exchange
Commission (``Commission'' or ``SEC'') a proposed rule change (SR-MSRB-
96-8), pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934 (``Act''), 15 U.S.C. 78s(b)(1), and Rule 19b-4 thereunder. The
proposed rule change is described in Items I, II, and III below, which
Items have been prepared by the Board. The Board has designated this
proposal as constituting a stated policy, practice, or interpretation
with respect to the meaning, administration, or enforcement of an
existing rule of the Board under Section 19(b)(3)(A) of the Act, which
renders the proposal effective upon receipt of this filing by the
Commission. 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 Board is filing herewith a notice of interpretation concerning
rule G-37 on political contributions and prohibitions on municipal
securities business (hereafter referred to as ``the proposed rule
change''). The proposed rule change is as follows:
Rule G-37: Political Contributions and Prohibitions on Municipal
Securities Business
Contributions to a Non-Dealer Associated PAC and Payments to a
State or Local Political Party
1. Q: Could contributions to a non-dealer associated PAC or
payments to a state or local political party lead to a ban on
municipal securities business with an issuer under rule G-37?
A: Rule G-37(d) prohibits a dealer and any municipal finance
professional from doing any act indirectly which would result in a
violation of the rule if done directly by the dealer or municipal
finance professional. A dealer would violate rule G-37 by doing
business with an issuer after providing money to any person or
entity when the dealer knows that such money will be given to an
official of an issuer who could not receive such a contribution
directly from the dealer without triggering the rule's prohibition
on business. For example, in certain instances, a non-dealer
associated PAC or a local political party may be soliciting funds
for the purpose of supporting a limited number of issuer officials.
Depending upon the facts and circumstances, contributions to the PAC
or payments to the political party might well result in the same
prohibition on municipal securities business as would a contribution
made directly to the issuer official.
2. Q: If a dealer receives a fund raising solicitation from a
non-dealer associated PAC or a political party with no indication of
how the collected funds will be used, can the dealer make
contributions to the non-dealer associated PAC or payments to the
political party without causing a ban on municipal securities
business?
A: Dealers should inquire of the non-dealer associated PAC or
political party how any funds received from the dealer would be
used. For example, if the non-dealer associated PAC or political
party is soliciting funds for the purpose of supporting a limited
number of issuer officials, then, depending upon the facts and
circumstances, contributions to the PAC or payments to the political
party might well result in the same prohibition on municipal
securities business as would a contribution made directly to the
issuer official.
Two-Year Designation Period for Municipal Finance Professionals
3. Q: Rule G-37(g)(iv) states that each person designated a
municipal finance professional shall retain this designation for two
years after the last activity or position which gave rise to the
designation. If a dealer
[[Page 44099]]
terminates a municipal finance professional's employment, and that
person is no longer associated in any way with the dealer (including
any affiliated entities of the dealer), must the dealer continue to
designate that person a ``municipal finance professional'' for
recordkeeping and reporting purposes under rules G-37(g)(iv) and G-
8(a)(xvi)?
A: No. If a municipal finance professional is no longer employed
by the dealer, and is not an ``associated person'' of the dealer,
then the dealer is not required to designate that person a municipal
finance professional and the dealer may cease its recordkeeping and
reporting obligations with respect to that person.
4. Q: If a municipal finance professional is transferred from a
firm's dealer department to another non-municipal department, such
as the corporate department, must the dealer continue to designate
this person a municipal finance professional for recordkeeping and
reporting purposes?
A: If a municipal finance professional is transferred to another
department within the same firm (such as corporate, equities, etc.)
and remains an ``associated person'' of the dealer, the dealer must
continue to designate this person a municipal finance professional
for two years from the date of the last activity or position which
gave rise to this designation and must continue its recordkeeping
and reporting obligations under rules G-37 and G-8. It is incumbent
upon each dealer to determine whether the person is an associated
person pursuant to Section 3(a)(18) of the Securities Exchange Act
of 1934. If so, then in addition to recordkeeping and reporting
obligations, dealers should be mindful that any contributions made
by this associated person during the two-year designation period
(other than contributions that qualify for the rule's $250 de
minimis exception) will subject the dealer to the rule's ban on
municipal securities business for two years from the date of such
contribution. Of course, the ban can only be triggered if the person
previously was a municipal finance professional.
5. Q: A municipal finance professional resigns from a dealer,
but still remains an associated person of the dealer (e.g., by
retaining a position in the dealer's holding company). May the
dealer cease designating this person a municipal finance
professional for purposes of the recordkeeping and reporting
requirements under rules G-37 and G-8? In addition, may this person
make contributions to issuer officials without causing the dealer to
be banned from the municipal securities business with such issuers?
A: As noted above in Q&A number 4, if a person is no longer a
municipal finance professional because he or she has left the
dealer's employ, but nevertheless remains an associated person of
the dealer, then the dealer must continue to designate this person a
municipal finance professional for two years from the last activity
or position which gave rise to such designation.
Moreover, any contributions by this associated person (other
than those that qualify for the de minimis exception under rule G-
37(b)) will subject the dealer to the rule's ban on municipal
securities business for two years from the date of the contribution.
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 Board 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
texts of these statements may be examined at the places specified in
Item IV below. The Board 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
On April 7, 1994, the Commission approved Board rule G-37,
concerning political contributions and prohibitions on municipal
securities business.\1\ Since that time, the Board has received
numerous inquiries concerning the application of the rule. In order to
assist the municipal securities industry and, in particular, brokers,
dealers and municipal securities dealers in understanding and complying
with the provisions of the rule, the Board published six prior notices
of interpretation which set forth, in question-and-answer format,
general guidance on rule G-37.\2\ In prior filings with the Commission,
the Board stated that it will continue to monitor the application of
rule G-37, and, from time to time, will publish additional notices of
interpretations, as necessary.\3\ In light of questions recently
received from market participants concerning the applicability of the
rule to contributions to non-dealer associated political action
committees and payments to state or local political parties, as well as
the two-year designation period for municipal finance professionals,
the Board has determined that it is necessary to provide further
guidance to the municipal industry. Accordingly, the Board is
publishing this seventh set of questions and answers.
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\1\ Securities Exchange Act Release No. 33868 (April 7, 1994).
The rule applies to contributions made on and after April 25, 1994.
\2\ See Securities Exchange Act Release No. 34161 (June 6,
1994), 59 FR 30379 (June 14, 1994); Securities Exchange Act Release
No. 34603 (Aug. 25, 1994), 59 FR 45049 (Aug. 31, 1994); Securities
Exchange Act Release No. 35128 (Dec. 20, 1994), 59 FR 66989 (Dec.
28, 1994); Securities Exchange Act Release No. 35544 (March 28,
1995), 60 FR 16896 (April 3, 1995); Securities Exchange Act Release
No. 35879 (June 21, 1995), 60 FR 33447 (June 28, 1995); Securities
Exchange Act Release No. 36857 (Feb. 16, 1996), 61 FR 7034 (Feb. 23,
1996).
See also MSRB Reports, Vol. 14, No. 3 (June 1994) at 11-16; Vol.
14, No. 4 (August 1994) at 27-31; Vol. 14, No. 5 (December 1994) at
8; Vol. 15, No. 1 (April 1995) at 21; Vol. 15, No. 2 (July 1995) at
3-4; and Vol. 16, No. 1 (Jan. 1996) at 31. See also MSRB Manual
(CCH) para. 3681.
\3\ File Nos. SR-MSRB-94-6 and 94-15.
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The Board believes the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Act.\4\
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\4\ Section 15B(b)(2)(C) states in the pertinent part that the
rules of the Board ``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, 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.''
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Board does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act, because it would apply equally
to all brokers, dealers and municipal securities dealers.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The Board has designated this proposal as constituting a stated
policy, practice, or interpretation with respect to the meaning,
administration, or enforcement of an existing rule of the Board under
Section 19(b)(3)(A)(i) of the Act and subparagraph (e) of Rule 19b-4
thereunder, thus rendering the proposal effective upon receipt of this
filing by the Commission.
At any time within sixty days of the filing of this proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the
[[Page 44100]]
Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of the submissions, 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 inspection and copying in the Commission's Public
Reference Room. Copies of the filing will also be available for
inspection and copying at the Board's principal offices. All
submissions should refer to File No. SR-MSRB-96-8 and should be
submitted by September 17, 1996.
For the Commission by the Division of Market Regulation, pursuant
to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-21816 Filed 8-26-96; 8:45 am]
BILLING CODE 8010-01-M