[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

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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