[Federal Register Volume 64, Number 29 (Friday, February 12, 1999)]
[Notices]
[Pages 7219-7223]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3511]



[[Page 7219]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41025; File No. SR-MSRB-97-12]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Approving Proposed Rule Change Relating to Political 
Contributions and Prohibitions on Municipal Securities Business

February 8, 1999.

I. Introduction

    On December 18, 1997, the Municipal Securities Rulemaking Board 
(``Board'' or ``MSRB'') submitted to the Securities and Exchange 
Commission (``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change. The proposed rule change 
consists of amendments to Rule G-37, on political contributions and 
prohibitions on municipal securities business, Rule G-8, on 
recordkeeping, Rule G-9, on preservation of records, and G-38, on 
consultants. In addition, the MSRB submitted new proposed Form G-37x. 
On December 3, 1998, the Board filed Amendment No. 1 which superseded 
the original proposal.\3\ The proposed rule change, as amended, was 
published for comment in the Federal Register on January 5, 1999.\4\ 
The Commission received one comment on the proposal.\5\ This order 
approves the proposal, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The original proposal did not require Rule G-37 disclosures 
by dealers who have not engaged in municipal securities transactions 
for 2 years. In addition, the original proposal would not have 
required dealers subject to reporting requirements to make any 
filing in the event they had nothing to disclose. After discussions 
between the Commission and the MSRB, the MSRB filed Amendment No. 1. 
While the revised proposal maintains the exemptions to the 
disclosure requirements, it includes a dealer certification as a 
precondition to the effectiveness of the exemptions created in the 
original proposal.
    \4\ Securities Exchange Act Release No. 40845 (December 28, 
1998), 64 FR 539.
    \5\ See letter from Sarah M. Starkweather, Vice President and 
Associate General Counsel, The Bond Market Association, to Mr. 
Jonathan G. Katz, Secretary, SEC, dated January 26, 1999. The 
comment letter supported the proposed rule change.
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II. Description of the Proposal

    Rule G-37 prohibits a broker, dealer, or municipal securities 
dealer (``dealer'') that effects transactions in municipal securities 
from engaging in municipal securities business \6\ with an issuer 
within two years after certain contributions (other than certain de 
minimis contributions) to an official of an issuer made by the dealer, 
any municipal finance professional (``MFP'') associated with such 
dealer or any political action committee (``PAC'') controlled by the 
dealer or any MFP. In addition, Rules G-37 and G-38 require dealers to 
make disclosures of certain contributions to issuer officials payments 
to state and local political parties, consultant arrangements and 
municipal securities business on Form G-37/G-38. Rule G-8 requires 
dealers to create records of contributions, payments, consultants, and 
issuers with which the dealer has engaged in municipal securities 
business and Rule G-9 requires dealers to preserve these records for a 
period of at least six years.
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    \6\ Municipal securities business is defined in Rule G-37 to 
encompass certain activities of dealers in connection with primary 
offerings of municipal securities, such as acting as an underwriter 
in a negotiated sale, as a placement agent, or as a financial 
advisor, consultant or remarketing agent to an issuer in which the 
dealer was chosen on a negotiated basis.
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    Currently, every dealer is obligated to comply with the reporting 
requirements of Rule G-37 by submitting Form G-37/G-38 to the Board on 
a quarterly basis and to undertake the related recordkeeping 
obligations under Rule G-8, even if a dealer does not engage in 
municipal securities business.\7\
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    \7\ The range of activities encompassed by the term municipal 
securities business is significantly narrower than the types of 
activities that can cause a dealer to be subject to the obligation 
to comply with Board Rules. For example, a dealer that effects 
municipal securities transactions that are limited to secondary 
market trades for its customers or underwriting of new issues solely 
through competitive sales is not, by effecting such transactions, 
engaging in municipal securities business within the meaning of Rule 
G-37. However, the dealer is still required to undertake the 
disclosure and recordkeeping obligations under current Rules G-37 
and G-8 with respect to contributions and payments.
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    Upon review of the first four years of operation on Rule G-37, the 
Board believes that requiring dealers that do not engage in municipal 
securities business to comply with these disclosure and recordkeeping 
obligations does not substantially further Rule G-37's stated purpose 
of exposing to public scrutiny contributions and payments that may be 
linked to the awarding of municipal securities business. The Board 
believes that Rule G-37 has been successful in reducing the number of 
political contributions used to gain awards of municipal securities 
business. The Board stated that it continues to be vigilant in 
prohibiting improper political contributions from affecting the 
awarding of municipal securities business.
    Therefore, the Board has proposed certain amendments to Rules G-37 
and G-8 to exempt dealers that do not engage in municipal securities 
business from reporting and recordkeeping obligations.\8\ Dealers 
invoking this new exemption (hereinafter referred to as the ``No 
Business Exemption'') will be required to meet two preconditions and 
will be subject to a third requirement if they later begin engaging in 
municipal securities business. To invoke the No Business Exemption, a 
dealer must: (1) not have engaged in municipal securities business for 
a period of at least two years; and (2) submit to the Board the new 
Form G-37x. If the dealer thereafter begins to engage in municipal 
securities business, it would become subject to a disclosure and 
recordkeeping look back requirement (hereinafter referred to as the 
``Look Back Requirement'') that will obligate the dealer to create 
records of, and to disclose on Form G-37/G-38, certain contributions 
made to issuer officials and payments to state and local political 
parties made during the preceding two year period.
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    \8\ This exemption would not extend to the reporting 
requirements under Rule G-38. Therefore, as amended, the rule would 
continue to require submission of information on Form G-37/G-38 
concerning the use of consultants pursuant to Rule G-38.
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    The Board has also proposed an amendment to Rule G-37 which 
codifies a previously recognized exemption to the Form G-37/G-38 
submission requirement for any quarter in which a dealer has no 
information to report (hereinafter referred to as the ``No Information 
Exemption''). The Board also proposed certain technical amendments to 
consolidate the provisions currently found separately in Rules G-37 and 
G-38 relating to the submission of Form G-37/G-38, to clarify Rule G-37 
by eliminating certain cross-referencing to Rule G-8, and to provide 
for the maintenance and preservation under Rules G-8 and G-9 of any 
Forms G-37x submitted to the Board.

a. No Business Exemption for Dealers Not Engaged in Municipal 
Securities Business

    A dealer that qualifies for the No Business Exemption under amended 
Rule G-37(e)(ii)(A)(2) will not be required to report information to 
the Board on Form G-37/G-38 regarding contributions to issuer officials 
and payments to state and local political parties and will not be 
required to create records of these contributions and payments pursuant 
to new clause (K) of

[[Page 7220]]

Rule G-8(a)(xvi).\9\ If a dealer engages in municipal securities 
business after invoking the No Business Exemption, the dealer will 
become subject to the Look Back Requirement under new paragraph (iii) 
of Rule G-37(e).
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    \9\ Dealers will still be required to maintain copies of any 
Forms G-37/G-38 submitted to the Board during the period of 
exemption (e.g., in connection with information relating to the use 
of consultants) and of any Forms G-37x submitted to the Board to 
invoke the No Business Exemption. In addition, the recordkeeping 
exemption would not entitle a dealer to discontinue preservation of 
any records previously created under Rule G-8(a)(xvi) unless the 
period for preserving the records under Rule G-9(a)(viii) has 
lapsed.
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i. No Municipal Securities Business for at Least Two Years
    The first proposed condition for invoking the No Business Exemption 
in any calendar quarter, as set forth in amended Rule G-
37(e)(ii)(A)(2)(a), is that the dealer must not have engaged in 
municipal securities business during the calendar quarter and during 
the seven consecutive calendar quarters immediately preceding the 
calendar quarter. Any dealer that has previously engaged in municipal 
securities business may qualify for the No Business Exemption if it has 
ceased business for the requisite period of time. In addition, any 
dealer that has never engaged in municipal securities business may also 
qualify for the No Business Exemption, regardless of how long the 
dealer has been in existence.\10\
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    \10\ For this purpose, the Board will deem that a dealer that 
has been subject to the rules of the Board for a period of less than 
two years (for example, because it came into existence during such 
period or because it previously effected only non-municipal 
securities transactions) and has not engaged in any municipal 
securities business since becoming subject to Board rules would 
automatically satisfy the two-year requirement of the No Business 
Exemption.
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ii. Submission of Form G-37x
    The second proposed condition for invoking the No Business 
Exemption, as set forth in amended Rule G-37(e)(ii)(A)(2)(b), is that 
the dealer must have sent, by certified or registered mail or some 
other equally prompt means that provides a record of sending, two 
copies of new Form G-37x to the Board. Form G-37x would include a 
certification that the dealer did not engage in municipal securities 
business during the eight consecutive calendar quarters immediately 
preceding the date of the certification. A Form G-37x submitted to the 
Board would remain in effect for so long as the dealer continues to 
refrain from engaging in municipal securities business.\11\ 
Notwithstanding the submission of Form G-37x, a dealer will remain 
responsible for determining whether it continues to qualify for an 
exemption from the Form G-37/G-38 submission for each calendar 
quarter.\12\
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    \11\ Thus, the Board explained, if after submitting Form G-37x, 
the dealer undertakes any municipal securities business (thereby 
subjecting itself to the Look Back Requirement) and thereafter again 
seeks to invoke the No Business Exemption after a new two-year 
period of not engaging in municipal securities business, the dealer 
would be required to submit a new Form G-37x. The Commission 
believes that dealers should carefully consider the advisability of 
alternating between periods of undertaking municipal securities 
business and periods of invoking the No Business Exemption, 
particularly in view of the potential difficulties of complying with 
the strict Look Back Requirement.
    \12\ The Board explained that a dealer must continually 
determine whether it has met the requirement for the No Business 
Exemption or the No Information Exemption for each quarter. 
Moreover, a dealer will still be required to submit Form G-37/G-38 
for any calendar quarter in which it has information to report 
regarding consultants under Rule G-38 even if it continues to 
qualify for the No Business Exemption.
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    The Board will make available to the public all Forms G-37x that 
are submitted to the Board in the same manner currently used for G-37/
G-38. They will be available for review and photocopying at the Board's 
Public Access Facility in Alexandria, Virginia and will be posted on 
the Board's Internet Web site (http://www.msrb.org). The forms will 
also be available in CD-ROM format on a quarterly basis.\13\
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    \13\ CD-ROMS are currently priced at $10.00 (plus delivery or 
postage charges and any applicable sales tax) for each CD-ROM 
containing copies of Form G-37/G-38 and at $11.50 (plus delivery or 
postage charges and any applicable sales tax) for each CD-ROM that 
is bundled with the software necessary to access and read the forms 
on a computer. See Securities Exchange Act Rel. No. 39488 (December 
23, 1997), 63 FR 280 (January 5, 1998). The Board anticipates that 
Forms G-37x will be included on these CD-ROMs at no additional cost.
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ii. Look Back Requirement Upon Engaging in Municipal Securities 
Business
    The Board stated that a dealer that has invoked the No Business 
Exemption but later begins engaging in municipal securities business 
will become subject to a two-part Look Back Requirement under proposed 
paragraph (iii) of Rule G-37(e). First, the proposed Look Back 
Requirement provides that the dealer must create records of political 
contributions and payments to state and local political parties under 
Rule G-8(a)(xvi) for the current calendar year and the two preceding 
calendar years and must continue to create such records thereafter 
unless the dealer again qualifies for, and invokes, the No Business 
Exemption.\14\ The dealer will be responsible for reviewing the newly 
created records to ensure that it has not been banned from business 
with an issuer as a result of a contribution to an official of the 
issuer during the No Business Exemption period, before the dealer 
engages in municipal securities business with the issuer.
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    \14\ The Board explained that a dealer that is creating records 
under the Look Back Requirement must re-create the records that it 
would have made during the current calendar year and the two 
preceding calendar years but for the No Business Exemption. This 
includes the political contributions and payments to state and local 
political parties made by an individual who was an MFP or a non-MFP 
executive officer during this look back period. The dealer must also 
create records of the contributions and payments of individuals who 
become MFPs or non-MFP executive officers during the look back 
period. Rule G-37 does not require a dealer to create records of 
contributions or payments made prior to the look back period.
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    Moreover, the Board stated that a dealer that engages in municipal 
securities business after invoking the No Business Exemption must 
disclose all reportable contributions to issuer officials and payments 
to state and local political parties made during the preceding two 
years by the dealer, any MFP, and non-MFP executive officer or any 
dealer-controlled or MFP controlled PAC, not reported previously 
because of the No Business Exemption.\15\ These disclosures must be 
made on Form G-37/G-38 for the calendar quarter during which the dealer 
first engages in municipal securities business. The dealer will also be 
required to send Form G-37/G-38 to the Board for each calendar quarter 
thereafter unless the dealer qualifies for the No Information Exemption 
or again qualifies for, and invokes, the No Business Exemption.
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    \15\ When reporting prior contributions and payments on the 
calendar quarter's Form G-37/G-38, a dealer will be required to 
include the year and calendar quarter in which each such prior 
contribution or payment was made. A dealer, however, will not be 
required to include contributions or payments made more than two 
years prior to such quarter, even if not previously reported to 
comply with Rule G-37.
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    The Board explained that the Look Back requirement is intended to 
prevent circumvention of the rule and to promote public scrutiny of all 
contributions to issuer officials and payments to state and local 
political parties (other than qualifying de minimis contributions and 
payments) that may influence the awarding of municipal securities 
business to any dealer that is newly engaging in, or is again becoming 
engaged in, municipal securities business.
    The Board stated that the No Business Exemption is best suited to 
dealers that do not intend to engage in municipal securities business 
in the foreseeable future. Thus, the Board asserted that dealers that 
qualify for the No Business Exemption but plan to engage in municipal 
securities business at a later time should carefully consider whether

[[Page 7221]]

the burden of having to comply with the Look Back Requirement outweighs 
the short term benefit of not having to create and maintain these 
records and not having to submit Form G-37/G-38 on a current basis. The 
Look Back Requirement may cause great burden to dealers that must 
recreate at least two full years of records under Rule G-8(a)(xvi). 
Dealers also run the risk of unknowingly becoming banned from municipal 
securities business as a result of a contribution made to an issuer 
official during the exemption period. Any dealer that engages in 
municipal securities business after invoking the No Business Exemption 
should be prepared to produce evidence that it has created records and 
disclosed information required under the Look Back Requirement.
iv. No effect on Disclosure and Recordkeeping Obligations Relating to 
Consultants
    The use of consultants in attempting to obtain municipal securities 
business is required to be disclosed to the Board pursuant to Rule G-
38. The proposed rule change amends Rule G-37(e)(ii)(B) to require this 
disclosure to be reported on Form G-37/G-38 even during periods when a 
dealer qualifies for the No Business Exemption. This amendment requires 
that dealers report to the Board their use of consultants to obtain 
municipal securities business during the no business period. The 
submission of Form G-37/G-38 in any quarter will not cause the No 
Business Exemption or the related Form G-37x submission to lapse unless 
the dealer engages in municipal securities business. The Board 
suggested that any dealer that has retained a consultant to obtain 
municipal securities business carefully consider the advisability of 
invoking (or continuing to invoke) the No Business Exemption. If 
business is obtained as a result of a consultant's efforts, then, the 
dealer will need to comply with the Look Back Requirement, and in 
particular, confirm that it is not banned from undertaking municipal 
securities business with that issuer.
v. No Effect on Two-Year Ban on Municipal Securities Business or 
Prohibition of Certain Solicitation and Coordination Under Rule G-37(b) 
and (c)
    The proposed rule change and the new No Business Exemption do not 
provide exemptions from the operation of sections (b) and (c) of Rule 
G-37.\16\ Therefore, a political contribution (other than an MFP's de 
minimis contribution) to an official of an issuer that was not 
disclosed on Form G-37/G-38 and not recorded under Rule G-8(a)(xvi) by 
virtue of the No Business Exemption could cause a ban on municipal 
securities business with such issuer under section (b). Moreover, 
solicitation or coordination of contributions to an official of an 
issuer with which the dealer is seeking to engage in muncipal 
securities business continues to be prohibited under section (c) even 
if the No Business Exemption is in effect. Dealers that qualify for the 
No Business Exemption but are considering future municipal securities 
business are directed to be aware of the continuing applicability of 
section (b) and (c) of Rule G-37.
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    \16\ Section (b) provides that no dealer shall engage in 
municipal securities business with an issuer within two years after 
any contribution to an official of such issuer made by the dealer, 
an MFP or a PAC controlled by the dealer or MFP. Section (c) 
provides that no dealer or MFP shall solicit any person or PAC to 
make any contribution, or shall coordinate any contributions, to an 
official of an issuer with which the dealer is engaging or seeking 
to engage in municipal securities business.
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b. No Information Exemption for Dealers With No Information to Report 
in a Quarter

    The proposed rule change amends Rule G-37(e)(ii)(A)(1) to codify a 
previously recognized No Information Exemption to the quarterly Form G-
37/G-38 submission requirement.\17\ The proposed amendment provides 
that a dealer would not be required to send Form G-37/G-38 to the Board 
for any calendar quarter in which all of the following apply: (1) the 
dealer has not engaged in municipal securities business; (2) the dealer 
has no reportable political contributions to issuer officials or 
payments to state and local political parties; and (3) the dealer has 
no reportable use of consultants. This No Information Exemption will 
continue to obviate the need for a dealer to submit a Form G-37/G-38 
that does not reflect reportable activity under any category. However, 
a dealer is required to send Form G-37/G-38 to the Board in any 
subsequent calendar quarter in which it does not qualify for the No 
Information Exemption, unless the dealer qualifies for, and invokes, 
the No Business Exemption.\18\
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    \17\ See Securities Exchange Act Release No. 34161 (June 6, 
1994), 59 FR 30379 (June 14, 1994), Question and Answer No. 34, See 
also, MSRB Reports, Vol. 14, No. 3 (June 1994) at 15-16, and 
``Instructions for Completing and Filing Form G-37/G-38,'' reprinted 
in MSRB Reports, Vol. 16, No. 1 (January 1996) at 11.
    \18\ A dealer that qualifies for the No Business Exemptions may, 
however, be required to submit G-37/G-38 if such dealer has engaged 
consultants to obtain municipal securities business, pursuant to 
Rule G-38.
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c. Technical Amendments

    Amend Rule G-37(e)(i) consolidates the Form G-37/G-38 submission 
procedures that are currently found separately in paragraphs (i) and 
(ii) of Rule G-37(e) and in Rule G-38(d). The proposal also contains 
certain related amendments to Rule G-38(d).
    In addition, the existing exemption from reporting requirements 
under Rule G-37 for de minimis contributions made by MFPs and non-MFP 
executive officials of issuers\19\ and to state and local political 
parties\20\ is effected by a cross-reference to the recordkeeping 
requirements of Rule G-8(a)(xvi). To clarify the nature of such de 
minimis exemptions, amended Rule G-37(e)(i)(A) incorporates into the 
language of Rule G-37, but does not change, the specific requirements 
of the de minimis exemption.
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    \19\ A de minimis contribution to an official of an issuer not 
requiring disclosure consists of a contribution made by an MFP or 
non-MFP executive officer to an official of an issuer for whom the 
person is entitled to vote if all contributions by the person to 
such official, in total, do not exceed $250 per election.
    \20\ A de minimis payment to a political party of a state or 
political subdivision not requiring disclosure consists of a payment 
made by an MFP or a non-MFP executive officer to a political party 
of a state or political subdivision in which the person is entitled 
to vote if all payments by the person to the political party, it 
total, do not exceed $250 per year.
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d. Amendments Relating to Records of Form G-37x

    The proposed rule change amends section H of Rule G-8(a)(xvi) to 
require that dealers maintain copies of Form G-37x submitted to the 
Board along with the corresponding records of sending. Under amended 
Rule G-9(a)(viii), dealers will be required to keep copies of Form G-
37x during the period of effectiveness and for at least six years 
following the end of effectiveness.

III. Discussion

    The Commission believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder.\21\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15B(b)(2)(C) of the Act.\22\ 
Section 15B(b)(2)(C) of the Act, requires,

[[Page 7222]]

among other things, that the rules of the Board be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market, and, in general, to protect 
investors and the public interest.
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    \21\ In reviewing this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. The proposed rule change should improve efficiency 
because it reduces the filing and recordkeeping burden of municipal 
securities dealers who do not engage in municipal securities 
business. In addition, the proposed rule change should maintain fair 
competition because all municipal securities dealers continue to be 
prohibited from improper business solicitations. 15 U.S.C. 
78f(b)(7).
    \22\ 15 U.S.C. 78o-4(b)(2)(C).
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a. The No Business Exemption

    The Commission finds that the No Business Exemption is consistent 
with the requirements of Section 15B(b)(2)(C) of the Act because it 
removes impedients to and perfects the meachanism of a free and open 
market in municipal securities. After these rules have been 
implemented, dealers that have been engaged in municipal securities 
business for at least two years will not be required to report 
information to the Board regarding contributions to issuer officials or 
payments to state and local political parties. Furthermore, dealers 
will not be required to create contribution and payment records.\23\ By 
eliminating these requirements, those dealers who are not engaged in 
municipal securities business will be relieved of reporting and 
recordkeeping burdens, which according to the MSRB do not substantially 
further the stated purpose of Rule G-37. By imposing a ban on dealers 
that make financial contributions to issuers, the rule ensures that 
municipal securities business is awarded based upon the business 
judgment of the issuer and not improper financial incentives. Thus the 
Commission agrees that the reporting requirments, amended by this 
proposal, imposed on dealers that do not engage in municipal securities 
business do not further this purpose and removing these reporting 
burdens should allow dealers to concentrate on their other municipal 
securities.
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    \23\ As noted above, dealers will continued to be required to 
create contribution and payment records if they are engaged in 
municipal securities business. If a dealer reenters the municipal 
securities business, it will be subject to the Look Back 
Requirement. The Commission stresses that the amendments to the 
reporting and filing requirements approved today are not to be used 
as a means of avoiding deisclosure of financial payments to issuers 
and political parties.
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    Once a dealer qualifies for the No Business Exemption, the dealer 
will be required to submit new Form G-37x. The requirement of 
submitting the new Form G-37x is also consistent with the requirements 
of Section 15B(b)(2)(C) of the Act because it provides for the 
protection of investors and the public interest. The public will be 
able to access and review all Form G-37x's that are filed and the Board 
providing notice of the status of dealers. Filing Form G-37x is an 
affirmative representation by the dealer certifying that it has not 
engaged in municipal securities business for a least two years.
    If a dealer begins or reenters the municipal securities business, 
it will be subject to the Look Back Requirement. The Look Back 
Requirement is consistent with the requirements of Section 15B(b)(2)(C) 
because it ensures that dealers that begin or reenter the municipal 
securities business are able to engage in such business with issuers in 
compliance with Rule G-37. The Look Back Requirement requires dealers 
to recreate and file records of political contributions and payments to 
state and local political parties for the current calendar year and the 
preceding two calendar years. These dealers will then be obligated to 
review these recreated records to ensure that they are in fact eligible 
to engage in municipal securities business with certain issuers. The 
Look Back Requirement should protect investors and the public interest 
because it should ensure that dealers only engage in municipal 
securities business with issuers to which they have not made 
contributions. It also allows public scrutiny of contributions to 
issuer officials and payments to state and local political parties that 
may improperly influence the award of municipal securities business.
    Under the proposed rule change, dealers must continue to report the 
use of consultants to obtain municipal securities business. The 
proposed rule change affirmatively states in proposed Rule G-
37(e)(ii)(B) that dealers will continue to be obligated to submit Form 
G-37/G-38 regarding the use of consultants to obtain municipal 
securities business even during periods when the dealer qualifies for 
the No Business Exemption. This is consistent with the Act because the 
public will be able to monitor the dealers that engage consultants to 
determine if the dealer is considering entering or reentering the 
municipal securities business, which should help protect investors.
    The proposed rule change is also consistent with the requirements 
of Section 15B(b)(2)(C) of the Act because it removes impediments to 
and perfects the mechanisms of a free and open market in municipal 
securities. The proposed rule change should allow those dealers not 
engaging in municipal securities business to concentrate their business 
efforts on other municipal securities transactions that are pertinent 
to these dealers' businesses. It releases these dealers from the 
recordkeeping and reporting requirements of the MSRB rules and should 
provide them with flexability to engage in business ventures not 
defined as municipal securities business.
    Finally, the Commission is satisfied that the proposed rule change 
should continue to further the purposes of Rule G-37. The proposed rule 
change does not provide exemptions from the two-year ban under Rule G-
37(b) for dealers that have made contributions to officials of issuers 
or from the restrictions under Rule G-37(c) which prohibit dealers from 
soliciting others to make contributions to officials of issuers with 
which the dealer is engaging or seeking to engage in municipal 
securities business. The proposed rule change should continue to ensure 
that municipal securities business is not awarded based on improper 
financial incentives, which should prevent fraudulent and manipulative 
acts and practices, promote just and equitable principles of trade, and 
protect investors and the public interest, consistent with the 
requirements of Section 15B(b)(2)(c).

b. The No Information Exemption

    The Commission finds the No Information Exemption consistent with 
the requirements of Section 15B(b)(2)(C) of the Act because it removes 
impediments to and perfects the mechanisms of a free and open market in 
municipal securities. Dealers who are not engaged in municipal 
securities business, have not made any reportable contributions or 
payments, and have not engaged consultants to obtain municipal 
securities business, will no longer be required to file a Form G-37/G-
38 with the Board. This proposed rule change also relieves the 
reporting burdens of dealers that are not engaged in municipal 
securities business allowing them to concentrate on other municipal 
securities activities. Moreover, the No Information Exemption should 
not harm investors and the public interest because the proposed rule 
change only obviates the need to report that the dealer does not have 
any information to report. However, once a dealer engages in municipal 
securities business or uses consultants to obtain municipal securities 
business, its reporting obligations again become mandatory.

c. Technical Amendments

    The proposed rule change contains technical amendments which 
provide cross references and consolidations to the proposed rule 
changes. These technical amendments are consistent with Section 
15B(b)(2)(C) of the Act because they promote just and equitable 
principles of trade by providing clarity to the rules of the Board 
which govern the actions of dealers of municipal securities.

[[Page 7223]]

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) \24\ of the 
Act, that the proposed rule change, as amended, (SR-MSRB-97-12) is 
approved.
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    \24\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-3511 Filed 2-11-99; 8:45 am]
BILLING CODE 8010-01-M