[Federal Register Volume 68, Number 93 (Wednesday, May 14, 2003)]
[Notices]
[Pages 25917-25918]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-11995]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47814; File No. SR-MSRB-2002-12]


Self-Regulatory Organizations; Order Granting Approval of a 
Proposed Rule Change and Amendment No. 1 Thereto by the Municipal 
Securities Rulemaking Board Relating to Amendments to Rules G-37, on 
Political Contributions and Prohibitions on Municipal Securities 
Business, G-8, on Books and Records, Revisions to Form G-37/G-38 and 
the Withdrawal of Certain Rule G-37 Questions and Answers

May 8, 2003.

I. Introduction

    On September 26, 2002, the Municipal Securities Rulemaking Board 
(``Board'' or ``MSRB'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC''), pursuant to section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Exchange Act''), and rule 19b-4 
thereunder,\1\ a proposed rule change to amend rule G-37, on political 
contributions and prohibitions on municipal securities business, G-8, 
on books and records, revisions to Form G-37/G-38 and the withdrawal of 
certain rule G-37 Questions and Answers. On March 26, 2003, the MSRB 
amended the proposal. The proposed rule change revises the exemption 
process and the definition of municipal finance professional. Amendment 
No. 1 alters the text of the amendments to the rule language as it 
appears in the original filing. The proposed rule change, as modified 
by Amendment No. 1, was published in the Federal Register on April 8, 
2003.\2\
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    \1\ 15 U.S.C. 78s(b)(1); 17 CFR 240.19b-4.
    \2\ See Release No. 34-47609 (April 1, 2003), 67 FR 17122.
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    The Commission received two comment letters on the proposed rule 
change.\3\ This order approves the proposed rule change as modified by 
Amendment No. 1.
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    \3\ April 25, 2003, letter from John M. Ramsay, Senior Vice 
President and Regulatory Counsel, The Bond Market Association to 
Jonathan G. Katz, Secretary, Commission (``TBMA letter''); April 29, 
2003, letter from Sarah Miller, American Bankers Association and ABA 
Securities Association to Jonathan G. Katz, Secretary, Commission 
(``ABA/ABASA letter'').
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II. Summary of Comments

    The Commission received two comment letters on the proposed rule 
change, both support the proposal.
    The TBMA letter expresses support for the proposal because the TBMA 
believes that the changes will help reduce some of the burdens 
associated with rule G-37. According to the TBMA letter, the proposed 
rule change, ``will not undercut [rule G-37's] goal of maintaining the 
integrity of the municipal underwriting process.'' \4\ Furthermore, 
TBMA believes that the changes are long overdue and urges the 
Commission to quickly adopt the proposal.\5\ Similar to the TBMA 
letter, the ABA/ABASA letter provides support for the proposed rule 
change as a means to limit the costs and burdens associated with 
regulatory compliance. On the amended definition of municipal finance 
professional, the ABA/ABASA letter expressed that the changes will 
limit the ``unintended consequences of preventing dealer firms from 
hiring otherwise qualified employees.'' \6\ Additionally, the more 
flexible exemption process will provide some relief for ``inadvertent 
violations'' on rule G-37's ban on contributions.\7\
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    \4\ See TBMA letter at 1.
    \5\ Id. at 2.
    \6\ See ABA/ABASA letter at 2.
    \7\ Id.
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III. Discussion and Commission Findings

    Section 19(b) of the Exchange Act \8\ requires the Commission to 
approve the proposed rule change filed by the MSRB if the Commission 
finds that the proposed rule change is consistent with the requirements 
of the Exchange Act and the rules and regulations thereunder. After 
careful review of the proposed rule change and comment letters, the 
Commission finds that the proposed rule change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder, which govern the MSRB.\9\ The language of section 
15B(b)(2)(C) of the Act requires that the MSRB's rules must be designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principals of trade, to foster cooperation and 
coordination with persons engaged in regulating, settling, processing 
information with respect to, and facilitating transactions in 
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.\10\
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    \8\ 15 U.S.C. 78s(b).
    \9\ Additionally, in approving this rule, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition and capital formation. 15 U.S.C. 78c(f).
    \10\ 1015 U.S.C. 78o-4(b)(2)(C).
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    The Commission acknowledges the MSRB Long-Range Plan, to assess 
rule G-37's requirements and resulting

[[Page 25918]]

compliance concerns. Both the Commission and the MSRB believe that rule 
G-37 is essential to diminish pay-to-play practices in the municipal 
securities market. The rule has provided substantial benefit to the 
industry and the investing public by reducing the direct connection 
between political contributions to issuer officials and the awarding of 
municipal securities business.
    The comment letters welcome the amendments proposed as a means to 
reduce industry costs and burdens. The Commission does not believe that 
the proposed rule change will threaten the purpose and efficacy of the 
pay-to-play restrictions. The Commission believes that the proposed 
rule change adequately provides essential protections in the exemption 
process and the revised definition of municipal finance professional. 
Furthermore, proposed revision of the look back and look forward 
periods to better correlate with the municipal finance professionals' 
role and business activity will continue to safeguard against the 
potential link between obtaining municipal securities business and 
contributions.

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Exchange Act,\11\ that the proposed rule change (File No. SR-MSRB-2002-
12) be and hereby is, approved.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-11995 Filed 5-13-03; 8:45 am]
BILLING CODE 8010-01-P