ICI Comments on MSRB Rule Concerning "Pay-to-Play" Practices

Washington, DC, October 8, 2001 - The Institute recently filed a comment letter in response to the Municipal Securities Rulemaking Board's request for comment on the application to Section 529 programs of MSRB Rule G-37, relating to political contributions and so-called "pay-to-play" practices.

The letter submitted to the MSRB recommends-based upon the significant distinctions between traditional municipal securities and municipal fund securities-that limited relief should be granted from the application of Rule G-37 to municipal fund securities activities. In particular, the Institute recommends that, in lieu of automatically requiring a municipal fund securities dealer to sever for two years its contract with an issuer of municipal fund securities based upon a violation of the rule, the dealer be provided an opportunity to "cure" the violation based upon the two conditions set forth above.

The letter also recommends that some relief be provided from the two-year look back provision of Rule G-37, which applies whenever a municipal securities dealer hires a person that would be a municipal finance professional (MFP) for purposes of the rule. In particular, the Institute recommends that, with respect to a municipal fund securities dealer, the two-year look back provision only apply to the period preceding the award-including the initial award or any renewal-of any municipal fund securities contract by the municipal fund securities issuer. Such a provision would enable a municipal fund securities dealer to hire a person who had made political contributions where such contributions almost certainly had no impact on the award of business to the dealer hiring the person.

The letter notes that the limited relief recommended by the Institute from Rule G-37 would preserve the prohibitions provided under Rule G-37 while avoiding the unduly harsh consequences of the rule on municipal fund securities activities.