
[Federal Register Volume 78, Number 64 (Wednesday, April 3, 2013)]
[Notices]
[Pages 20156-20158]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07711]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69249; File No. SR-MSRB-2013-01]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of a Proposed Rule Change Relating to 
Amendments to MSRB Rules G-37 and G-8 and Form G-37

March 28, 2013.

I. Introduction

    On February 4, 2013, the Municipal Securities Rulemaking Board 
(``MSRB'') filed with the Securities and Exchange Commission 
(``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 consisting of amendments to MSRB Rules G-37, on 
political contributions and prohibitions on municipal securities 
business, and G-8, on books and records, and Form G-37. The proposed 
rule change was published for comment in the Federal Register on 
February 14, 2013.\3\ The Commission received four comment letters on 
the proposal.\4\ The MSRB submitted a response on March 26, 2013.\5\ 
This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 68872 (February 8, 
2013), 78 FR 10656 (``Notice'').
    \4\ See Letters to Elizabeth M. Murphy, Secretary, Commission, 
from Robert W. Doty, President, AGFS and Senior Advisor, Government 
Financial Strategies, Inc., dated February 20, 2013 (``AGFS 
Letter'') and Jeanine Rodgers Caruso, President, National 
Association of Independent Public Finance Advisors, dated March 12, 
2013 (``NAIPFA Letter''). See also, Letters to Ronald W. Smith, 
Corporate Secretary, MSRB, from Ellen S. Miller, Co-Founder and 
Executive Director, The Sunlight Foundation, dated March 5, 2013 
(``Sunlight Letter'') and Kamala Harris, Attorney General, 
Department of Justice, from Bill Lockyer, Treasurer, State of 
California, dated March 18, 2013 (``AG Letter'').
    \5\ See Letter to Elizabeth M. Murphy, Secretary, Commission, 
from Gary L. Goldsholle, General Counsel, MSRB, dated March 26, 
2013.
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II. Description of the Proposed Rule Change

    MSRB Rule G-37 requires dealers to disclose on Form G-37 certain 
contributions to issuer officials, contributions to bond ballot 
campaigns, and payments to political parties of states and political 
subdivisions, made by brokers, dealers and municipal securities dealers 
(``dealers''), their municipal finance professionals (``MFPs''), 
political action committees controlled by the dealer or their MFPs or 
non-MFP executive officers (collectively, ``covered parties''). 
Further, MSRB Rule G-37 prohibits dealers from engaging in municipal 
securities business with an issuer within two years after contributions 
are made by certain covered parties (other than certain permitted de 
minimis contributions) to an official of such issuer. The rule's 
prohibition on engaging in municipal securities business, however, is 
currently not triggered by contributions made to bond ballot campaigns 
by covered parties. MSRB Rule G-37 also requires dealers to maintain 
records of reportable contributions to bond ballot campaigns pursuant 
to MSRB Rule G-8.
    The MSRB proposes to revise MSRB Rule G-37(e)(i)(B)(2) to provide 
that, in disclosing the contribution amount made to a bond ballot 
campaign, the dealer also must include, in the case of in-kind 
contributions, the value and nature of the goods or services provided, 
including any ancillary services provided to, on behalf of, or in 
furtherance of, the bond ballot campaign. The proposed rule change also 
requires dealers to disclose the specific date on which such 
contributions to bond ballot campaigns were made.
    The MSRB also proposes to revise MSRB Rule G-37(e)(i)(B) to require 
dealers to disclose the full issuer name and full issue description of 
any primary offering resulting from voter approval of a bond ballot 
measure to

[[Page 20157]]

which a contribution required to be disclosed has been made. All 
information is required to be reported in the calendar quarter in which 
the closing date for the issuance that was authorized by the bond 
ballot measure occurred. The proposed rule change also contains a look-
back provision for bond ballot campaign contributions that are made by 
an MFP or a non-MFP executive officer during the two years prior to an 
individual becoming an MFP or a non-MFP executive officer of a dealer. 
The look-back provision limits the additional disclosures required 
under proposed MSRB Rule G-37(e)(i)(B) to those items that would have 
been required to be disclosed if such individual had been an MFP or a 
non-MFP executive officer at the time of the contribution. The proposed 
revisions to MSRB Rule G-37(e)(i)(B) also require dealers to disclose 
the reportable date of selection on which the dealer was selected to 
engage in municipal securities business. Furthermore, proposed 
revisions to MSRB Rule G-37(e)(i)(B) require dealers to disclose both 
the amount and source of any payments or reimbursements related to any 
bond ballot contribution received by a dealer or its MFPs from any 
third party.\6\
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    \6\ Third parties include issuers.
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    The MSRB also proposes to revise MSRB Rule G-37(g) to expand the 
definition of ``contribution'' and add a new defined term, the 
``reportable date of selection.'' The proposed amendments to the 
definition of ``contribution'' would distinguish between contributions 
made to an official of an issuer and contributions made to a bond 
ballot campaign. The term ``reportable date of selection'' would be 
defined to mean to the date of the earliest to occur of: (1) The 
execution of an engagement letter; (2) the execution of a bond purchase 
agreement; or (3) the receipt of formal notification (provided either 
in writing or orally) from or on behalf of the issuer that the dealer 
has been selected to engage in municipal securities business.
    Lastly, the MSRB proposes conforming amendments to MSRB Rule G-
8(a)(xvi)(H) and (I) to require dealers to maintain records of the 
supplemental information related to bond ballot campaign contributions 
that are required to be disclosed on Form G-37 under the proposed rule 
change.

III. Summary of Comments Received and the MSRB's Response

    As previously noted, the Commission received four comment letters 
on the proposed rule change and a response from the MSRB.\7\ Two 
commenters expressed general support for the proposed rule change.\8\ 
One commenter found the proposed disclosure requirements to be 
inadequate.\9\ One commenter addressed state law matters, which are not 
the subject of the proposed rule change.\10\
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    \7\ See supra notes 4 and 5.
    \8\ See Sunlight Letter and AGFS Letter.
    \9\ See NAIPFA Letter.
    \10\ See AG Letter. Because the AG Letter relates to subject 
matters not directly relevant to the proposed rule change, the 
Commission does not address the comment herein.
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A. General Support to the Proposed Rule Change

    One commenter noted that the proposed rule change is necessary in 
order to gather information for evaluation of potential further actions 
in response to circumstances suggesting corruption and unfair dealing 
in gaining employment and participating in municipal securities 
issuances approved by voters.\11\ Another commenter stated that 
improving ``public disclosure of bond ballot campaign contributions is 
fundamental to helping citizens be better informed about possible 
conflicts of interest and any ``pay-to-play'' schemes that might be 
occurring in the underwriting of bonds.'' \12\
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    \11\ See AGFS Letter.
    \12\ See Sunlight Letter.
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B. Disclosure Requirements are Inadequate

    One commenter also requested that the MSRB ``further improve 
transparency and accountability by making municipal securities 
information available in an open, standardized format and by using non-
proprietary unique identifiers.'' \13\ In response, the MSRB stated 
that none of these requests were the subject of the proposed rule 
change but that the MSRB will keep these requests under advisement as 
it considers future enhancements to its political contribution 
transparency initiatives.
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    \13\ Id.
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    Another commenter stated that the proposed disclosure requirements 
are inadequate to curtail actual or perceived quid pro quo practices 
with respect to bond ballot campaign contributions.\14\ Moreover, this 
commenter noted that the MSRB's First Amendment concerns are 
unwarranted in light of the Supreme Court's decision in Citizens United 
v. FEC.\15\ This commenter suggested that additional steps beyond 
disclosure requirements are necessary to address the issue, either by 
way of a direct contribution ban, or an indirect expenditure limit.\16\ 
``Contributions to bond ballot campaign committees are, in fact, direct 
in nature and, because of the evidence of actual or perceived quid pro 
quo, such contributions should be prohibited in order to prevent quid 
pro quo from continuing to occur.'' \17\ If bond ballot campaign 
committee contributions are determined to be indirect expenditures, 
this commenter urged the Commission to place limits on such 
expenditures as a result of past and ongoing quid pro quo. This 
commenter also suggested that bond ballot campaign committee 
contributions be limited to $200 per election and be combined with a 
ban on business in the event such contributions exceed this amount. 
Furthermore, the commenter suggested that, if the above-referenced 
recommendations are not implemented, the proposed rule change should be 
amended to require disclosure of contributions contemporaneously or 
within a reasonable amount of time after the contribution is made. The 
commenter argued that the current proposed quarterly disclosure 
timetable is insufficient to curtail the actual or perceived quid pro 
quo, because ``in all likelihood, an election will have concluded long 
before the disclosures are ever made, which will diminish whatever 
informative value such disclosures may have to the voting public.''
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    \14\ See NAIPFA Letter.
    \15\ 558 U.S. 310 (2010).
    \16\ Id.
    \17\ Id.
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    In response, the MSRB noted it has previously acknowledged and 
responded to similar comments, including those received pursuant to a 
request for comment to the public,\18\ which were specifically 
addressed in the Notice. In addition, the MSRB reiterated that approval 
of the proposed rule change does not foreclose additional rulemaking in 
the future.
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    \18\ See MSRB Notice 2012-43 (August 15, 2012).
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IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change, 
as well as the comment letters received and the MSRB's response, and 
finds that the proposed rule change is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to the 
MSRB. \19\ In particular, the proposed rule change is consistent with 
Section 15B(b)(2)(C) of the Act, which provides that the MSRB's rules 
shall be designed to prevent fraudulent

[[Page 20158]]

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 and municipal financial products, to remove impediments to 
and perfect the mechanism of a free and open market in municipal 
securities and municipal financial products, and, in general, to 
protect investors, municipal entities, obligated persons, and the 
public interest.\20\
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    \19\ In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \20\ 15 U.S.C. 78o-4(b)(2)(C).
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    The proposed rule change is consistent with Section 15B(b)(2)(C) of 
the Act, because it is intended to protect investors and the public 
interest and prevent fraudulent and manipulative acts and practices by 
adding greater specificity to the public disclosures required for 
contributions made by covered parties to bond ballot campaigns and any 
municipal securities business awarded pursuant to such bond ballot 
measure. Market participants will have access to such public 
information in a centralized format on the MSRB's Web site through Form 
G-37, which will increase market transparency and strengthen market 
integrity of the municipal securities market. The information will help 
shed light on ongoing market concerns of pay-to-play practices with 
respect to bond ballot campaign contributions. The MSRB has also 
represented that the revisions to MSRB Rule G-37 will assist the MSRB 
in its continuing review of MSRB Rule G-37 and whether any additional 
disclosure requirements are desirable to address other practices that 
may present challenges to the integrity of the municipal securities 
market related to political contributions by dealers and dealer 
personnel. Furthermore, the MSRB has noted that approval of the 
proposed rule change does not foreclose additional rulemaking in the 
future. For these reasons, the Commission believes that the proposed 
rule change is consistent with the Act.

V. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to the MSRB, and in 
particular, Section 15B(b)(2)(C) of the Act. The proposal will become 
effective no later than the start of the second calendar quarter 
following the date of this order.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-MSRB-2013-01) be, and hereby 
is, approved.
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    \21\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-07711 Filed 4-2-13; 8:45 am]
BILLING CODE 8011-01-P


