[Federal Register Volume 64, Number 2 (Tuesday, January 5, 1999)]
[Notices]
[Pages 539-544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-22]
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SECURITIES AND EXCHANGE COMMISSION
[Release NO. 34-408545; File No. SR-MSRB-97-12]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Municipal Securities Rulemaking Board Relating to
Political Contributions and Prohibitions on Municipal Securities
Business
December 28, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 hereunder,\2\ notice is hereby given that
on December 18, 1997, the Municipal Securities Rulemaking Board
(``Board'' or ``MSRB'') filed with the Securities and Exchange
Commission (``Commission'' or ``SEC'') a proposed rule change (File No.
SR-MSRB-97-12) as described in Items I, II, and III below, which Items
have been prepared by the Board. On December 3, 1998, the Board file
Amendment No. 1 which supersedes the initial proposal.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change as contained in Amendment No. 1 from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ On December 18, 1997, the MSRB submitted its initial
proposal which would not require Rule G-37 disclosures by dealers
who have not engaged in municipal securities transactions for 2
years. Also the proposal would not have required dealers subject to
reporting requirements to make any filing in the event they have
nothing to disclose. After discussions between the Commission and
the MSRB, the MSRB filed Amendment No. 1 on December 3, 1998. While
the revised proposal maintains the exemptions of the disclosure
requirements, it includes a dealer certification as a precondition
to the effectiveness of the exemptions created in the original
proposal.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed rule change
The Board has filed with the Commission a proposed rule change
consisting 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 Rule G-38, on
consultants. In addition, the MSRB submitted proposed Form G-37x as
part of Amendment No. 1. Below is the text of the proposed rule change.
Additions are italicized; deletions are bracketed.
Rule G-37. Political Contributions and Prohibitions on Municipal
Securities Business
(a)-(d) No change.
(e)(i) Except as otherwise provided in paragraph (e)(ii), each
[Each] broker, dealer or municipal securities dealer shall, by the
last day of the month following the end of each calendar quarter
(these dates correspond to January 31, April 30, July 31 and October
31), send to the Board by certified or registered mail, or some
other equally prompt means that provides a record of sending, [and
the Board shall make public, reports on contributions to officials
of issuers and on payments to political parties of states and
political subdivisions that are required to be recorded pursuant to
rule G-8(a)(xvi). Such reports shall include information concerning
the amount of,] two copies of Form G-37/G-38 setting forth, in the
prescribed format, the following information:
(A) for contributions to officials of issuers (other than a
contribution made by a municipal finance professional or a non-MFP
executive officer to an official of an issuer for whom such person
is entitled to vote if all contributions by such person to such
official of an issuer, in total, do not exceed $250 per election)
and payments to political parties of states and political
subdivisions (other than a payment made by a municipal finance
professional or a non-MFP executive officer to a political party of
a state or political subdivision in which such person is entitled to
vote if all payments by such person to such political party, in
total, do not exceed $250 per year): [and an indication of the
contributor category of each contribution or payment] made by the
persons and entities described in subclause (2) of this clause (A):
[(A) the broker, dealer or municipal securities dealer;]
[(B) all municipal finance professionals;]
[(C) all non-MFP executive officers; and]
[(D) all political action committees controlled by the broker,
dealer or municipal securities dealer or by any municipal finance
professional.]
[Such reports also shall include information on municipal
securities business engaged in and certain other information
specified in this section (e), as well as other identifying
information as may be determined by the Board from time to time.]
[(ii) Two copies of the reports referred to in paragraph (i) of
this section (e) must be sent to the Board on Form G-37/G-38 by the
last day of the month following the end of each calendar quarter
(these dates correspond to January 31, April 30, July 31 and October
31), and must include, in the prescribed format, by state, the
following information on contributions to each official of an issuer
and payments to each political party of a state or political
subdivision made and municipal securities business engaged in during
the reporting period:]
[(A)] (1) the name and title (including and city/county/state or
political subdivision) of each official of an issuer and political
party receiving contributions or payments during such calendar
quarter, listed by state;
[(B)] (2) the contribution or payment amount made and the
contributor category of each of the following persons and entities
[described in paragraph (i) of this section (e); and (C) such other
identifying information required by Form G-37/G-38. Such reports
also must include] making such contributions or payments during such
calendar quarter:
(a) the broker, dealer or municipal securities dealer;
(b) each municipal finance professional;
(c) each non-MFP executive officer; and
(d) each political action committee controlled by the broker,
dealer or municipal securities dealer or by any municipal finance
professional;
(B) a list of issuers with which the broker, dealer or municipal
securities dealer has engaged in municipal securities business
during such calendar quarter, listed by state, along with the type
of municipal securities business;
(C) any information required to be included on Form G-37/G-38
for such calendar quarter pursuant to paragraph (e)(iii);
(D) any information required to be disclosed pursuant to section
(d) of rule G-38; and
(E) such other identifying information required by Form G-37/G-
38.
The Board shall make public a copy of each Form G-37/G-38
received from any broker, dealer or municipal securities dealer.
(ii)(A) No broker, dealer or municipal securities dealer shall
be required to send Form G-37/G-38 to the Board for any calendar
quarter in which either:
(1) such broker, dealer or municipal securities dealer has no
information that is required to be reported pursuant to clauses (A)
through (D) of paragraph (e)(i) for such calendar quarter; or
(2) subject to clause (B) of this paragraph (e)(ii), such
broker, dealer or municipal securities dealer has not engaged in
municipal securities business, but only if such broker, dealer or
municipal securities dealer:
(a) had not engaged in municipal securities business during the
seven consecutive calendar quarters immediately preceding such
calendar quarter; and
(b) has sent to the Board, by certified or registered mail or
some other equally prompt means that provides a record of sending,
two copies of a completed Form G-37x setting forth, in the
prescribed format, (i) a certification to the effect that such
broker, dealer or municipal securities dealer did not engage in
municipal securities business during the eight consecutive calendar
quarters immediately preceding the date of such certification, (ii)
certain acknowledgments as are set forth in said Form G-37x
regarding the obligations of such broker, dealer or municipal
securities dealer
[[Page 540]]
in connection with Forms G-37/G-38 and G-37x under this paragraph
(e)(ii) and rule G-8(a)(xvi), and (iii) such other identifying
information required by Form G-37x; provided that, if a broker,
dealer or municipal securities dealer has engaged in municipal
securities business subsequent to the submission of Form G-37x to
the Board, such broker, dealer or municipal securities dealer shall
be required to submit a new Form G-37x to the Board in order to
again qualify for an exemption under this subclause (A)(2). The
Board shall make public a copy of each Form G-37x received from any
broker, dealer or municipal securities dealer.
(B) If for any calendar quarter a broker, dealer or municipal
securities dealer has met the requirements of clause (A)(2) of this
paragraph (e)(ii) but has information that is required to be
reported pursuant to clause (D) of paragraph (e)(i), then such
broker, dealer or municipal securities dealer shall be required to
send Form G-37/G-38 to the Board for such quarter setting forth only
such information as is required to be reported pursuant to clauses
(D) and (E) of paragraph (e)(i).
(iii) If a broker, dealer or municipal securities dealer engages
in municipal securities business during any calendar quarter after
not having reported on Form G-37/G-38 the information described in
clause (A) of paragraph (e)(i) for one or more contributions or
payments made during the two-year period preceding such calendar
quarter solely as a result of clause (A)(2) of paragraph (e)(ii),
such broker, dealer or municipal securities dealer shall include on
Form G-37/G-38 for such calendar quarter all such information
(including year and calendar quarter of such contributions or
payments) not so reported during such two-year period.
(f)-(i) No change.
Rule G-8. Books and Records To Be Made by Brokers, Dealers and
Municipal Securities Dealers
(a) Description of Books and Records Required to be Made. Except
as otherwise specifically indicated in this rule, every broker,
dealer and municipal securities dealer shall make and keep current
the following books and records, to the extent applicable to the
business of such broker, dealer or municipal securities dealer:
(i)-(xv) No change.
(xvi) (A)-(G) No change.
(H) Dealers shall maintain copies of the Forms G-37/G-38 and G-
37x submitted to the Board along with the certified or registered
mail receipt or other record of sending such forms to the Board.
(I)-(J) No change.
(K) No broker, dealer or municipal securities dealer shall be
subject to the requirements of this paragraph (a)(xvi) during any
period that such broker, dealer or municipal securities dealer has
qualified for and invoked the exemption set forth in clause (A)(2)
of paragraph (e)(ii) of rule G-37; provided, however, that such
broker, dealer or municipal securities dealer shall remain obligated
to comply with clause (H) of this paragraph (a)(xvi) during such
period of exemption. At such time as a broker, dealer or municipal
securities dealer that has been exempted by this clause (K) from the
requirements of this paragraph (a)(xvi) engages in any municipal
securities business, all requirements of this paragraph (a)(xvi)
covering the periods of time set forth herein (beginning with the
then current calendar year and the two preceding calendar years)
shall become applicable to such broker, dealer or municipal
securities dealer.
(xvii)-(xix) No change.
(b)-(f) No change.
Rule G-9. Preservation of Records
(a) Records to be Preserved for Six Years. Every broker, dealer
and municipal securities dealer shall preserve the following records
for a period of not less than six years:
(i)-(vii) No change.
(viii) the records to be maintained pursuant to rule G-
8(a)(xvi); provided, however, that copies of Forms G-37x shall be
preserved for the period during which such Forms G-37x are effective
and for at least six years following the end of such effectiveness.
Rule G-38. Consultants
(a)-(c) No change.
(d) Disclosure to Board. Each broker, dealer or [and] municipal
securities dealer shall send to the Board, in the manner and at the
times prescribed in paragraph (e)(i) of rule G-37, [by certified or
registered mail, or some other equally prompt means that provides a
record of sending,] and the Board shall make public, reports on Form
G-37/G-38 of all consultants used by the broker, dealer or municipal
securities dealer during each calendar quarter. [Two copies of the
reports must be sent to the Board on Form G-37/G38 by the last day
of the month following the end of each calendar quarter (these dates
correspond to January 31, April 30, July 31, and October 31).] Such
reports shall include, for each consultant, in the prescribed
format, the consultant's name, company, role and compensation
arrangement. In addition, such reports shall indicate the dollar
amount of payments made to each consultant during such calendar
quarter [the report period] and, if any such payments are related to
the consultant's efforts on behalf of the broker, dealer or
municipal securities dealer which resulted in particular municipal
securities business, then that business and the related dollar
amount of the payment must be separately identified.
* * * * *
Proposed Form G-37x
Form G-37x--MSRB
Name of Dealer:--------------------------------------------------------
The undersigned, on behalf of the dealer identified above, does
hereby certify that such dealer did not engage in ``municipal
securities business'' (as defined in rule G-37) during the eight
full consecutive calendar quarters ending immediately on or prior to
the date of this Form G-37x.
The undersigned, on behalf of such dealer, does hereby
acknowledge that, notwithstanding, the submission of this Form G-37x
to the MSRB, such dealer will be required to:
(1) submit Form G-37/G-38 for each calendar quarter unless it
has met all of the requirements for an exemption set forth in rule
G-37(e)(ii) for such calendar quarter;
(2) submit Form G-37/G-38 for each calendar quarter in which it
has information relating to consultants that is required to be
reported pursuant to rule G-37(e)(ii)(B), regardless of whether the
dealer has qualified for the exemption set forth in rule G-
37(e)(ii)(A)(2);
(3) undertake the recordkeeping obligations set forth in rule G-
8(a)(xvi) at such time as it no longer qualifies for the exemption
set forth in rule G-8(a)(xvi)(K);
(4) undertake the disclosure obligations set forth in rule G-
37(e), including in particular the disclosure obligations under
paragraph (e)(iii) thereof, at such time as it no longer qualifies
for the exemption set forth in rule G-37(e)(ii)(A)(2); and
(5) submit a new Form G-37 in order to again meet the
requirements for the exemption set forth in rule G-37(e)(ii)(A)(2)
in the event that the dealer has engaged in municipal securities
business subsequent to the date of this Form G-37x and thereafter
wishes to qualify for said exemption.
Signature:-------------------------------------------------------------
Date:------------------------------------------------------------------
(must be officer of dealer)
Name:------------------------------------------------------------------
Phone:-----------------------------------------------------------------
Address:---------------------------------------------------------------
Submit to: Municipal Securities Rulemaking Board, 1640 King
Street, Suite 300, Alexandria, Virginia 22314.
* * * * *
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
1. Purpose
Rule G-37 prohibits a broker, dealer or municipal securities dealer
(a ``dealer'') that effects transactions in municipal securities from
engaging in municipal securities business \4\ with an
[[Page 541]]
issuer within two years after certain contributions to an official of
such issuer made by the dealer, any municipal finance professional
(``MFP'') associated with such dealer (other than certain de minimis
contributions) 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 such 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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\4\ 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 underwriter in
a negotiated sale, as placement agent, or as financial advisor,
consultant or remarketing agent to an issuer in which the dealer was
chosen on a negotiated basis.
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Although the Board continues to be vigilant for any evidence that
political contributions may affect the awarding of municipal securities
business, the Board believes that the direct connection between
political contributions to issuer officials and the awarding of
municipal securities business has been substantially reduced during the
last four years by Rule G-37. The Board is sensitive, however, to the
burden imposed on dealers by the requirements of Rules G-37 and G-8 and
is committed to reducing this burden whenever possible as long as the
effectiveness of the rules is not impaired.
Every dealer currently 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.\5\ Upon reviewing the first four years
of operation of 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.
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\5\ 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 underwritings 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, such 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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Thus, the Board is proposing certain amendments to Rules G-37 and
G-8 designed to sharpen the focus of the reporting and recordkeeping
obligations by exempting dealers that do not engage in municipal
securities business from these obligations.\6\ 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 after begin engaging in
municipal securities business. As more fully described below, in order
to invoke this 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 new Form G-37x. If such a dealer
thereafter begins to engage in municipal securities business, it would
also 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 to issuer officials and payments
to state and local political parties made during the preceding two-year
period.
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\6\ This exemption would not extend to the reporting
requirements under Rule G-38. Therefore, as amended, Board rules
would continue to require the submission of information on Form G-
37/G-38 concerning the use of consultants pursuant to Rule G-38.
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In addition, the Board is proposing amendments to Rule G-37 to
codify 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 as the ``No Information
Exemption''). The Board also is requiring certain technical amendments
to consolidate the provisions currently appearing separately in Rules
G-37 and G-38 relating to 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) would 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 would not be
required to create records of such contributions and payments pursuant
to new clause (K) of Rule G-8(a)(xvi).\7\ If a dealer that has invoked
the No Business Exemption later engages in municipal securities
business, such dealer would become subject to the Look Back Requirement
under new paragraph (iii) of Rule G-37(e).
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\7\ However, dealers still would 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 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 such 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 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 such calendar quarter and during the seven consecutive calendar
quarters immediately preceding such calendar quarter. Any dealer that
has previously engaged in municipal securities business may qualify for
the No Business Exemption if it has ceased such 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 such dealer has been in
existence.\8\
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\8\ For this purpose, the Board would deem that a dealer that
has been subjects 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 affected only non-municipal
securities transactions) and has not engaged in any municipal
securities business since becoming subject to Board rules would
automatically satisfy this two-year requirement of the No Business
Exemption.
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ii. Submission for Form G-37x
The second 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 such dealer
did not engage in municipal securities business during the eight
consecutive calendar quarters immediately preceding the date of such
certificate. 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
[[Page 542]]
business.\9\ Notwithstanding the submission of Form G-37x, a dealer
would remain responsible for determining whether it continues to
qualify for an exemption from the Form G-37/G-38 submission requirement
for each calendar quarter.\10\ Form G-37x would contain an
acknowledgment of the dealer to this effect and a further
acknowledgment that it will be required to undertake the recordkeeping
and disclosure obligations under the Look Back Requirement at such time
as it again engages in municipal securities business.
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\9\ Thus, 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 period of two years without engaging
in any further municipal securities business, such dealer would be
required to submit a new Form G-37x. However, dealers would
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 strict
requirements of the Look Back Requirement described below and the
potential difficulties in complying with such strict requirement.
\10\ Thus, the dealer must determine whether it has met all of
the requirements for the No Business Exemption or the No Information
Exemption for such quarter. In addition, the dealer would 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,
as discussed below, even if the dealer continues to qualify for the
No Business Exemption.
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Forms G-37x submitted to the Board will be made available to the
public on the same basis as are Forms G-37/G-38. Thus, Forms G-37x will
be available for review and photocopying at the Board's Public Access
Facility in Alexandria, Virginia. In addition, copies will be posted on
the Board's Internet Web site (http://www.msrb.org), where members of
the public may download such forms to their computers for review and
printing free of charge. Such forms also will be made available to the
public, along with Forms G-37/G-38, in computer CD-ROM format on a
quarterly basis.\11\
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\11\ 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 such CD-ROM
that is bundled with a CD-ROM containing the software necessary to
access and read the forms on a computer. See Securities Exchange Act
Release No. 39488 (December 23, 1997), 63 FR 280 (January 5, 1998).
The Board anticipates that Forms G-37x would be included in these
CD-ROMs at no additional cost.
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iii. Look Back Requirement Upon Engaging in Municipal Securities
Business
A dealer that has invoked the No Business Exemption but that later
begins engaging in municipal securities business would become subject
to the two-pronged Look Back Requirement under new paragraph (iii) of
Rule G-37(e). With respect to recordkeeping, the Look Back Requirement
provides that a dealer that engages in municipal securities business
after having invoked the No Business Exemption must create records of
political contributions and payments to state and local political
parties under G-8(a)(xvi) for the then 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.\12\ Before engaging in municipal securities
business with an issuer, such dealer would need to review the newly
created records to ensure that it has not been banned from business
with the issuer as a result of a contribution to an official of the
issuer during the period that the dealer had invoked the No Business
Exemption.
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\12\ A dealer that is creating records under the Look Back
Requirement must re-create the records that would have been made
during the then 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 any 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 became MFPs or
non-MFP executive officers during the look back period made prior to
becoming an MFP or a non-MFP executive officer of such dealer. A
dealer would not be required to create records of contributions or
payments made prior to such look back period.
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In addition, a dealer that engages in municipal securities business
after having invoked the No Business Exemption must disclose on Form G-
37/G-38 for the calendar quarter in which it first engages in municipal
securities business 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, to the extent
not previously reported as a result of the No Business Exemption.\13\
Such dealer also would be required to send Form G-37G-38 to the Board
for each calendar quarter thereafter unless the dealer qualifies for
the No Information Exemption described below or again qualifies for,
and invokes, the No Business Exemption.
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\13\ In reporting prior contributions and payments on such
calendar quarter's Form G-37/G-38, a dealer would be required to
include the year and calendar quarter in which each such prior
contribution or payment was made. A dealer, however, would not be
required to include in such report contributions or payments made
more than two years prior to such quarter, even if not previously
reported.
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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 affect 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 strongly believes that the No Business Exemption is best
suited to dealers that do not intend on engaging in municipal
securities business for the foreseeable future. Thus, a dealer that
qualifies for the No Business Exemption in any particular calendar
quarter but intends to engage in municipal securities business in
subsequent quarters should consider carefully whether the burden of
having to comply with the Look Back Requirement--in particular, the
burden of recreating at least two full years of records under Rule G-
8(a)(xvi)--and the risk of unknowingly becoming banned from municipal
securities business as a result of a contribution made to an issuer
official during such exemption period outweigh the short-term benefit
of not having to create and maintain such records and not having to
submit Form G-37/G-38 on a current basis. The Board advises any dealer
that engages in municipal securities business after having invoked the
No Business Exemption that it should be prepared to evidence to the
appropriate regulatory agency charged with enforcing Board rules that
it has fully complied with its strict obligations to create the
required records and to disclose on a timely basis the required
information under the Look Back Requirement.
iv. No Effect on Disclosure and Recordkeeping Obligations Relating to
Consultants
If, in any quarter during which a dealer qualifies for the No
Business Exemption, that dealer uses a consultant to attempt to obtain
municipal securities business, it would be required under amended Rule
G-37(e)(ii)(B) to submit Form G-37/G-38 to the Board but would only be
required to report information relating to such use of consultants as
required under Rule G-38. Such a required submission of Form G-37/G-38
in any quarter would not cause the No Business Exemption or the related
Form G-37x submission to lapse unless the dealer in fact engages in
municipal securities business. Of course, a dealer that has engaged a
consultant in an attempt to obtain municipal securities business from
an
[[Page 543]]
issuer should consider carefully the advisability of invoking (or
continuing to invoke) the No Business Exemption since, if the dealer is
successful in obtaining such business, it would need to comply with the
strict requirements of the Look Back Requirement and, in particular,
would need to confirm that it has been banned from undertaking
municipal securities business with such issuer prior to undertaking
that business.
v. No Effect on Two-Year Ban on Municipal Securities Business or
Prohibition of Certain Solicitations and Coordination of Contributions
Under Rule G-37 (b) and (c)
The No Business Exemption would not provide an exemption from the
operation of sections (b) and (c) of Rule G-37.\14\ thus, under certain
circumstances, 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 trigger the ban on municipal securities
business with such issuer under section (b). In addition, solicitation
or coordination of contributions to an official of an issuer with which
the dealer is seeking to engage in municipal securities business would
continue to be prohibited under section (c) even if the No Business
Exemption is then in effect. Dealers that qualify for the No Business
Exemption but that are considering future engagements in municipal
securities business should be cognizant of the continuing applicability
of sections (b) and (c) of the rule.
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\14\ 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 PAC controlled by the dealer or an 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
Amended Rule G-37(e)(ii)(A)(1) would codify the previously
recognized No Information Exemption to the quarterly Form G-37/G-38
submission requirement.\15\ 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 conditions 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. The No Information
Exemption would continue to obviate the need for a dealer to submit a
Form G-37/G-38 that reflects no reportable activity under all category
headings. A dealer, however, would be 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.
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\15\ 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.
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c. Technical Amendments
Amended Rule G-37(e)(i) would consolidate the Form G-37/G-38
submission procedures that are currently set forth separately in
paragraphs (i) and (ii) of Rule G-37(e) and in Rule G-38(d). Amended
Rule G-38(d) would include certain related amendments.
In addition, the existing exemption from the reporting requirements
under Rule G-37 for de minimis contributions made by MFPs and non-MFP
executive officers to officials of issuers \16\ and to state and local
political parties \17\ is effected by a cross-reference to the
recordkeeping requirements of Rule G-8(a)(xvi). To clarify the nature
of such de minimis exemption, 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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\16\ A de minimis contribution to an official of an issuer not
requiring disclosure consists of a contribution made by an MFP or a
non-MFP executive officer to an official of an issuer for whom such
person is entitled to vote if all contributions by such person to
such official of an issuer, in total, do not exceed $250 per
election.
\17\ 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 such person is entitled
to vote if all payments by such person to such political party, in
total, do not exceed $250 per year.
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d. Amendments Relating to Records of Form G-37x
Section H of Rule G-8(a)(xvi) would be amended to require that
dealers maintain copies of any Forms G-37x submitted to the Board and
the corresponding records of sending. Amended Rule G-9(a)(viii) would
require that copies of Forms G-37x be preserved for the period during
which they are effective and for at least six years following the end
of such effectiveness.
2. Statutory Basis
The Board believes the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Act.\18\ The Board believes that the
proposed rule change will provide relief to certain dealers that do not
engage in municipal securities business from the burden of compliance
with the reporting requirements of Rule G-37 and the recordkeeping
requirements of Rule G-8(a)(xvi) under circumstances where the
effectiveness of the rules would not be impaired. The proposed rule
change will also assist the enforcement agencies in maintaining
accurate records of dealers that are qualified to invoke the No
Business Exemption and of dealers that are required to create records
and make disclosures pursuant to the Look Back Requirement.
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\18\ Section 15B(b)(2)(c) states 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
Within 35 days of the publication of this notice in the Federal
Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
A. by order approve the proposed rule change, or
[[Page 544]]
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
Copies of the submission, 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-97-12 and should be
submitted by January 26, 1999.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-22 Filed 1-4-99; 8:45 am]
BILLING CODE 8010-01-M
