[Federal Register Volume 62, Number 184 (Tuesday, September 23, 1997)]
[Notices]
[Pages 49717-49719]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25217]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39084; File No. SR-MSRB-97-5]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Municipal Securities
Rulemaking Board Relating to Interpretation of Rule G-37 on Political
Contributions and Prohibitions on Municipal Securities Business
September 16, 1997.
On September 9, 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-97-5), pursuant to Section 19(b)(1) of the Securities Exchange
Act of 1934 (``Act''), 15 U.S.C. 78s(b)(1), and Rule 19b-4 thereunder.
The proposed rule change is described in Items I, II, and III below,
which Items have been prepared by the Board. The Board has designated
this proposal as constituting a stated policy, practice, or
interpretation with respect to the meaning, administration, or
enforcement of an existing rule of the Board under Section 19(b)(3)(A)
of the Act, which renders the proposal effective upon receipt of this
filing by the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Board is filing herewith a notice of interpretation concerning
rule G-37 on political contributions and prohibitions on municipal
securities business (hereafter referred to as ``the proposed rule
change''). The proposed rule change is as follows:
Rule G-37: Political Contributions and Prohibitions on Municipal
Securities Business
Transition and Inaugural Expenses
1. Q: May a municipal finance professional who is entitled to vote
for an issuer official make contributions to pay for such official's
transition or inaugural expenses without causing a prohibition on
municipal securities business with the issuer?
A: Yes, under certain conditions. The de minimis exception allows a
municipal finance professional to contribute up to $250 per candidate
per election if the municipal finance professional is entitled to vote
that issuer official. The de minimis exception is keyed to an election
cycle; therefore, if a municipal finance professional contributed $250
to the general election of an issuer official, the municipal finance
professional would not be able to make any contributions to pay for
transition or inaugural expenses without causing a prohibition on
municipal securities business with the issuer. If a municipal finance
professional made no contributions to an issuer official prior to the
election, then the municipal finance professional may, if entitled to
vote for the candidate, contribute up to $250 to pay for transition or
inaugural expenses and payment of debt incurred in connection with the
election without causing a prohibition on municipal securities
business.
Definition of Issuer Official
2. Q: An incumbent was seeking re-election as an issuer official
but she lost the election. She is now soliciting money to pay for the
debt incurred in connection with this election. Would there be a
prohibition on engaging in municipal securities business with the
issuer if a dealer or a municipal finance professional provides money
for the payment of this debt?
A: No, under certain conditions. If the incumbent is out of office
at the time she is soliciting money to pay for the election debt, then
she is no longer considered to be within the definition of ``official
of an isssuer'' and any monies given for the payment of debt incurred
in connection with the election in this instance is not subject to rule
G-37. If the incumbent still holds her issuer official position at the
time she is soliciting money to pay for the election debt, then, if a
municipal finance professional contributed $250 to her during the
general election, the municipal finance professional would not be able
to make any contributions for the payment of debt without causing a
prohibition on municipal securities business with the issuer. If a
municipal finance professional made no contributions to the incumbent
prior to the election, then the municipal finance professional may, if
entitled to vote for the candidate, contribute up to $250 for the
payment of debt incurred in connection with the election while the
incumbent is still in office without causing a prohibition on municipal
securities business. A dealer may not contribute any monies towards the
payment of debt while the incumbent is still in office without causing
a prohibition on municipal securities business with the issuer.
Definitions of Municipal Finance Professional and Executive Officer
3. Q: In making the determination of which associated persons of a
dealer meet the definitions of municipal finance professional and
executive officer, is it correct to designate all the executives of the
dealer (e.g., President, Executive Vice Presidents) under the category
of executive officers?
A: No. In making the determination of whether someone is a
municipal finance professional or executive officer, one must review
the activities of the individual and not his or her title.
Rule G-37(g)(iv) defines the term ``municipal finance
professional'' as:
(A) any associated person primarily engaged in municipal
securities representative activities, as defined in rule G-3(a)(i);
(B) any associated person who solicits municipal securities
business, as defined paragraph (vii);
(C) any associated person who is both (i) a municipal securities
principal or a municipal securities sales principal and (ii) a
supervisor of any persons described in subparagraphs (A) or (B);
(D) any associated person who is a supervisor of any person
described in subparagraph (C) up through and including, in the case
of a broker, dealer or municipal securities dealer other than a bank
dealer, the Chief Executive Officer or similarly situated official
and, in the case of a bank dealer, the officer or officers
designated by the board of directors of the bank as responsible for
the day-to-day conduct of the bank's municipal securities dealer
activities, as required pursuant to rule G-1(a); or
(E) any associated person who is a member of the broker, dealer
or municipal securities dealer (or, in the case of a bank dealer,
the separately identifiable department or division of the bank, as
defined in rule G-1) executive or management committee or
[[Page 49718]]
similarly situated officials, if any; provided, however, that, if
the only associated persons meeting the definition of municipal
finance professional are those described in this subparagraph (E),
the broker, dealer or municipal securities dealer shall be deemed to
have no municipal finance professionals.
Rule G-37(g)(v) defines the term ``executive officer'' as:
An associated person in charge of a principal business unit,
division or function or any other person who performs similar policy
making functions for the broker, dealer or municipal securities
dealer (or, in the case of a bank dealer, the separately
identifiable department or division of the bank, as defined in rule
G-1), but does not include any municipal finance professional, as
defined in paragraph (iv) of this section (g); provided, however,
that, if no associated person of the broker, dealer or municipal
securities dealer meets the definition of municipal finance
professional, the broker, dealer or municipal securities dealer
shall be deemed to have no executive officers. [emphasis added].
Dealers should first review the activities of their associated
persons to determine whether they are municipal finance professionals,
and then once that list of individuals has been established, conduct a
review of the remaining associated persons to determine whether they
are executive officers. Dealers should pay close attention to those
associated persons who are soliciting municipal securities business
and, thus, will be considered municipal finance professionals. The
Board has previously stated that solicitation activities may include,
but are not limited to, responding to issuer Requests for Proposals,
making presentations of public finance and/or municipal marketing
capabilities to issuer officials, and engaging in other activities
calculated to appeal to issuer officials for municipal securities
business, or which effectively do so. (See ``Additional Rule G-37
Questions & Answers,'' MSRB Reports, Vol. 14, No. 5 (December 1994) at
8).
Reporting by Syndicate Members
4. Q: Rule G-37(e) requires, among other things, that dealers
submit information to the Board on Form G-37/G-38 about the municipal
securities business in which they engaged. Is information about the
municipal securities business engaged in required to be submitted by
all syndicate and selling group members, or is it only the
responsibility of the manager(s) to submit such information on behalf
of the syndicate?
A: All manager(s) and syndicate members (excluding selling group
members) must separately report the municipal securities business in
which they engaged.
* * * * *
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
On April 7, 1994, the Commission approved Board rule G-37,
concerning political contributions and prohibitions on municipal
securities business.\1\ Since that time, the Board has received
numerous inquiries concerning the application of the rule. In order to
assist the municipal securities industry and, in particular, brokers,
dealers and municipal securities dealers in understanding and complying
with the provisions of the rule, the Board published seven prior
notices of interpretation which set forth, in question-and-answer
format, general guidance on rule G-37.\2\ In prior filings with the
Commission, the Board stated that it will continue to monitor the
application of rule G-37, and, from to time, will publish additional
notices of interpretations, as necessary.\3\ In light of questions
recently received from market participants concerning the applicability
of the rule to transition and inaugural expenses, the definition of
issuer official, the definitions of municipal finance professional and
executive officer, and reporting by syndicate members, the Board has
determined that it is necessary to provide further guidance to the
municipal industry. Accordingly, the Board is publishing this eighth
set of questions and answers.
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\1\ Securities Exchange Act Release No. 33868 (April 7, 1994),
59 FR 17621 (April 13, 1994). The rule applies to contributions made
on and after April 25, 1994.
\2\ See Securities Exchange Act Release No. 34161 (June 6,
1994), 59 FR 30379 (June 14, 1994); Securities Act Release No. 34603
(Aug. 25, 1994), 59 FR 45049 (Aug. 31, 1994); Securities Exchange
Act Release No. 35128 (Dec. 20, 1994), 59 FR 66989 (Dec. 28, 1994);
Securities Exchange Act Release No. 35544 (March 28, 1995), 60 FR
16896 (April 3, 1995); Securities Exchange Act Release No. 35879
(June 21, 1995), 60 FR 33447 (June 28, 1995); Securities Exchange
Act Release No. 36857 (Feb. 16, 1996), 61 FR 7034 (Feb. 23, 1996);
Securities Exchange Act Release No. 37675 (Sept. 12, 1996), 61 FR
49368 (Sept. 18, 1996).
See MSRB Reports, Vol. 14, No. 3 (June 1994) at 11-16; Vol. 14,
No. 4 (August 1994) at 27-31; Vol. 14, No. 5 (December 1994) at 8;
Vol. 15, No. 1 (April 1995) at 21; Vol. 15, No. 2 (July 1995) at 3-
4; Vol. 16, No. 1 (January 1996) at 31; and Vol. 16, No. 3
(September 1996) at 35-36. See also CCH Manual paragraph 3681.
\3\ See Securities Exchange Act Release No. 34161 (June 6,
1994), 59 FR 30379 (June 13, 1994) (SR-MSRB-94-06) and Securities
Exchange Act Release No. 34603 (August 25, 1994), 59 FR 45049
(August 31, 1994) (SR-MSRB-94-15).
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The Board believes the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Act.\4\
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\4\ Section 15B(b)(2)(C) states in pertinent part 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
The Board has designated this proposal as constituting a stated
policy, practice, or interpretation with respect to the meaning,
administration, or enforcement of an existing rule of the Board under
Section 19(b)(3)(A) of the Act, which renders the proposal effective
upon receipt of this filing by the Commission.
At any time within sixty days of the filing of this proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purpose of the Act.
[[Page 49719]]
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the submissions, 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 with held 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-97-5 and should be
submitted by October 14, 1997.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-25217 Filed 9-22-97; 8:45 am]
BILLING CODE 8010-01-M
