[Federal Register Volume 80, Number 250 (Wednesday, December 30, 2015)]
[Notices]
[Pages 81709-81736]
[FR Doc No: 2015-32822]

Vol. 80

Wednesday,

No. 250

December 30, 2015

Part III

Securities and Exchange Commission

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Notice of Filing of a Proposed Rule Change Consisting of Proposed
Amendments to Rule G-37, on Political Contributions and Prohibitions on
Municipal Securities Business, Rule G-8, on Books and Records, Rule G-
9, on Preservation of Records, and Forms G-37 and G-37x; Notices

Federal Register / Vol. 80 , No. 250 / Wednesday, December 30, 2015 /
Notices

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76763; File No. SR-MSRB-2015-14]

Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed Rule Change Consisting of
Proposed Amendments to Rule G-37, on Political Contributions and
Prohibitions on Municipal Securities Business, Rule G-8, on Books and
Records, Rule G-9, on Preservation of Records, and Forms G-37 and G-37x

December 23, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on December 16, 2015, the Municipal Securities Rulemaking Board
(the ``MSRB'' or ``Board'') filed with the Securities and Exchange
Commission (the ``SEC'' or ``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the MSRB. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The MSRB filed with the Commission a proposed rule change
consisting of proposed amendments to Rule G-37, on political
contributions and prohibitions on municipal securities business, Rule
G-8, on books and records to be made by brokers, dealers, municipal
securities dealers, and municipal advisors, Rule G-9, on preservation
of records, and Forms G-37 and G-37x (the ``proposed rule change'').
The MSRB requested that the proposed rule change be approved with an
effective date to be announced by the MSRB in a regulatory notice
published no later than two months following the Commission approval
date, which effective date shall be no sooner than six months following
publication of the regulatory notice and no later than one year
following the Commission approval date; provided, however, that any
prohibition under Rule G-37 already in effect before the effective date
of the proposed rule change shall be of the scope, and continue for the
length of time, provided under Rule G-37 as in effect at the time of
the contribution that resulted in such prohibition.
    The text of the proposed rule change is available on the MSRB's Web
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2015-Filings.aspx, at the MSRB's principal office, and at the Commission's
Public Reference Room.

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 MSRB 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
text of these statements may be examined at the places specified in
Item IV below. The MSRB 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
    The Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 (the ``Dodd-Frank Act'') amended Section 15B of the Exchange Act
\3\ to provide for the regulation by the Commission and the MSRB of
municipal advisors and to grant the MSRB certain authority to protect
municipal entities and obligated persons.\4\ The Dodd-Frank Act
establishes a federal regulatory regime that requires municipal
advisors to register with the Commission \5\ and prohibits municipal
advisors from engaging in any fraudulent, deceptive, or manipulative
act or practice.\6\ The Dodd-Frank Act also grants the MSRB broad
rulemaking authority over municipal advisors and municipal advisory
activities.\7\
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    \3\ 15 U.S.C. 78o-4.
    \4\ Pub. L. 111-203, 124 Stat. 1376 (2010).
    \5\ See Section 15B(a)(1)(B) of the Exchange Act (15 U.S.C. 78o-
4(a)(1)(B)).
    \6\ See Section 15B(a)(5) of the Exchange Act (15 U.S.C. 78o-
4(a)(5)).
    \7\ See Section 15B(b)(2) of the Exchange Act (15 U.S.C. 78o-
4(b)(2)).
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    As charged by Congress, the MSRB is in the process of developing a
comprehensive regulatory framework for municipal advisors and their
associated persons, including the proposed amendments to Rule G-37.\8\
The proposed rule change would extend to municipal advisors through
targeted amendments to Rule G-37 the regulatory policies in Rule G-37
that address ``pay to play'' practices and the appearance thereof.
``Pay to play'' practices typically involve a person or an entity
making cash or in-kind political contributions (or soliciting or
coordinating others to make such contributions) to help finance the
election campaigns of state or local officials or bond ballot
initiatives as a quid pro quo for the receipt of government contracts.
The proposed rule change would further the purposes of the Exchange
Act, as amended by the Dodd-Frank Act, by addressing an area of
potential corruption, or appearance of corruption, in connection with
the awarding of municipal advisory business, which impedes a free and
open market in municipal securities and may harm investors, issuers,
municipal entities and obligated persons.
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    \8\ In furtherance of this framework, the MSRB adopted Rule G-44
regarding the supervisory and compliance obligations of municipal
advisors. See Release No. 34-73415 (October 23, 2014), 79 FR 64423
(October 29, 2014) (File No. SR-MSRB-2014-06) (SEC order approving
Rule G-44). The MSRB also adopted amendments to Rule G-20, on gifts,
gratuities and non-cash compensation, to extend provisions of the
rule to municipal advisors and Rule G-3 to establish registration
and professional qualification requirements for municipal advisors.
See Release No. 34-76381 (November 6, 2015), 80 FR 70271 (November
13, 2015) (File No. SR-MSRB-2015-09) (SEC order approving amendments
to Rule G-20 on gifts, gratuities and non-cash compensation); and
Release No. 34-74384 (February 26, 2015), 80 FR 11706 (March 4,
2015) (File No. SR-MSRB-2014-08) (SEC order approving registration
and professional qualification requirements for municipal advisor
representatives and municipal advisor principals) (``Order Approving
MA Qualification Requirements''). The MSRB also proposed Rule G-42,
regarding duties of non-solicitor municipal advisors. See Release
No. 34-74860 (May 4, 2015), 80 FR 26752 (May 8, 2015) (File No. SR-
MSRB-2015-03) (notice of filing and request for comment) (``Proposed
Rule G-42 Filing''); Release No. 34-75737 (August 19, 2015), 80 FR
51645 (August 25, 2015) (notice of filing of Amendment No. 1 and
request for comment); and Release No. 34-76420 (November 10, 2015)
80 FR 71858 (November 17, 2015) (File No. SR-MSRB-2015-03) (notice
of filing of Amendment No. 2 and request for comment).
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    Such practices among municipal advisors create conflicts of
interest and give rise to circumstances suggesting quid pro quo
corruption involving public officials of municipal entities resulting
from such conflicted interests and the receipt of political
contributions. In the worst cases, such practices involve the actual
corruption of public officials of municipal entities. Even if actual
quid pro quo corruption does not occur, the appearance of quid pro quo
corruption in the awarding of municipal advisory business (or municipal
securities business or engagements to provide investment advisory
services when a municipal advisor solicits on behalf of brokers,
dealers or municipal securities dealers (``dealers'') or investment
advisers) may be as damaging to the integrity of the

municipal securities market as actual quid pro quo corruption. Further,
the appearance may breed actual quid pro quo corruption as municipal
advisors may feel a need to make quid pro quo political contributions
in order to be considered a candidate for the award of business that
they believe will only be awarded to contributors.\9\ Similarly, public
officials may feel the need to engage in quid pro quo corruption in
order to avoid a financial disadvantage to their campaigns as compared
to other officials they believe engage in such practices. Even in the
absence of actual quid pro quo corruption, the mere appearance of such
corruption stifles and creates artificial barriers to competition for
municipal advisors that believe that ``pay to play'' practices are a
prerequisite to being awarded municipal advisory business (or municipal
securities business or engagements to provide investment advisory
services for broker, dealer, municipal securities dealer or investment
adviser clients of a municipal advisor soliciting such business on
behalf of clients) but are unwilling or unable to engage in such
practices.
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    \9\ Rule G-37 was first adopted in the wake of similar dealer
concerns in the municipal securities market. See Blount v. SEC, 61
F.3d 938, 945-946 (D.C. Cir. 1995), cert. denied, 517 U.S. 1119
(1996) (``Blount'') citing Thomas T. Vogel Jr., Politicians Are
Mobilizing to Derail Ban on Muni Underwriters, Wall St. J., December
27, 1993, (reporting about some officials rallying support for a
boycott of firms that vowed to halt municipal campaign giving); John
M. Doyle, Muni Bond Market Faces Scrutiny Allegations Include
Influence Peddling, Cincinnati Post, March 1, 1994 (``Of primary
concern to most reformers is the practice of `pay to play,' the
belief that political contributions by firms are necessary to
compete for muni bond underwriting business''); John D. Cummins,
Blount v. SEC: An End for Pay-to-Play, Bond Buyer, August 21, 1995
(noting that support for ``pay to play'' reform ``grew out of a
desire to end the perceived abuses'' as well as ``individual bankers
who were simply tired of writing checks to politicians'').
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    ``Pay to play'' practices are rarely explicit: Participants
typically do not let it be known that contributions or payments are
made or accepted for the purpose of influencing the selection of a
municipal advisor (or dealer, municipal advisor or investment adviser
on behalf of which a municipal advisor acts as a solicitor).\10\
Nonetheless, as discussed infra,\11\ numerous developments in recent
years have led the MSRB to conclude that, at least in some instances,
the awarding of municipal advisory business (or municipal securities
business or engagements to provide investment advisory services when a
municipal advisor solicits on behalf of dealers or investment advisers)
has been influenced, or has appeared to have been influenced, by ``pay
to play'' practices.
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    \10\ See Blount, 61 F.3d at 945 (``While the risk of corruption
is obvious and substantial, actors in this field are presumably
shrewd enough to structure their relations rather indirectly. . .
.''); id. (``[N]o smoking gun is needed where, as here, the conflict
of interest is apparent, the likelihood of stealth great, and the
legislative purpose prophylactic.'').
    \11\ See infra, nn. 99-102.
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    In the Board's view, continued ``pay to play'' practices by
professionals seeking or engaging in municipal advisory business
(including municipal advisors soliciting municipal entities on behalf
of dealers, municipal advisors and investment advisers) and the
awarding of business by conflicted officials erodes public trust and
confidence in the fairness of the municipal securities market, impedes
a free and open market in municipal securities, may damage the
integrity of the market, and may increase costs borne by municipal
entities, issuers, obligated persons and investors. The MSRB believes
that extending the policies embodied in Rule G-37 to municipal advisors
through targeted amendments to Rule G-37 will help ensure common
standards for dealers and municipal advisors, who operate in the same
market, and frequently with the same clients.
Rule G-37
    In the years preceding the MSRB's adoption of Rule G-37, widespread
reports regarding the existence of ``pay to play'' practices had fueled
industry, regulatory and public concerns, calling into question the
integrity, fairness, and sound operation of the municipal securities
market.\12\ When proposing Rule G-37 in 1994, the Board believed, based
on the Board's review of comment letters and other information, that
there were ``numerous instances in which dealers have been awarded
municipal securities business based on their political contributions.''
\13\ Moreover, in the Board's view, even when impropriety had not
occurred:
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    \12\ See Release No. 34-33868 (April 7, 1994), 59 FR 17621,
17623 (April 13, 1994) (File No. SR-MSRB-94-02) (``Rule G-37
Approval Order'').
    \13\ See Release No. 34-33482 (January 14, 1994), 59 FR 3389,
3390 (January 21, 1994) (File No. SR-MSRB-94-02) (``Notice of
Proposed Rule G-37'').

political contributions create a potential conflict of interest for
issuers, or at the very least the appearance of a conflict, when
dealers make contributions to officials responsible for, or capable
of influencing the outcome of, the awarding of municipal securities
business and then are awarded business by issuers associated with
these officials.\14\
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    \14\ See id. at 3390.

    The problems associated with ``pay to play'' practices undermined
investor confidence in the municipal securities market, which was
essential to the liquidity and capital-raising ability of the
market.\15\ Further, such practices stifled and created artificial
barriers to competition, thereby harming investors and the public
interest and increasing market costs associated with the municipal
securities business.\16\ In light of these concerns, the Board
determined that regulatory action was necessary to protect investors
and maintain the integrity of the municipal securities market.\17\ In
approving Rule G-37 in 1994, the Commission affirmed that the rule was
adopted ``to address the real as well as perceived abuses resulting
from `pay to play' practices in the municipal securities market.'' \18\
The Commission also noted that ``[Rule G-37] represents a balanced
response to allegations of corruption in the municipal securities
market.'' \19\
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    \15\ See id.
    \16\ See id.
    \17\ See id.
    \18\ See Rule G-37 Approval Order, at 17624.
    \19\ Id. at 17628.
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    Current Rule G-37 is a comprehensive regulatory regime composed of
several separate and mutually reinforcing requirements for dealers.
Chief among them are: Limitations on business activities that are
triggered by the making of certain political contributions; limitations
on solicitation and coordination of political contributions; and
disclosure and recordkeeping regarding political contributions and
municipal securities business.
    This regime is widely recognized as having significantly curbed
``pay to play'' practices and the appearance of such practices in the
municipal securities market.\20\ Rule G-37 also has been used as a
model by various federal regulators to create ``pay to play''
regulations in other segments of the financial services industry.
Pursuant to the Advisers Act,\21\ the SEC adopted Rule 206(4)-5 (the
``IA Pay to Play Rule''), which applies to investment advisers and
political contributions.\22\ The Commodity Futures Trading Commission
subsequently adopted Rule 23.451, a rule regarding swap dealers

and political contributions, (the ``Swap Dealer Rule''),\23\ pursuant
to the Commodity Exchange Act.\24\
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    \20\ See Release No. IA-3043 (July 1, 2010), 75 FR 41018, at
41020, 41026-41027 (July 14, 2010) (File No. S7-18-09) (SEC order
adopting a rule regarding political contributions made by investment
advisers pursuant to the Investment Advisers Act of 1940 (``Advisers
Act''), (``Order Adopting IA Pay to Play Rule'')); id., at n. 101
and accompanying text; comment letter from Sanchez, infra, n. 113;
comment letter from SIFMA, infra, n. 113.
    \21\ See 15 U.S.C. 80b-1 et seq.
    \22\ 17 CFR 275.206(4)-5.
    \23\ 17 CFR 23.451.
    \24\ See Commodity Exchange Act (``CEA''), 7 U.S.C. 1 et seq.
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    Rule G-37 currently applies to dealers in the following respects.
Rule G-37(b) prohibits dealers from engaging in municipal securities
business with an issuer within two years after a triggering
contribution to an official of such issuer is made by: (i) The dealer;
(ii) any person who is a municipal finance professional (``MFP'') of
the dealer; or (iii) any political action committee (``PAC'')
controlled by either the dealer or any MFP of the dealer (the ``ban on
municipal securities business'').\25\ Under the principal exclusion to
the ban on municipal securities business, provided in Rule G-37(b), a
contribution will not trigger a ban on municipal securities business if
made by an MFP to an official for whom the MFP is entitled to vote, if
such contribution, together with any other contributions made by the
MFP to the official, do not exceed $250 per election (a ``de minimis
contribution''). There is no de minimis exclusion for a contribution to
an official for whom an MFP is not entitled to vote.
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    \25\ Hereinafter, a contribution that triggers a ban on
municipal securities business, or, as discussed infra, municipal
advisory business, or both, is a ``triggering contribution.''
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    Current Rule G-37(c)(i) prohibits dealers and their MFPs from
soliciting or coordinating contributions to an official of an issuer
with which the dealer is engaging or seeking to engage in municipal
securities business. Rule G-37(c)(ii) prohibits dealers and certain of
their MFPs \26\ from soliciting or coordinating payments to a political
party of a state or locality where the dealer is engaging or seeking to
engage in municipal securities business. Rule G-37(d) is an anti-
circumvention provision prohibiting dealers and their MFPs from,
directly or indirectly, through any person or means, doing any act that
would result in a violation of section (b) or (c) of the rule. Rule G-
37(e) requires dealers to disclose to the MSRB, for public
dissemination, certain information related to their contributions and
their municipal securities business.\27\
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    \26\ MFPs as described in current paragraphs (A) through (C) of
current Rule G-37(g)(iv) are subject to the prohibition in Rule G-
37(c)(ii). (Paragraph (A) refers to an associated person primarily
engaged in municipal securities representative activities, paragraph
(B), to an associated person who solicits municipal securities
business, and paragraph (C), to an associated person who is both a
municipal securities principal or sales principal and a supervisor
of the personnel described in paragraph (A) or (B)).
    \27\ The MSRB makes the information that dealers are required to
disclose under Rule G-37(e) available to the public for inspection
on the MSRB's Electronic Municipal Market Access (EMMA[supreg]) Web
site.
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    Currently, Rule G-37 also applies to certain activities of dealers
that are now defined as municipal advisory activities under the
Exchange Act and Exchange Act Rule 15Ba1-1(e).\28\ Specifically, Rule
G-37 defines as a type of MFP a person ``primarily engaged in municipal
securities representative activities'' other than sales with natural
persons.\29\ Such municipal securities representative activities may
include the provision of ``financial advisory or consultant services
for issuers in connection with the issuance of municipal securities.''
\30\ Most, and perhaps all, of these financial advisory and consultant
services are also municipal advisory activities under Section 15B(e)(4)
of the Exchange Act \31\ and the SEC Final Rule. Moreover, currently,
under Rule G-37, if a ban on municipal securities business is
triggered, the ban encompasses the dealer's provision of those same
financial advisory and consultant services. Current Rule G-37 applies
equally to dealers that are also municipal advisors (``dealer-municipal
advisors''). However, Rule G-37 does not currently apply in any respect
to any municipal advisor that is not also a dealer (a ``non-dealer
municipal advisor.'')
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    \28\ 17 CFR 240.15Ba1-1(e). See generally, 17 CFR 240.15Ba1-1 to
17 CFR 240.15Ba1-8 and related rules (collectively, ``SEC Final
Rule'') (providing for the registration of municipal advisors);
Release No. 34-70462 (September 20, 2013), 78 FR 67467, at 67469
(November 12, 2013) (File No. S7-45-10) (``Order Adopting SEC Final
Rule'').
    \29\ See Rule G-37(g)(iv)(A).
    \30\ Rule G-3(a)(i)(A)(2); see Rule G-37(g)(iv) (providing that
MFP means, under paragraph (A), ``any associated person primarily
engaged in municipal securities representative activities, as
defined in rule G-3(a)(i), provided, however, that sales activities
with natural persons shall not be considered to be municipal
securities representative activities for purposes of . . .
subparagraph (A)'').
    \31\ See 15 U.S.C. 78o-4(e)(4).
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Proposed Amendments to Rule G-37
    In summary, the proposed amendments to Rule G-37 would extend the
core standards under Rule G-37 to municipal advisors by:
     Subject to exceptions, prohibiting a municipal advisor
from engaging in ``municipal advisory business'' \32\ with a municipal
entity for two years following the making of a contribution to certain
officials of the municipal entity by the municipal advisor, a
``municipal advisor professional'' \33\ (or ``MAP'') of the municipal
advisor, or a PAC controlled by the municipal advisor or an MAP (a
``ban on municipal advisory business'');
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    \32\ The term ``municipal advisory business'' is defined in
proposed Rule G-37(g)(ix) and discussed infra.
    \33\ The proposed definition of ``municipal advisor
professional'' closely parallels the definition of municipal finance
professional in current Rule G-37(g)(iv) and proposed Rule G-
37(g)(ii), and is discussed infra.
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     prohibiting municipal advisors and MAPs from soliciting
contributions, or coordinating contributions, to certain officials of a
municipal entity with which the municipal advisor is engaging or
seeking to engage in municipal advisory business;
     requiring a ``nexus'' between a contribution and the
ability of the official to influence the awarding of business to the
municipal advisor (or the dealer, municipal advisor or investment
adviser clients of a defined ``municipal advisor third-party
solicitor''); \34\
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    \34\ See discussion in ``Municipal Advisor Third-Party
Solicitors,'' infra. The new term ``municipal advisor third-party
solicitor'' is defined in proposed Rule G-37(g)(x).
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     prohibiting municipal advisors and certain MAPs from
soliciting payments, or coordinating payments, to political parties of
states and localities with which the municipal advisor is engaging in,
or seeking to engage in, municipal advisory business;
     prohibiting municipal advisors and MAPs from committing
indirect violations of proposed amended Rule G-37;
     requiring quarterly disclosures to the MSRB of certain
contributions and related information;
     providing for certain exemptions from a ban on municipal
advisory business; and
     extending applicable interpretive guidance under Rule G-37
to municipal advisors.
    In addition, subject to exceptions, the proposed amendments would
prohibit a dealer or municipal advisor from engaging in municipal
securities business or municipal advisory business, as applicable, with
a municipal entity for two years following the making of a contribution
to certain officials of the municipal entity by a municipal advisor
third-party solicitor engaged by the dealer or municipal advisor, an
MAP of such municipal advisor third-party solicitor, or a PAC
controlled by the municipal advisor third-party solicitor or an MAP of
the municipal advisor third-party solicitor. The proposed amendments
would also subject a dealer-municipal advisor to a ``cross-ban'' on
municipal securities business, municipal advisory business,

or both municipal securities business and municipal advisory business,
consistent with the type of business the award of which can be
influenced by the official to whom the contribution was made.
    The discussion of the proposed rule change begins with the proposed
amendments to expand the purpose and scope of Rule G-37 as set forth in
proposed section (a). This is followed by a discussion of the defined
terms ``municipal advisor third-party solicitor,'' ``municipal
financial professional'' and ``municipal advisor professional'' \35\ as
an understanding of these defined terms and the treatment under the
proposed rule change of persons that fall within these definitions is
fundamental to understanding the scope and operation of the subsequent
sections of proposed amended Rule G-37. Thereafter, the proposed
amendments are discussed in order of the sections of the rule,
beginning with a discussion of the proposed amendments to section (b),
regarding bans on business.
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    \35\ See discussion in ``Municipal Finance Professionals and
Municipal Advisor Professionals,'' infra. The new term ``municipal
advisor professional'' is defined in proposed Rule G-37(g)(iii).
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Purpose Section
    Currently, Rule G-37(a) describes the purpose and intent of Rule G-
37, which includes the protection of investors and the public interest.
It further describes the key mechanisms through which the rule aims to
achieve its purposes: (i) A ban on municipal securities business
following the making of a triggering contribution to an official of an
issuer; and (ii) the public disclosure of information regarding
dealers' political contributions and municipal securities business.
    The proposed amendments would modify section (a) to include
reference to municipal advisory business and reflect that a ban on
business and the public disclosure requirements would apply to both
dealers and municipal advisors. The proposed amendments also would
expand the scope of the purpose to ensure that the high standards and
integrity of the ``municipal securities market'' (instead of the
``municipal securities industry'') are maintained. In addition, in
section (a) and throughout the rule, the proposed defined term
``municipal entity'' \36\ would be used in lieu of the term ``issuer,''
and, the term ``dealer'' would be defined to include collectively, for
purposes of the rule, brokers, dealers and municipal securities
dealers. With these proposed amendments to section (a), the proposed
rule change makes clear that proposed amended Rule G-37 is intended to
apply to all dealers and all municipal advisors (collectively
``regulated entities'').
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    \36\ In proposed Rule G-37(g)(xi), ``municipal entity'' would
have the meaning specified in Section 15B(e)(8) of the Act (15
U.S.C. 78o-4(e)(8)), and the rules and regulations thereunder. The
proposed rule change would use this term in lieu of the more
narrowly defined term ``issuer'' in light of the Dodd-Frank Act's
grant of authority to the MSRB to adopt rules with respect to
municipal advisors and municipal advisory activities for the
protection of municipal entities. See supra nn. 3-7 and accompanying
text. Exchange Act Rule 15Ba1-1(g) (17 CFR 240.15Ba1-1(g)) defines
``municipal entity'' to mean ``any State, political subdivision of a
State, or municipal corporate instrumentality of a State or of a
political subdivision of a State, including: (1) Any agency,
authority, or instrumentality of the State, political subdivision,
or municipal corporate instrumentality; (2) Any plan, program, or
pool of assets sponsored or established by the State, political
subdivision, or municipal corporate instrumentality or any agency,
authority, or instrumentality thereof; and (3) Any other issuer of
municipal securities.''
    ``Municipal entity'' includes college savings plans (``529
plans'') that comply with Section 529 of the Internal Revenue Code
(26 U.S.C. 529), and certain entities that do not issue municipal
securities, including various types of state or local government-
sponsored or established plans or pools of assets, such as local
government investment pools (``LGIPs''), public employee retirement
systems, public employee benefit plans and public pension plans
(including participant directed plans and 403(b) and 457 plans). See
SEC Order Adopting Final Rule, at n. 191 (defining ``public employee
retirement system,'' ``public employee benefit plan,'' ``403(b)
plan'' and ``457 plan''); id., at 78 FR at 67480-83 (discussing
these terms).
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    The proposed amendments to section (a) also would add ``municipal
entities'' and ``obligated persons'' \37\ as parties that the rule
would be intended to protect, which reflects the scope of the MSRB's
broadened statutory charge under the Dodd-Frank Act.\38\ Although, by
definition, obligated persons are not in that capacity issuers of
municipal securities, at times officials who are the recipients of
contributions may have influence in the selection of a dealer,
municipal advisor or investment adviser in a matter in which an
obligated person has financial obligations.
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    \37\ ``Obligated person'' is defined in Section 15B(e)(10) of
the Exchange Act (15 U.S.C. 78o-4(e)(10)) and rules promulgated
thereunder. See Exchange Act Rule 15Ba1-1(k) (17 CFR 240.15Ba1-
1(k)).
    \38\ See, e.g., 15 U.S.C. 78o-4(b)(2)(C).
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Municipal Advisor Third-Party Solicitors
    Municipal advisors that undertake a solicitation of a municipal
entity on behalf of a third-party dealer, municipal advisor or
investment adviser engage in a distinct type of municipal advisory
business. To extend the policies contained in Rule G-37 to these
municipal advisors, the proposed amendments to Rule G-37 would add a
new defined term, ``municipal advisor third-party solicitor'' in
proposed Rule G-37(g)(x). A municipal advisor third-party solicitor
would be defined in proposed Rule G-37(g)(x) as a municipal advisor
that:

Is currently soliciting a municipal entity, is engaged to solicit a
municipal entity, or is seeking to be engaged to solicit a municipal
entity for direct or indirect compensation, on behalf of a dealer,
municipal advisor or investment adviser (as defined in Section
202(a)(11) of the Investment Advisers Act of 1940) that does not
control, is not controlled by, or is not under common control with
the municipal advisor undertaking such solicitation.

The terms ``solicit'' and ``soliciting'' \39\ would be defined in
proposed Rule G-37(g)(xix) to mean, except for purposes of Rule G-
37(c):
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    \39\ The proposed definitions of ``solicit'' and ``soliciting''
would be consistent with the term ``solicitation of a municipal
entity or obligated person'' as defined in Section 15B(e)(9) of the
Exchange Act (15 U.S.C. 78o-4(e)(9)) and the rules and regulations
thereunder. See, e.g., 17 CFR 240.15Ba1-1(n). In addition, the MSRB
proposes to move the definition of ``solicit'' from current Rule G-
37(g)(ix) to proposed Rule G-37(g)(xix).

to make, or making, respectively, a direct or indirect communication
with a municipal entity for the purposes of obtaining or retaining
an engagement by the municipal entity of a dealer, municipal advisor
or investment adviser (as defined in Section 202(a)(11) of the
Investment Advisers Act of 1940) for municipal securities business,
municipal advisory business or investment advisory services;
provided, however, that it does not include advertising by a dealer,
---------------------------------------------------------------------------
municipal advisor or investment adviser.

    The terms ``municipal advisor third-party solicitor,'' ``solicit''
and ``soliciting'' would be consistent with the terms ``municipal
advisor'' \40\ and ``solicitation of a municipal entity or obligated
person'' \41\ as defined in the Exchange Act and the rules and
regulations thereunder.\42\ Under the Exchange Act and the SEC Final
Rule, the terms ``municipal advisor'' and ``solicitation of a municipal
entity or obligated person'' are to be broadly construed, and are
reflective of a legislative determination that municipal advisors that
act as solicitors on behalf of third-party dealers, municipals advisors
or investment advisers should be regulated as such without regard to
the extent to which they undertake such

solicitations.\43\ This includes regulation with regards to ``pay to
play'' practices.\44\ Indeed, Congress determined to grant rulemaking
authority over municipal advisors to the MSRB, in part, because it
already ``has an existing, comprehensive set of rules on key issues
such as pay-to-play. . . .'' \45\
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    \40\ See Section 15B(e)(4) of the Exchange Act (15 U.S.C. 78o-
4(e)(4)).
    \41\ See Section 15B(e)(9) of the Exchange Act (15 U.S.C. 78o-
4(e)(9)).
    \42\ See Exchange Act Rules 15Ba1-1(d), (e) and (n) (17 CFR
240.15Ba1-1(d), (e) and (n)) (defining the terms ``municipal
advisor,'' ``municipal advisory activities'' and ``solicitation of a
municipal entity or obligated person,'' respectively).
    \43\ See Order Adopting SEC Final Rule, 78 at 67477 (noting that
``the statutory definition of municipal advisor is broad and
includes persons that traditionally have not been considered to be
municipal financial advisors'' and that the definition includes
``solicitors'' that engage in municipal advisory activities). See
also id. at n. 411 and accompanying text (``As discussed in the
Proposal, a solicitation of a single investment of any amount from a
municipal entity would require the person soliciting the municipal
entity to register as a municipal advisor.'').
    \44\ As the Commission has recognized, the regulation of
municipal advisors and their advisory activities is generally
intended to address problems observed with the unregulated conduct
of some municipal advisors, including ``pay to play'' practices. See
Order Adopting SEC Final Rule, 78 FR at 67469.
    \45\ S. Report 111-176, at 149 (2010) (``Senate Report'').
---------------------------------------------------------------------------

    Thus, a municipal advisor that provides advice to or on behalf of a
municipal entity or obligated person within the meaning of Section
15B(e)(4) of the Exchange Act \46\ and the rules and regulations
thereunder may, depending on its other conduct, also be a municipal
advisor third-party solicitor within the meaning of proposed Rule G-
37(g)(x). Additionally, a municipal advisor may at one point in time
also be a municipal advisor third-party solicitor and at another point
in time may no longer fall within the proposed definition. For example,
in one engagement, a municipal advisor's role may be limited to that of
a municipal advisor third-party solicitor and the municipal advisor
would solicit a municipal entity on behalf of a third-party dealer,
municipal advisor or investment adviser. Contemporaneously, in a second
engagement, the municipal advisor may be engaged to provide advice to a
municipal entity regarding the issuance of municipal securities.
Because, under the above example, the municipal advisor falls within
the scope of the municipal advisor third-party solicitor definition in
connection with at least one solicitation, engagement to solicit or
attempt to seek an engagement to solicit, for purposes of the proposed
rule change, the municipal advisor would fall within the definition of
a municipal advisor third-party solicitor. Under the proposed rule
change, the engagement of a municipal advisor third-party solicitor
would have special implications for a dealer or municipal advisor
(either a dealer or municipal advisor, a ``regulated entity'') that
engages a municipal advisor third-party solicitor (``dealer client'' or
``municipal advisor client,'' respectively) to solicit a municipal
entity on its behalf.\47\
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78o-4(e)(4).
    \47\ Hereinafter, a ``dealer client'' or a ``municipal advisor
client'' may also be referred to as a ``regulated entity client.''
---------------------------------------------------------------------------

Municipal Finance Professionals and Municipal Advisor Professionals
    Under current Rule G-37, a contribution by a person who is a
municipal finance professional, or MFP, of a dealer may trigger a ban
on municipal securities business as to the dealer in certain cases. The
proposed amendments would incorporate minor non-substantive amendments
to the term MFP, and define as a ``municipal advisor professional,'' or
MAP, certain persons who are employed or otherwise affiliated with a
municipal advisor. Similarly to an MFP, if an MAP makes a contribution,
under the proposed amendments the action may trigger a ban on municipal
advisory business as to the municipal advisor in certain cases.
    Municipal Finance Professional. An associated person of a dealer is
a ``municipal finance professional'' if he or she engages in the
functions described in paragraphs (A) through (E) of current Rule G-
37(g)(iv). In addition, if designated by a dealer as an MFP in the
dealer's records, an associated person is deemed an MFP and retains the
designation for one year after the last activity or position that gave
rise to the designation.\48\
---------------------------------------------------------------------------

    \48\ See Rule G-8(a)(xvi) (Records Concerning Political
Contributions and Prohibitions on Municipal Securities Business
Pursuant to Rule G-37).
---------------------------------------------------------------------------

    The MSRB proposes to more specifically identify the persons engaged
in the functions described in current paragraphs (A) through (E) of
Rule G-37(g)(iv), and to relocate the defined term, municipal finance
professional, from subsection (g)(iv) to proposed subsection (g)(ii) of
the rule. A person described in current Rule G-37(g)(iv)(A) would be a
``municipal finance representative'' in proposed Rule G-37(g)(ii)(A); a
person described in current Rule G-37(g)(iv)(B) would be a ``dealer
solicitor'' in proposed Rule G-37(g)(ii)(B); a person described in
current Rule G-37(g)(iv)(C) would be a ``municipal finance principal''
in proposed Rule G-37(g)(ii)(C); a person described in current Rule G-
37(g)(iv)(D) would be a ``dealer supervisory chain person'' in proposed
Rule G-37(g)(ii)(D); and a person described in current Rule G-
37(g)(iv)(E) would be a ``dealer executive officer'' in proposed Rule
G-37(g)(ii)(E). Additionally, proposed Rule G-37(g)(ii)(B), describing
``dealer solicitors'' (i.e., associated persons of dealers who solicit
municipal securities business), would describe this category of MFP by
cross-referencing an additional proposed defined term, ``municipal
solicitor,'' \49\ and would delete as superfluous the parenthetical
reference to Rule G-38, on solicitation of municipal securities
business. The proposed rule change would use the proposed descriptive
defined terms, in both the definition of ``municipal finance
professional'' and throughout the rule text.
---------------------------------------------------------------------------

    \49\ In proposed Rule G-37(g)(xiii), ``municipal solicitor,''
would mean: (A) An associated person of a dealer who solicits a
municipal entity for municipal securities business on behalf of the
dealer; (B) an associated person of a municipal advisor who solicits
a municipal entity for municipal advisory business on behalf of the
municipal advisor; or (C) an associated person of a municipal
advisor third-party solicitor who solicits a municipal entity on
behalf of a dealer, municipal advisor or investment adviser (as
defined in Section 202(a)(11) of the Investment Advisers Act of
1940) that does not control, is not controlled by, or is not under
common control with such municipal advisor third-party solicitor.
---------------------------------------------------------------------------

    The MSRB also proposes additional minor technical amendments to the
definition of MFP to improve its readability. In paragraph (A),
defining the term, ``municipal finance representative,'' the MSRB
proposes to substitute the words ``other than'' in place of the more
lengthy proviso in the current definition. In paragraph (E), defining
the term ``dealer executive officer,'' the MSRB proposes to: (i)
Relocate the parenthetical pertaining to bank dealers within the
definition; and (ii) reorganize the clause that provides that a dealer
shall be deemed to have no MFPs if the only associated persons meeting
the MFP definition are those described in paragraph (E) (of current
Rule G-37(g)(iv) or proposed Rule G-37(g)(ii)). Also, the MSRB proposes
minor, non-substantive amendments to shorten the final paragraph of the
definition of municipal finance professional, which provides that a
person designated by the dealer as an MFP in the dealer's records under
Rule G-8(a)(xvi) would be deemed to be an MFP and would retain the
designation for one year after the last activity or position which gave
rise to the designation. The amendments to the defined term are not
intended to, and would not be interpreted to, substantively modify the
scope of the current definition of municipal finance professional,
except to the extent the defined term ``municipal solicitor'' used
within the ``dealer solicitor'' definition applies to the solicitation
of a

``municipal entity,'' rather than an ``issuer.''
    Municipal Advisor Professionals. The associated persons of a
municipal advisor that would be subject to the rule would be defined as
``municipal advisor professionals'' in proposed Rule G-37(g)(iii).
``Municipal advisor professional'' would be analogous to the amended
defined term, ``municipal finance professional.'' As in the definition
of ``municipal finance professional,'' proposed Rule G-37(g)(iii)
identifies five types of MAPs, in proposed paragraphs (A) through (E),
respectively, as: ``municipal advisor representative,'' ``municipal
advisor solicitor,'' ``municipal advisor principal,'' ``municipal
advisor supervisory chain person,'' and ``municipal advisor executive
officer.''
    Under proposed Rule G-37(g)(iii), an MAP would be any associated
person of a municipal advisor engaged in the following activities:
    (A) Any ``municipal advisor representative''--any associated person
engaged in municipal advisor representative activities, as defined in
Rule G-3(d)(i)(A); \50\
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    \50\ Rule G-3(d)(i)(A), defines a ``municipal advisor
representative'' as ``a natural person associated with a municipal
advisor who engages in municipal advisory activities on the
municipal advisor's behalf, other than a person performing only
clerical, administrative, support or similar functions.''
---------------------------------------------------------------------------

    (B) any ``municipal advisor solicitor''--any associated person who
is a municipal solicitor (as defined in paragraph (g)(xiii)(B) of this
rule) (or in the case of an associated person of a municipal advisor
third-party solicitor, paragraph (g)(xiii)(C) of this rule);
    (C) any ``municipal advisor principal''--any associated person who
is both: (1) A municipal advisor principal (as defined in Rule G-
3(e)(i)); \51\ and (2) a supervisor of any municipal advisor
representative (as defined in paragraph (g)(iii)(A) of this rule) or
municipal advisor solicitor (as defined in paragraph (g)(iii)(B) of
this rule);
---------------------------------------------------------------------------

    \51\ Rule G-3(e)(i) defines the term ``municipal advisor
principal'' to mean ``a natural person associated with a municipal
advisor who is qualified as a municipal advisor representative and
is directly engaged in the management, direction or supervision of
the municipal advisory activities of the municipal advisor and its
associated persons.'' See Order Approving MA Qualification
Requirements. The term ``municipal advisory activities'' (which is
used within the ``municipal advisor principal'' definition) is
defined in Rule D-13 to mean, except as otherwise specifically
provided by rule of the Board, ``the activities described in Section
15B(e)(4)(A)(i) and (ii) of the Act and the rules and regulations
promulgated thereunder.''
---------------------------------------------------------------------------

    (D) any ``municipal advisor supervisory chain person''--any
associated person who is a supervisor of any municipal advisor
principal up through and including, in the case of a municipal advisor
other than a bank municipal advisor, the Chief Executive Officer or
similarly situated official, and, in the case of a bank municipal
advisor, 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 advisory activities, as required by 17 CFR 240.15Ba1-
1(d)(4)(i); or
    (E) any ``municipal advisor executive officer''--any associated
person who is a member of the executive or management committee (or
similarly situated official) of a municipal advisor (or, in the case of
a bank municipal advisor, the separately identifiable department or
division of the bank as defined in Section 15B(e)(4) of the Act and 17
CFR 240.15Ba1-1(d)(4)(i) thereunder); provided, however, that if the
persons described in this paragraph are the only associated persons of
the municipal advisor meeting the definition of municipal advisor
professional, the municipal advisor shall be deemed to have no
municipal advisor professionals.
    As in the definition of MFP, proposed Rule G-37(g)(iii) defining
MAP would provide that a person designated by a municipal advisor as an
MAP in the municipal advisor's records would be deemed an MAP and would
retain the designation for one year after the last activity or position
which gave rise to the designation.
    The chart below illustrates the similarities between the defined
term, ``municipal finance professional,'' as revised by the proposed
amendments, and the new proposed defined term, ``municipal advisor
professional.''

------------------------------------------------------------------------
                                            Types of municipal advisor
Types of municipal finance professional            professional
------------------------------------------------------------------------
``municipal finance representative''...  ``municipal advisor
                                          representative.''
``dealer solicitor''...................  ``municipal advisor
                                          solicitor.''
``municipal finance principal''........  ``municipal advisor
                                          principal.''
``dealer supervisory chain person''....  ``municipal advisor supervisory
                                          chain person.''
``dealer executive officer''...........  ``municipal advisor executive
                                          officer.''
------------------------------------------------------------------------

Ban on Business
    Currently, Rule G-37(b) sets forth a ban on municipal securities
business that might have otherwise been awarded as a quid pro quo for a
contribution, or at least as to which the appearance of a quid pro quo
might have arisen. It prohibits a dealer from engaging in municipal
securities business with an issuer within two years after a triggering
contribution is made to an issuer official by the dealer, an MFP of the
dealer or a PAC controlled by either the dealer or an MFP of the
dealer. Proposed Rule G-37(b)(i)(A) would retain this ban on municipal
securities business for dealers. Proposed Rule G-37(b)(i)(B) would
create an analogous two-year ban on municipal advisory business
applicable to municipal advisors that are not, at the time of the
triggering contribution, municipal advisor third-party solicitors.
Proposed Rule G-37(b)(i)(C)(1) would create, for municipal advisor
third-party solicitors, a two-year ban on municipal advisory business
analogous to the ban in proposed Rule G-37(b)(i)(B).
    Under the proposed amendments, as discussed infra,\52\ whether a
contribution would trigger a ban on municipal securities business, a
ban on municipal advisory business, or a ban on both types of business
(any such ban, a ``ban on applicable business'') for a dealer,
municipal advisor or dealer-municipal advisor generally would depend on
the identity of the person who made the contribution, the type of
influence that can be exercised by the official to whom the
contribution was made and whether an exclusion from the ban would
apply.
---------------------------------------------------------------------------

    \52\ See discussion in ``Persons from Whom Contributions Could
Trigger a Ban on Business,'' ``Official of a Municipal Entity,''
``Ban on Business for Dealers; Ban on Business for Municipal
Advisors,'' ``Ban on Business for Dealer-Municipal Advisors'' and
``Excluded Contributions,'' infra.
---------------------------------------------------------------------------

Persons From Whom Contributions Could Trigger a Ban on Business
    Dealers. Under current Rule G-37(b)(i), contributions by three
types of contributors--a dealer,\53\ an MFP of the dealer \54\ or a PAC
controlled by either the dealer or an MFP of the dealer \55\--

may trigger a ban on municipal securities business for the dealer. The
proposed amendments to Rule G-37 would provide that this same set of
persons may trigger a ban on business for the dealer, and would
renumber this provision as proposed subsection (b)(i)(A).
---------------------------------------------------------------------------

    \53\ See Rule G-37(b)(i)(A).
    \54\ See Rule G-37(b)(i)(B).
    \55\ See Rule G-37(b)(i)(C).
---------------------------------------------------------------------------

    Municipal Advisors that are not Municipal Advisor Third-Party
Solicitors. Proposed Rule G-37(b)(i)(B) would set forth, for municipal
advisors that are not municipal advisor third-party solicitors at the
time of a contribution, a provision that parallels proposed Rule G-
37(b)(i)(A) for dealers. Under proposed Rule G-37(b)(i)(B),
contributions by three types of contributors--a municipal advisor, an
MAP of the municipal advisor or a PAC controlled by either the
municipal advisor or an MAP of the municipal advisor--may trigger a ban
on municipal advisory business for the municipal advisor.
    Municipal Advisor Third-Party Solicitors. Proposed Rule G-
37(b)(i)(C)(1) would set forth, for municipal advisor third-party
solicitors, a provision that parallels proposed Rule G-37(b)(i)(A) for
dealers and proposed Rule G-37(b)(i)(B) for municipal advisors that are
not municipal advisor third-party solicitors. Under proposed Rule G-
37(b)(i)(C)(1), contributions by three types of contributors--the
municipal advisor third-party solicitor, an MAP of the municipal
advisor third-party solicitor or a PAC controlled by either the
municipal advisor third-party solicitor or an MAP of the municipal
advisor third-party solicitor--may trigger a ban on municipal advisory
business for the municipal advisor third-party solicitor.
    Clients of a Municipal Advisor Third-Party Solicitor that are
Dealers or Municipal Advisors. Under proposed Rule G-37(b)(i)(C)(2),
the engagement of a municipal advisor third-party solicitor would have
special implications for a dealer client or municipal advisor client.
If a dealer or municipal advisor engages a municipal advisor third-
party solicitor to solicit a municipal entity on its behalf, three
additional types of contributors may trigger a ban on municipal
securities business as to a dealer client, or a ban on municipal
advisory business as to a municipal advisor client. Clause
(b)(i)(C)(2)(a) would apply to dealer clients of a municipal advisor
third-party solicitor \56\ and clause (b)(i)(C)(2)(b) would apply to
municipal advisor clients (including municipal advisor third-party
solicitor clients) of a municipal advisor third-party solicitor.\57\
Under each of the proposed provisions, the additional types of
contributors that may trigger a ban for the regulated entity are the
same. They are: The engaged municipal advisor third-party solicitor; an
MAP of the engaged municipal advisor third-party solicitor; and a PAC
controlled by either the engaged municipal advisor third-party
solicitor or an MAP of the engaged municipal advisor third-party
solicitor. The MSRB believes the risk of actual or apparent quid pro
quo corruption is obvious and substantial when a municipal advisor
third-party solicitor who is engaged to solicit a municipal entity for
business on behalf of a regulated entity client makes a triggering
contribution to an official of that municipal entity with the ability
to influence the awarding of business to the municipal advisor third-
party solicitor's client. For such instances, clauses (b)(i)(C)(2)(a)
and (b) are designed to curb actual and apparent quid pro quo
corruption involving the regulated entity client and the official to
whom the contribution is made and to prevent such a regulated entity
client from obtaining the benefit of any actual quid pro quo
corruption.
---------------------------------------------------------------------------

    \56\ Currently, a dealer is generally prohibited under Rule G-38
from making payments to a third-party solicitor to solicit municipal
securities business on behalf of the dealer. However, proposed Rule
G-37(b)(i)(C)(2)(a) would apply in the limited cases where payments
to a third-party solicitor are permitted under Rule G-38 as well as
in cases where a dealer engaged a municipal advisor third-party
solicitor in violation of Rule G-38.
    \57\ Although municipal advisors that are not dealers are not
subject to Rule G-38, municipal advisors that are not municipal
advisor third-party solicitors would be subject to proposed Rule G-
42, if approved by the Commission. In relevant part, proposed Rule
G-42 provides that non-solicitor municipal advisors are prohibited
from making payments for the purpose of obtaining or retaining an
engagement to perform municipal advisory activities subject to
limited exceptions, which include reasonable fees paid to another
municipal advisor registered as such with the Commission and the
Board for making such a direct or indirect communication with a
municipal entity or obligated person on behalf of the municipal
advisor where such communication is made for the purpose of
obtaining or retaining an engagement to perform municipal advisory
activities. See Proposed Rule G-42 Filing.
---------------------------------------------------------------------------

    The determination of whether a municipal advisor was engaged as a
municipal advisor third-party solicitor by a regulated entity client
would be determined based on the facts and circumstances.\58\ The MSRB
would not consider the absence of a writing evidencing the
relationship, or the absence of particular terms in a writing
evidencing the relationship, to preclude a finding that a municipal
advisor third-party solicitor was engaged by a regulated entity to
solicit a municipal entity on its behalf within the meaning of proposed
Rule G-37(b)(i).\59\
---------------------------------------------------------------------------

    \58\ For example, if the facts and circumstances suggest that
On-Site MA, a municipal advisor third-party solicitor, and Best
Dealer, a dealer, orally agreed that On-Site MA would solicit
Municipal Entity to retain Best Dealer to underwrite municipal
securities for Municipal Entity, On-Site MA would be deemed to have
been engaged as a municipal advisor third-party solicitor on behalf
of Best Dealer with respect to Municipal Entity, even in the absence
of a written engagement letter. Similarly, if there was a written
engagement letter between On-Site MA and Best Dealer that was
limited to soliciting municipal securities business in a major
metropolitan city located in a tri-state area, but the facts and
circumstances show that Best Dealer actually agreed to engage On-
Site MA to solicit municipal securities business from any and all
municipal entities in the metropolitan tri-state area, On-Site MA
would be deemed to have been engaged as a municipal advisor third-
party solicitor on behalf of Best Dealer with respect to the entire
metropolitan tri-state area.
    \59\ But see discussion in ``Persons from Whom Contributions
Could Trigger a Ban on Business--Municipal Advisor Third-Party
Solicitors,'' supra, and ``Municipal Securities Business and
Municipal Advisory Business,'' infra. Under proposed Rule G-
37(b)(i)(C)(1), to impose a ban on municipal advisory business for a
municipal advisor third-party solicitor, the municipal advisor
third-party solicitor does not need to be specifically engaged, at
the time of the contribution, to solicit the type of work over which
the official to whom the contribution is made has selection
influence. Because a municipal advisor third-party solicitor, by
definition, may solicit for several different types of business
(i.e., municipal securities business, municipal advisory business
and investment advisory services), a contribution to any official
with the ability to influence the awarding of business to the
solicitor's current or prospective dealer, municipal advisor or
investment adviser clients could trigger a ban for the municipal
advisor third-party solicitor since there is at least an appearance
of quid pro quo corruption when it makes a contribution to such an
official. See infra, n. 62.
---------------------------------------------------------------------------

    Investment Adviser Clients of a Municipal Advisor Third-Party
Solicitor. Because Rule G-37 does not apply to investment advisers in
their capacity as such, if an investment adviser engages a municipal
advisor third-party solicitor to solicit on its behalf for an
engagement to provide investment advisory services, the actions of the
municipal advisor third-party solicitor would not trigger a ban on
business for the investment adviser.\60\
---------------------------------------------------------------------------

    \60\ However, investment advisers are subject to the
requirements and prohibitions provided in the IA Pay to Play Rule.
17 CFR 275.206(4)-5; see generally, Order Adopting IA Pay to Play
Rule.
---------------------------------------------------------------------------

Official of a Municipal Entity
    Under current Rule G-37, for any contribution to trigger a ban on
applicable business, an additional element--selection influence--must
be present. A contribution by a dealer, MFP or PAC controlled by either
the dealer or an MFP of the dealer can only trigger a ban on municipal
securities business for the dealer if the official to whom the
contribution was made is an ``official of an issuer.'' As discussed

infra, an ``official of an issuer'' must, in relevant part, have the
ability to influence ``the hiring of a broker, dealer or municipal
securities dealer for municipal securities business by an issuer.''
\61\ Proposed amended Rule G-37 would, as explained below, extend this
selection influence element to municipal advisors (and the dealer,
municipal advisor and investment adviser clients of municipal advisor
third-party solicitors), requiring a nexus between the influence that
can be exercised by the ``official of a municipal entity'' (``ME
official'') who receives a potentially ban-triggering contribution and
the type of business in which the regulated entity is engaged or is
seeking to engage.\62\
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    \61\ See Rule G-37(g)(vi).
    \62\ Dealers and municipal advisors that are not municipal
advisor third-party solicitors are typically compensated by the
municipal entity or obligated person to whom they are providing
advice or municipal securities business. Thus, when a quid pro quo
contribution is made by a dealer or such a municipal advisor, the
quid is the contribution and the quo is the awarding of business to
the dealer or municipal advisor in exchange for the contribution.
However, municipal advisor third-party solicitors (in their capacity
as such) are typically compensated not by the municipal entity or
obligated person they solicit, but by a third-party dealer,
municipal advisor or investment adviser for whom they are attempting
to secure municipal securities business, municipal advisory business
or engagements to provide investment advisory services. When a quid
pro quo contribution is made by a municipal advisor third-party
solicitor, the quid is the contribution and the quo is typically the
awarding of business to the current or prospective clients of the
municipal advisor third-party solicitor. Of course, the quo for a
municipal advisor third-party solicitor (a type of municipal
advisor) could also be the awarding of municipal advisory business
to the municipal advisor itself, as a municipal advisor third-party
solicitor may simultaneously undertake a solicitation of a municipal
entity or obligated person and provide, or seek to provide, to
another municipal entity or obligated person certain advice. Thus,
for municipal advisor third-party solicitors, the appearance of quid
pro quo corruption may arise with respect to a wider range of
contributions, as compared to dealers and municipal advisors that
are not municipal advisor third-party solicitors. Because municipal
advisor third-party solicitors are in the business of attempting to
secure business for third-party dealers, municipal advisors and
investment advisers, the fact that a municipal advisor third-party
solicitor is not, at the time of a contribution, actually engaged to
solicit a municipal entity for a particular type of business does
not avoid the appearance of quid pro quo corruption. As discussed
supra, a municipal advisor third-party solicitor is a municipal
advisor that, in relevant part, is currently soliciting, is engaged
to solicit, or is seeking to be engaged to solicit a municipal
entity for business on behalf of a third-party dealer, municipal
advisor or investment adviser. Thus, a municipal advisor third-party
solicitor will always stand to gain from a quid pro quo contribution
as such a contribution may assist the municipal advisor third-party
solicitor in obtaining new business from a prospective dealer,
municipal advisor or investment adviser client seeking to curry
favor with the ME official to whom the municipal advisor third-party
solicitor made the contribution.
---------------------------------------------------------------------------

    The term ``official of a municipal entity'' would be substituted
for the current term ``official of an issuer'' in Rule G-37. The
definition of ``official of an issuer'' (or ``official of such
issuer'') in current Rule G-37(g)(vi) includes any person who, at the
time of the contribution, was an incumbent, candidate or successful
candidate: (A) For elective office of the issuer which office is
directly or indirectly responsible for, or can influence the outcome
of, the hiring of a dealer for municipal securities business by the
issuer; or (B) for any elective office of a state or of any political
subdivision, which office has authority to appoint any person who is
directly or indirectly responsible for, or can influence the outcome
of, the hiring of a dealer for municipal securities business by an
issuer.
    The proposed amendments would delete the term ``official of an
issuer'' from Rule G-37(g)(vi) and substitute the term ``official of a
municipal entity'' as set forth in proposed Rule G-37(g)(xvi). To take
into account the possibility that an ME official may have the ability
to influence the hiring of a dealer, municipal advisor or investment
adviser, or the hiring of two or more of such professionals, three
categories of ME officials would be identified in proposed Rule G-
37(g)(xvi): An official of a municipal entity with dealer selection
influence, as described in proposed paragraph (A), an official of a
municipal entity with municipal advisor selection influence, as
described in proposed paragraph (B), and an official of a municipal
entity with investment adviser selection influence, as described in
proposed paragraph (C).
    The term ``official of a municipal entity with dealer selection
influence'' would be substantively similar to the ``official of an
issuer'' definition in current Rule G-37(g)(vi), with the exception of
the substitution of the term ``municipal entity'' in place of the term
``issuer.'' \63\ However, because the term ``municipal entity'' used in
the ``official of a municipal entity with dealer selection influence''
definition includes entities beyond those defined as ``issuers,'' the
official of a municipal entity with dealer selection influence
definition is more expansive than the ``official of an issuer''
definition it replaces.\64\ The term ``official of a municipal entity
with municipal advisor selection influence'' would be analogous to the
``official of a municipal entity with dealer selection influence''
definition. In connection with municipal advisor third-party solicitors
that solicit on behalf of an investment adviser, the term ``official of
a municipal entity with investment adviser selection influence'' would
be analogous to the ``official of a municipal entity with dealer
selection influence'' definition for dealers (and municipal advisor
third-party solicitors on behalf of a dealer) and the ``official of a
municipal entity with municipal advisor selection influence''
definition for all municipal advisors. The proposed definition's
structure, which includes the three categories of ME officials,
provides the flexibility to establish, in the case of a contribution to
an ME official, whether there is the required nexus between the ME
official who received the contribution (based upon his or her scope of
influence) and the awarding of business that gives rise to a sufficient
risk of quid pro quo corruption or the appearance of such corruption to
warrant a two-year ban.
---------------------------------------------------------------------------

    \63\ In addition, the proposed definition of ``official of a
municipal entity with dealer selection influence'' would include
minor technical amendments to the current definition of ``official
of an issuer'' to improve its readability.
    \64\ For example, the term ``municipal entity'' includes certain
entities that do not issue municipal securities, including various
types of state or local government-sponsored or established plans or
pools of assets, such as LGIPs, public employee retirement systems,
public employee benefit plans and public pension plans (including
participant directed plans and 403(b) and 457 plans). See supra, n.
36.
---------------------------------------------------------------------------

Municipal Securities Business and Municipal Advisory Business
    Currently, under Rule G-37, a dealer subject to a ban is generally
prohibited from engaging in ``municipal securities business'' with the
relevant issuer. ``Municipal securities business'' is currently defined
in Rule G-37(g)(vii) as the purchase of a primary offering on other
than a competitive bid basis, the offer or sale of a primary offering
of municipal securities, providing financial advisory or consultant
services to or on behalf of an issuer with respect to a primary
offering on other than a competitive bid basis, and providing
remarketing agent services with respect to a primary offering on other
than a competitive bid basis. Under interpretive guidance issued in
1997 (the ``1997 Guidance''), the municipal securities business from
which a dealer subject to a ban is prohibited from engaging in is
``new'' municipal securities business. The MSRB has interpreted ``new''
municipal securities business as contractual obligations with an issuer
entered into after the date of the triggering contribution to an
official of the issuer and contractual obligations that were entered
into prior to the date of the triggering contribution but which

are not specific to a particular issue of a security.\65\ The latter
category that is subject to the ban is referred to as ``pre-existing
but non-issue specific contractual undertakings.'' \66\ In contrast,
pre-existing issue-specific contractual undertakings are generally not
deemed ``new'' municipal securities business, and are not subject to
the ban.\67\ Interpretive guidance issued in 2002 (the ``2002
Guidance'') modified the 1997 Guidance in a limited respect to expand
the scope of municipal securities business that is not ``new'' for
dealers that serve as primary distributors of municipal fund
securities, in light of the unique aspects of municipal fund securities
programs and the role that primary distributors play with respect to
such programs.
---------------------------------------------------------------------------

    \65\ See 1997 Guidance.
    \66\ See id. Pre-existing but non-issue-specific contractual
undertakings are subject to the ban on municipal securities
business, subject to an orderly transition to another entity that is
not subject to a ban to perform such business. Id.
    \67\ See id. For example, if a bond purchase agreement was
signed prior to the date of a contribution triggering a ban on
municipal securities business, a dealer may continue to perform its
services as an underwriter on the issue. Significantly, however, new
or different services provided under provisions in existing issue-
specific contracts that allow for changes in the services provided
by the dealer or the compensation paid by the issuer are deemed new
municipal securities business. Id. Thus, Rule G-37 precludes a
dealer subject to a ban from performing such additional functions or
receiving additional compensation.
---------------------------------------------------------------------------

    Under the proposed rule change, the definition of municipal
securities business would not be amended, except to renumber the
definition as proposed subsection (g)(xii) and incorporate conforming
changes. Additionally, the 1997 Guidance and the 2002 Guidance would
remain unchanged for dealers.
    Under proposed Rule G-37(b)(i)(B) and proposed Rule G-
37(b)(i)(C)(1), a municipal advisor (including a municipal advisor
third-party solicitor) subject to a ban would generally be prohibited
from engaging in ``municipal advisory business'' with the relevant
municipal entity. Proposed Rule G-37(g)(ix) would define ``municipal
advisory business'' to mean those activities that would cause a person
to be a municipal advisor as defined in Section 15B(e)(4) of the Act,
17 CFR 240.15Ba1-1(d)(1)-(4) and other rules and regulations
thereunder.\68\
---------------------------------------------------------------------------

    \68\ See proposed Rule G-37(g)(ix).
---------------------------------------------------------------------------

    Notably, if a municipal advisor third-party solicitor is subject to
a ban under proposed Rule G-37(b)(i)(C), it would be prohibited from
engaging in all types of municipal advisory business with the relevant
municipal entity, including providing certain advice to the municipal
entity and soliciting the municipal entity on behalf of any third-party
dealer, municipal advisor or investment adviser.
    For municipal advisors, the MSRB intends that all existing
interpretive guidance regarding the municipal securities business of
dealers under Rule G-37 would apply to the analogous interpretive
issues regarding the municipal advisory business of municipal advisors.
However, because the ``new'' versus non-``new'' business distinction in
the 1997 Guidance only applies to pre-existing issue-specific
contractual obligations with an issuer, such guidance would not apply
to municipal advisor third-party solicitors as their contractual
obligations are not owed to an issuer but to third parties that are
regulated entity clients or investment adviser clients. Further, the
2002 Guidance would not be extended to any municipal advisors to
municipal fund securities programs because the 2002 Guidance addressed
a non-analogous interpretive issue for dealers.\69\ Multiple factors
supported the 2002 Guidance regarding primary distributors of municipal
fund securities, but the essential factor was the magnitude of the
possible repercussions to an issuer of municipal fund securities or
investors in municipal fund securities resulting from a sudden change
in the primary distributor. For example, issuers would typically not be
faced with redesigning existing programs in light of the exit of a
municipal advisor to such a plan. Further, the MSRB believes that the
exit of a municipal advisor would typically have little or no direct
impact on investors, and would not force investors to restructure or
establish new relationships with different dealers in order to maintain
their investments. The Board does not believe that the disruption of
services provided by a municipal advisor to a municipal fund securities
plan would result in repercussions of comparable scope or severity to
issuers and investors.
---------------------------------------------------------------------------

    \69\ Because the 1997 Guidance would not apply to municipal
advisor third-party solicitors, the 2002 Guidance (which modifies
the 1997 Guidance) would also have no application to municipal
advisor third-party solicitors. Thus, municipal advisor third-party
solicitors on behalf of third-party dealers, municipal advisors and
investment advisers would be prohibited, based on a triggering
contribution, from continuing to perform under any pre-existing
contract to solicit the relevant municipal entity (whether an issuer
of municipal fund securities or any other type of municipal entity).
---------------------------------------------------------------------------

Ban on Business for Dealers; Ban on Business for Municipal Advisors
    Under the proposed rule change, a dealer or municipal advisor that
is not a municipal advisor third-party solicitor could be subject to a
ban on applicable business only when a triggering contribution is made
to an ME official who can influence the awarding of the type of
business in which that regulated entity engages.
    A dealer that engages in municipal securities business, but not
municipal advisory business, would be subject to a ban on municipal
securities business only when a triggering contribution is made by any
of the persons described in proposed Rule G-37(b)(i)(A) or proposed
Rule G-37(b)(i)(C)(2) to an official of a municipal entity with dealer
selection influence, as described in proposed Rule G-37(g)(xvi)(A).
(Although the ME official may also have influence as described in
proposed Rule G-37(g)(xvi)(B) and (C), regarding the selection of
municipal advisors and investment advisers, the broader scope of
influence would be irrelevant in determining whether a dealer would be
subject to a ban on municipal securities business.) \70\ Conversely, a
contribution made by any of the persons described in proposed Rule G-
37(b)(i)(A) or proposed Rule G-37(b)(i)(C)(2) to an ME official that
does not have dealer selection influence (such as an official with only
municipal advisor selection influence, or only municipal advisor and
investment adviser selection influence) would not trigger a ban for the
dealer.
---------------------------------------------------------------------------

    \70\ The following example illustrates the impact of a
triggering contribution made by an MAP of a municipal advisor third-
party solicitor when the municipal advisor third-party solicitor was
engaged by a dealer client as set forth in proposed Rule G-
37(b)(i)(C)(2).
    Best Dealer is a dealer located in a Midwestern state. On-Site
MA is a municipal advisor third-party solicitor located in a western
coastal state, State A. Best Dealer engages On-Site MA to solicit
three major municipal entities in State A to hire Best Dealer to
underwrite municipal bonds, including North City and South City of
State A. Dan is an employee and an MAP of On-Site MA. Dan resides in
North City. Dan makes a contribution of $240 to an ME official of
South City, for whom Dan is not entitled to vote. The ME official
exercises influence in the selection of dealers, municipal advisors
and investment advisers for South City matters. As a result of Dan's
$240 contribution to the ME official, Best Dealer, the dealer client
of On-Site MA, becomes subject to a ban on engaging in municipal
securities business with South City, because Dan's contribution is a
triggering contribution and Best Dealer engaged On-Site MA to
solicit South City on behalf of Best Dealer. In addition, as
discussed infra, On-Site MA would also become subject to a ban on
engaging in municipal advisory business with South City.
    Although the ME official exercises influence in the selection of
municipal advisors and investment advisers, because Best Dealer does
not engage in municipal advisory business, a ban on applicable
business would subject Best Dealer only to a ban on municipal
securities business.
---------------------------------------------------------------------------

    Similarly, a non-dealer municipal advisor that is not a municipal
advisor

third-party solicitor would be subject to a ban on municipal advisory
business only when a triggering contribution is made by any of the
persons described in proposed Rule G-37(b)(i)(B) or proposed Rule G-
37(b)(i)(C)(2) to an ME official that is at least an official of a
municipal entity with municipal advisor selection influence.\71\
---------------------------------------------------------------------------

    \71\ The following example illustrates the impact of a
triggering contribution made by an MAP of a municipal advisor third-
party solicitor when engaged by a municipal advisor client that is
not a municipal advisor third-party solicitor as set forth in
proposed Rule G-37(b)(i)(C)(2).
    Best MA is a municipal advisor located in a Midwestern state,
and is not a municipal advisor third-party solicitor. On-Site MA is
a municipal advisor third-party solicitor located in a western
coastal state, State A. Best MA engages On-Site MA to solicit the
city school districts of three major municipalities in State A to
hire Best MA to provide municipal advisory services for such school
districts, including North City School District and South City
School District. Dan is an employee and an MAP of On-Site MA. Dan
resides in North City. Dan makes a contribution of $240 to an
official running for re-election to the school board of South City
School District. Dan is not entitled to vote for the candidate. The
ME official exercises influence in the selection of dealers,
municipal advisors and investment advisers for South City School
District matters. As a result of Dan's $240 contribution to the ME
official, Best MA, the client of On-Site MA, becomes subject to a
ban on engaging in municipal advisory business with South City
School District, because Dan's contribution is a triggering
contribution and Best MA engaged On-Site MA to solicit South City
School District on behalf of Best MA. Because Best MA does not
engage in municipal securities business, a ban on applicable
business would subject Best MA only to a ban on municipal advisory
business.
    In addition, as discussed infra, On-Site MA would also become
subject to a ban on engaging in municipal advisory business with
South City.
---------------------------------------------------------------------------

    A non-dealer municipal advisor third-party solicitor would be
subject to a ban on municipal advisory business, including advising and
soliciting, when a triggering contribution is made by any of the
persons described in proposed Rule G-37(b)(i)(C)(1) to any ME
official,\72\ if investment adviser selection influence.\73\
---------------------------------------------------------------------------

    \72\ The impact of a triggering contribution made by a municipal
advisor third-party solicitor (or one of its MAPs, or a PAC
controlled by the municipal advisor third-party solicitor or an MAP
thereof) to an ME official is illustrated as follows:
    Best Dealer is a dealer located in a Midwestern state. Best MA
is a municipal advisor located in a Midwestern state, and is not a
municipal advisor third-party solicitor. Best IA third-party
solicitor located in a western coastal state, State A. Best Dealer
engages On-Site MA to solicit three major municipal entities in
State A, including North City and South City, to hire Best Dealer to
underwrite municipal bonds. Best MA engages On-Site MA to solicit
the five largest municipal entities in State A, including North City
and South City, to hire Best MA to provide municipal advisory
services for such entities. Best IA engages On-Site MA to solicit,
in State A, all municipalities with populations over 150,000 people,
to retain Best IA for investment advice. Dan is an employee and an
MAP of On-Site MA, and resides in North City. Dan makes a
contribution of $240 to an ME official of South City, for whom Dan
is not entitled to vote. The ME official exercises influence in the
selection of dealers, municipal advisors and investment advisers,
for South City matters.
    The consequences for On-Site MA would be as follows: On-Site MA
would be banned from the following business with South City:
engaging in any form of municipal advisory business with South City
(because municipal advisory business is defined to include
solicitation on behalf of dealers, municipal advisors and investment
advisers AND other municipal advisory functions), including
soliciting South City on behalf of any dealer, including Best
Dealer, any third-party municipal advisor, including Best MA, and
any investment adviser.
    The additional consequences of such contribution would be as
follows: The dealer client, Best Dealer, would become subject to a
ban on engaging in municipal securities business with South City,
because Best Dealer engaged On-Site MA to solicit South City on
behalf of Best Dealer (and the ME official receiving the
contribution had dealer selection influence); and the municipal
advisor client, Best MA, would become subject to a ban on engaging
in municipal advisory business (of any type) with South City,
because Best MA engaged On-Site MA to solicit South City on behalf
of Best MA (and the ME official receiving the contribution had
municipal advisor selection influence). However, Best IA, who also
engaged On-Site MA to solicit South City (a municipality with a
population of over 150,000 people), would not be subject to a ban
under proposed amended Rule G-37, because although the ME official
receiving the contribution had investment adviser selection
influence, the proposed rule change does not extend to investment
advisers that are not also dealers or municipal advisors. However,
as noted supra, Best IA would be subject to the requirements and
prohibitions provided in the IA Pay to Play Rule. See discussion in
``Investment Adviser Clients of a Municipal Advisor Third-Party
Solicitor'' and n. 60, supra.
    \73\ Additionally, a contribution made by any of the persons
described in proposed Rule G-37(b)(i)(C)(2) to an official of a
municipal entity with municipal advisor selection influence could
also trigger a ban for the engaging municipal advisor third-party
solicitor if the engaging municipal advisor third-party solicitor
engaged another municipal advisor third-party solicitor under
proposed Rule G-37(b)(i)(C)(2)(b).
---------------------------------------------------------------------------

    If a municipal advisor does not also engage in municipal securities
business, a ban on applicable business under the proposed rule change
would subject the municipal advisor only to a ban on municipal advisory
business.
Ban on Business for Dealer-Municipal Advisors
    The proposed rule change would treat dealer-municipal advisors as a
single economic unit and would subject such firms to an appropriately
scoped ban on business. The scope of the ban on business would not be
dependent on the particular line of business within the dealer-
municipal advisor with which the person or PAC that is the contributor
may be associated. Instead, the scope of the ban on business would
depend on the type of influence that can be exercised by the ME
official to whom the triggering contribution is made. As a result, a
dealer-municipal advisor could be subject, based on a single
contribution, to a ban on municipal securities business, a ban on
municipal advisory business, or both. Further, any of the following
entities or persons might trigger a ban on business for a dealer-
municipal advisor if the entity or person makes a contribution that is
a triggering contribution in the particular facts and circumstances:
The dealer-municipal advisor; an MFP or MAP of the dealer-municipal
advisor; a PAC controlled by the dealer-municipal advisor or an MFP or
an MAP of the dealer-municipal advisor; a municipal advisor third-party
solicitor engaged on behalf of the dealer-municipal advisor; an MAP of
such municipal advisor third-party solicitor; or a PAC controlled by
either such municipal advisor third-party solicitor or an MAP of such
municipal advisor third-party solicitor.
    Ban on Applicable Business for Dealer-Municipal Advisors. A dealer-
municipal advisor could be subject to a ban on municipal securities
business, in its capacity as a dealer, under proposed Rule G-
37(b)(i)(A) or proposed Rule G-37(b)(i)(C)(2)(a), under the same terms
that apply to other dealers. Similarly, a dealer-municipal advisor that
is not a municipal advisor third-party solicitor could, under proposed
Rule G-37(b)(i)(B) or proposed Rule G-37(b)(i)(C)(2)(b), be subject to
a ban on municipal advisory business under the same terms that apply to
non-dealer municipal advisors that are not municipal advisor third-
party solicitors. In addition, if a dealer-municipal advisor is a
municipal advisor third-party solicitor, under proposed Rule G-
37(b)(i)(C), the dealer-municipal advisor could be subject to a ban on
municipal advisory business under the same terms that apply to other
municipal advisor third-party solicitors.
    Cross-Ban. In addition to paragraphs (b)(i)(A), (b)(i)(B) and
(b)(i)(C) potentially having application to dealer-municipal advisors,
proposed Rule G-37(b)(i)(D) would provide for the imposition of a
``cross-ban'' for dealer-municipal advisors to address quid pro quo
corruption, or the appearance thereof, in two scenarios that arise only
for dealer-municipal advisors. The proposed cross-ban would be a ban on
business applicable to a line of business within a dealer-municipal
advisor as a result of a triggering contribution that emanated from a
person or entity associated with the other line of business within the
same dealer-municipal advisor. With the provision for a cross-ban, the
scope of a ban on business for a dealer-municipal advisor would not be
dependent on the particular line of business within the dealer-
municipal advisor with which the person or PAC that is the contributor
may be associated. Instead, the scope of

the ban on business will depend on the type of influence that can be
exercised by the ME official to whom the triggering contribution is
made.
    In the first scenario, a contribution is made to an ME official
with both dealer and municipal advisor selection influence by a person
or entity associated with only one line of business within the dealer-
municipal advisor. For example, assume an MFP of the dealer-municipal
advisor who is not also an MAP makes a triggering contribution to an ME
official with both dealer and municipal advisor selection influence.
Proposed paragraph (b)(i)(D) would subject the dealer-municipal advisor
to a ban not only on municipal securities business but also to a cross-
ban on municipal advisory business because the contribution is to an ME
official who can exercise influence as to the selection of the dealer-
municipal advisor in both a dealer and municipal advisor capacity.
    In the second scenario, a contribution is made to an ME official
with only one type of influence (either dealer selection influence or
municipal advisor selection influence, but not both) from a person or
entity associated only with the line of business as to which the ME
official does not have influence. For example, assume a triggering
contribution is made to an official of a municipal entity with only
dealer selection influence by an MAP of the dealer-municipal advisor
who is not also an MFP. Proposed paragraph (b)(i)(D) would subject the
dealer-municipal advisor to a cross-ban on municipal securities
business, but not to a ban on municipal advisory business because the
ME official is not an official with municipal advisor selection
influence.\74\ Similarly, if a triggering contribution were made to an
official of a municipal entity with only municipal advisor selection
influence by an MFP of the dealer-municipal advisor who is not an MAP,
the dealer-municipal advisor would be subject to only a ban on
municipal advisory business.
---------------------------------------------------------------------------

    \74\ Consistently, if a contribution is made by an MAP of a
dealer-municipal advisor that is also a municipal advisor third-
party solicitor to an ME official with only investment adviser
selection influence, the dealer-municipal advisor would be subject
to a ban on municipal advisory business, but it would not be subject
to a cross-ban on municipal securities business.
---------------------------------------------------------------------------

    The table below shows the most common persons from whom a
contribution could trigger a ban on municipal securities business, a
ban on municipal advisory business, or both under proposed amended Rule
G-37.

            Persons From Whom a Contribution Could Trigger a Ban on Municipal Securities Business, Municipal Advisory Business, or Both \75\
--------------------------------------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------------------------------
Regulated Entity Subject to a Ban    I. Dealer.............  II. Municipal Advisor   III. Municipal          IV. Dealer-Municipal Advisor (for purposes
                                                              That Is Not a.          Advisor Third-Party            of this table, ``the firm'')
                                                             Municipal Advisor        Solicitor (for
                                                              Third-Party Solicitor.  purposes of this
                                                                                table, ``MATP
                                                                                solicitor'').
--------------------------------------------------------------------------------------------------------------------------------------------------------
Contributor........................  the dealer............  the municipal advisor.  the MATP solicitor...                    the firm.
                                    --------------------------------------------------------------------------------------------------------------------
                                     an MFP of the dealer..  an MAP of the           an MAP of the MATP     an MFP of the firm...  an MAP of the firm.
                                                              municipal advisor.      solicitor.
                                    --------------------------------------------------------------------------------------------------------------------
                                     a PAC controlled by     a PAC controlled by     a PAC controlled by            a PAC controlled by the firm.
                                      the dealer.             the municipal advisor.  the MATP solicitor.
                                    --------------------------------------------------------------------------------------------------------------------
                                     a PAC controlled by an  a PAC controlled by an  a PAC controlled by    a PAC controlled by    a PAC controlled by
                                      MFP of the dealer.      MAP of the municipal    an MAP of the MATP     an MFP of the firm.    an MAP of the firm.
                                                              advisor.                solicitor.
                                    --------------------------------------------------------------------------------------------------------------------
                                     If an MATP solicitor    If an MATP solicitor    If an MATP solicitor   If an MATP solicitor is engaged to solicit a
                                      is engaged to solicit   is engaged to solicit   is engaged to          municipal entity on behalf of the firm, the
                                      a municipal entity on   a municipal entity on   solicit a municipal        entities and persons in column III.
                                      behalf of the dealer,   behalf of the           entity on behalf of
                                      the entities and        municipal advisor,      the MATP solicitor,
                                      persons in column III.  the entities and        the entities and
                                                              persons in column III.  persons in this
                                                                                column above.
--------------------------------------------------------------------------------------------------------------------------------------------------------

Orderly Transition Period
---------------------------------------------------------------------------

    \75\ This table is for illustrative purposes only. Reference
should be made to the proposed amended rule text for complete
details.
---------------------------------------------------------------------------

    As discussed above, under the 1997 Guidance, a dealer that is
subject to a ban on municipal securities business with an issuer is
prohibited from engaging in new municipal securities business with that
issuer, which includes pre-existing but non-issue-specific contractual
undertakings. In such cases, to give the issuer the opportunity to
receive the benefit of the work already provided and to find a
replacement to complete the work performed by the dealer, as needed,
the dealer may--notwithstanding the ban on business--continue to
perform its pre-existing but non-issue-specific contractual
undertakings subject to an orderly transition to another entity to
perform such business.\76\ The interpretive guidance provides that this
transition period should be as short a period of time as possible.\77\
---------------------------------------------------------------------------

    \76\ See 1997 Guidance.
    \77\ Id.
---------------------------------------------------------------------------

    Proposed Rule G-37(b)(i)(E) would essentially codify this guidance
for dealers and extend it to municipal advisors that are not soliciting
the municipal entity with which they become subject to a ban on
applicable business. Under this provision, a dealer or municipal
advisor that is engaging in municipal securities business or municipal
advisory business with a municipal entity and, during the period of the
engagement, becomes subject to a ban on applicable business, may
continue to engage in the otherwise prohibited municipal securities
business and/or municipal advisory business solely to allow for an
orderly transition to another entity and, where

applicable, to allow a municipal advisor to act consistently with its
fiduciary duty to its client. This provision, however, would not permit
a municipal advisor third-party solicitor to continue soliciting a
municipal entity with which it becomes prohibited from engaging in
municipal advisory business.\78\ Consistent with the 1997 Guidance, the
proposed rule change would specifically provide that the transition
period must be as short a period of time as possible. In addition, in
the event that a dealer or municipal advisor avails itself of the
orderly transition period, proposed Rule G-37(b)(i)(E) would extend the
ban on business with the municipal entity for which the dealer or
municipal advisor utilized the orderly transition period by the
duration of the orderly transition period.
---------------------------------------------------------------------------

    \78\ Because any relevant contractual obligations of a municipal
advisor third-party solicitor in its capacity as such are owed not
to a municipal entity but to third-party regulated entities or
investment advisers, the rationale for the orderly transition period
would not apply.
---------------------------------------------------------------------------

    For municipal advisors, consistent with the existing interpretive
guidance applicable to dealers, the orderly transition period would
apply only with respect to pre-existing but non-issue-specific
contractual undertakings owed to municipal entities, which, as
discussed above, are included in ``new'' municipal advisory business
and are subject to a ban. For example, if a municipal advisor enters
into a long-term contract with a municipal entity for municipal
advisory business (e.g., a five-year agreement in which the municipal
advisor agrees to provide to the municipal entity advice on a range of
matters, including with respect to its reserve policy and the issuance
of municipal securities) and a contribution that results in a ban on
municipal advisory business is given after such a non-issue-specific
contract is entered into, the municipal advisor would be permitted to
continue to perform under the contract for as short a period of time as
possible to allow for an orderly transition to another municipal
advisor. Also, in this example, the ban on municipal advisory business
with the municipal entity would be extended by the length of the
orderly transition period.
    After carefully considering whether to extend the orderly
transition period under the interpretive guidance to municipal
advisors, the MSRB determined that it is a necessary and appropriate
aspect of the regulatory framework governing the municipal market.
Significantly, the MSRB believes that certain aspects of proposed
amended Rule G-37 would serve as important bulwarks against potential
abuse of the orderly transition period. Public disclosure is a critical
aspect of Rule G-37 and under the proposed rule change, municipal
advisors would be required to disclose (comparable to the current
requirements for dealers) to the MSRB information about their political
contributions and the municipal advisory business in which they have
engaged.\79\ The MSRB then would make such disclosures available to the
public as well as fellow regulators charged with examining for
compliance with and enforcing Rule G-37. In addition, under proposed
Rule G-37(d), municipal advisors and their MAPs would (comparable to
the current requirements for dealers) be prohibited from doing,
directly or indirectly, through or by any other person or means, any
act which would result in a violation of a ban on business. This anti-
circumvention provision, together with the required disclosures, would
act to deter and promote detection of potential abuses of the orderly
transition period. The MSRB believes that this overall approach strikes
the appropriate balance between accommodating the need for municipal
advisors to act consistently with their fiduciary duties and the need
to address the appearance of, or actual, quid pro quo corruption
involving municipal advisors.
---------------------------------------------------------------------------

    \79\ See discussion in ``Public Disclosure of Contributions and
Other Information,'' infra.
---------------------------------------------------------------------------

Excluded Contributions
    Proposed amendments to Rule G-37(b)(ii) would consolidate in one
provision the types of contributions that do not currently subject a
dealer to a ban on applicable business, and would extend the same
exclusions to municipal advisors. The first exclusion is for de minimis
contributions, and the second and third exclusions are modifications of
the two-year look-back provision that would otherwise apply, as
explained below.
    De Minimis Contributions. Under current Rule G-37(b)(i),
contributions made by an MFP to an issuer official for whom the MFP is
entitled to vote will not trigger a ban on municipal securities
business if such contributions do not, in total, exceed $250 per
election.\80\ The proposed amendments to Rule G-37 would retain this
exclusion for MFPs of dealers in proposed Rule G-37(b)(ii)(A). Proposed
Rule G-37(b)(ii)(A) also would extend this exclusion to the MAPs of all
municipal advisors, including the MAPs of municipal advisor third-party
solicitors. If a contribution by an MAP of a municipal advisor third-
party solicitor would meet the de minimis exclusion, neither the
municipal advisor third-party solicitor nor the dealer client or
municipal advisor client for which it was engaged to solicit business
would be subject to a ban. In addition, proposed Rule G-37(b)(ii)(A)
would incorporate non-substantive changes to the de minimis exclusion
in current Rule G-37 to improve the readability of the provision.
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    \80\ For purposes of the de minimis exclusion, primary elections
and general elections are separate elections. Therefore if an
official is involved in a primary election prior to the general
election, an MFP who is entitled to vote for such official may,
within the scope of the de minimis exclusion, contribute up to $250
to the official in a primary election and again contribute a
separate $250 to the same official in a general election. See MSRB
Rule G-37 Interpretive Notice--Application of Rule G-37 to
Presidential Campaigns of Issuer Officials (March 23, 1999).
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    Other Excluded Contributions. Currently, under Rule G-37, according
to what is known as the ``two-year look-back,'' a dealer is generally
subject to a ban on municipal securities business for a period of two
years from the making of a triggering contribution, even if such
contributions were made by a person, who, although now an MFP of a
dealer, was not an MFP of the dealer at the time he or she made the
contribution. The proposed rule change would retain the two-year look-
back for MFPs \81\ and would extend it to the MAPs of municipal
advisors that are not municipal advisor third-party solicitors \82\ as
well as municipal advisors that are municipal advisor third-party
solicitors.\83\
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    \81\ See proposed Rule G-37(b)(i)(A).
    \82\ See proposed Rule G-37(b)(i)(B).
    \83\ See proposed Rule G-37(b)(i)(C). The ban on business for
the dealer or municipal advisor, like the current treatment under
Rule G-37, would only begin when such individual becomes an MFP or
MAP of the dealer or municipal advisor, as applicable.
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    Currently, the two-year look-back is modified under Rule G-37 in
two situations. Under Rule G-37(b)(ii), contributions to an issuer
official by an individual that is an MFP solely based on his or her
solicitation activities for the dealer are excluded and do not trigger
a ban on municipal securities business for the dealer, unless such MFP
(who is so characterized solely based on his or her solicitation
activities for the dealer) subsequently solicits municipal securities
business from the same issuer. The proposed amendments to Rule G-37
would relocate to proposed paragraph (b)(ii)(B) this exclusion
applicable to such MFPs (``dealer solicitors'' as defined in proposed
Rule G-37(g)(ii)(B)) and would extend it to MAPs that perform a similar
solicitation function within a municipal advisory firm (``municipal
advisor solicitors'' as

defined in proposed Rule G-37(g)(iii)(B)). To improve the readability
of this provision, Rule G-37(b)(ii), as proposed to be amended, would
refer to the relevant MFPs and MAPs by the proposed descriptive terms
(discussed above) rather than by cross-reference to the relevant
definitions. Lastly, a technical amendment would be incorporated in
proposed Rule G-37(b)(ii)(B) to clarify that the non-solicitation
condition would not be required to be met for the contribution to be
excluded after two years have elapsed since the making of the
contribution.
    Currently, under Rule G-37(b)(iii), contributions by MFPs who have
that status solely by virtue of their supervisory or management-level
activities, including persons serving on an executive or management
committee (i.e., those persons described in paragraphs (C), (D) and (E)
of current Rule G-37(g)(iv), the definition of municipal finance
professional) are excluded and do not trigger a ban on municipal
securities business if such contributions were made more than six
months before the contributor obtained (including by designation) his
or her MFP status. The proposed amendments to Rule G-37 would relocate
to paragraph (b)(ii)(C) this exclusion applicable to such MFPs (i.e.,
``municipal finance principals,'' ``dealer supervisory chain persons,''
and ``dealer executive officers'' as defined in proposed Rule G-
37(g)(ii)(C), (D) and (E)) and, similarly, would treat contributions
made, under the same circumstances, by the analogous categories of MAPs
as excluded contributions. The analogous categories of MAPs would be
those MAPs that have MAP status solely by virtue of their supervisory
or management-level activities, including persons serving on an
executive or management committee (i.e., ``municipal advisor
principals,'' ``municipal advisor supervisory chain persons,'' and
``municipal advisor executive officers'' as defined in proposed Rule G-
37(g)(iii)(C), (D) and (E)). To improve the readability of this
provision, proposed Rule G-37(b)(ii), as proposed to be amended, would
refer to the relevant MFPs and MAPs by the proposed descriptive terms
rather than by cross-references to the relevant definitions.
Prohibition on Soliciting and Coordinating Contributions
    Currently, Rule G-37(c)(i) prohibits a dealer and an MFP of the
dealer from soliciting any person or PAC to make any contribution or
coordinating any contributions to an issuer official with which the
dealer is engaging or is seeking to engage in municipal securities
business. The proposed amendments to this subsection would retain this
prohibition with respect to dealers and their MFPs and would extend the
prohibition to municipal advisors and their MAPs. Further, to ensure a
relevant nexus exists between the type of business in which a regulated
entity engages or seeks to engage and its solicitation or coordination
of any contributions to an ME official with the influence to award such
business, proposed subsection (c)(i) would be amended to distinguish
contributions based on the type of influence held by the ME official.
    Thus, under proposed subsection (c)(i), a dealer and an MFP of the
dealer would be prohibited from soliciting any person or PAC to make
any contribution, or from coordinating any contributions, to an
official of a municipal entity with dealer selection influence with
which municipal entity the dealer is engaging, or is seeking to engage,
in municipal securities business. Similarly, a municipal advisor and an
MAP of the municipal advisor would be prohibited from soliciting any
person or PAC to make any contribution, or from coordinating any
contributions, to an official of a municipal entity with municipal
advisor selection influence with which municipal entity the municipal
advisor is engaging, or is seeking to engage, in municipal advisory
business. In addition, in light of the nexus that exists between a
municipal advisor third-party solicitor's business (to solicit business
on behalf of dealers, municipal advisors and investment advisers) and
ME officials of every type, the prohibition on soliciting and
coordinating contributions would apply, for municipal advisor third-
party solicitors, to the solicitation or coordination of contributions
to any ME official, if the ME official has municipal advisor selection
influence, dealer selection influence or investment adviser selection
influence.
    Because dealer-municipal advisors engage in both municipal
securities business and municipal advisory business, and consistent
with the principle that dealer-municipal advisors should be treated as
a single economic unit, proposed subsection (c)(i) would not, for
dealer-municipal advisors, distinguish a contribution given to an
official of a municipal entity with dealer selection influence from one
given to an official of a municipal entity with municipal advisor
selection influence. Thus, a dealer-municipal advisor, its MFPs, and
its MAPs would be prohibited from soliciting any person or PAC to make
any contribution or coordinating any contributions to an official of a
municipal entity with dealer selection influence or municipal advisor
selection influence with which municipal entity the dealer-municipal
advisor is engaging or is seeking to engage in municipal securities
business or municipal advisory business. If the dealer-municipal
advisor is a municipal advisor third-party solicitor, the dealer-
municipal advisor and its MAPs would also be prohibited from soliciting
or coordinating contributions to an official with investment adviser
selection influence.
    Currently, Rule G-37(c)(ii) prohibits a dealer and three of the
five categories of MFPs as defined, respectively, in current Rule G-
37(g)(iv)(A), (B) and (C), from soliciting any person or PAC to make
any payment or coordinate any payments to a political party of a state
or locality where the dealer is engaging or seeking to engage in
municipal securities business. Proposed amendments to this subsection
would retain this prohibition with respect to dealers and these
categories of MFPs and would extend the prohibitions to municipal
advisors and the three analogous categories of MAPs (``municipal
advisor representatives,'' ``municipal advisor solicitors,'' and
``municipal advisor principals,'' as defined, respectively, in proposed
Rule G-37(g)(iii)(A), (B) and (C)). To improve the readability of this
provision, Rule G-37(c)(ii), as proposed to be amended, would refer to
the relevant MFPs and MAPs by their proposed descriptive terms, rather
than by cross-references to the relevant definitions.
Prohibition on Circumvention of Rule
    Rule G-37(d) currently prohibits a dealer and any MFP of the dealer
from doing, directly or indirectly, through or by any other person or
means, any act which would result in a violation of the ban on
municipal securities business or the prohibition on soliciting or
coordinating contributions. Proposed amendments to this section would
retain this prohibition with respect to dealers and their MFPs and
would extend it to municipal advisors and their MAPs.
Public Disclosure of Contributions and Other Information
    Currently, Rule G-37(e) contains broad public disclosure
requirements to facilitate enforcement of Rule G-37 and to promote
public scrutiny of dealers' political contributions and municipal
securities business. Under the provision, dealers are required to

disclose publicly on Form G-37 information about certain: (i)
Contributions to issuer officials; (ii) payments to political parties
of states or political subdivisions; (iii) contributions to bond ballot
campaigns; and (iv) information regarding municipal securities business
with issuers. Currently, Form G-37 may be provided to the Board in
paper or electronic form.
    The proposed amendments to Rule G-37(e) would retain these
disclosure requirements for dealers, except such requirements would
apply to contributions to ``officials of municipal entities,'' which is
a potentially broader group of recipients than ``officials of an
issuer.'' \84\ The disclosure requirements would also apply to
municipal securities business with ``municipal entities'' rather than
``issuers.'' Proposed amendments to Rule G-37(e)(iv), however, would
remove the option of making paper, rather than electronic, submissions
to the Board.
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    \84\ The MSRB does not propose to amend the existing disclosure
requirements to limit the disclosure of contributions based on the
relevant ME official's type of influence. Rather, to further the
purposes of the proposed rule change, including permitting the
public to scrutinize the political contributions of regulated
entities and to address the appearance of quid pro quo corruption,
the applicable disclosures would be required for contributions to
any type of ME official.
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    For municipal advisors, the disclosure requirements of proposed
amended Rule G-37(e), would be substantially similar to those for
dealers, with one exception for municipal advisor third-party
solicitors. The proposed amendments to Rule G-37(e)(i)(C) would require
municipal advisor third-party solicitors to list on Form G-37 the names
of the third parties on behalf of which they solicited business as well
as the nature of the business solicited. The proposed amendments to
Rule G-37(e)(iv) would require municipal advisors, like dealers, to
submit the required disclosures to the Board in electronic form. The
MSRB also proposes to incorporate minor, non-substantive changes to
section (e) to improve the readability of the section.
    Currently, Rule G-37(f) permits dealers to submit additional
voluntary disclosures to the Board. The proposed amendments to Rule G-
37(f) would make no change in this respect for dealers and would permit
municipal advisors also to make voluntary disclosures.
Definitions
    Current Rule G-37(g) sets forth definitions for several terms used
in Rule G-37. Proposed amendments to this section (which are not
addressed in detail elsewhere in this filing) would add to Rule G-37
new defined terms and would modify existing defined terms in large part
to make the appropriate provisions of Rule G-37 applicable to municipal
advisors and their associated persons. The first new defined term,
``regulated entity,'' in proposed Rule G-37(g)(i), would mean ``a
dealer or municipal advisor,'' and the terms ``regulated entity,''
``dealer'' and ``municipal advisor'' would exclude the entity's
associated persons. With the addition of the defined term ``regulated
entity'' current Rule G-37(g)(iii), which distinguishes dealers from
their associated persons, would be deleted as unnecessary. The
definition of ``reportable date of selection'' would be amended to
apply it to municipal advisors, to slightly reorganize the definition
and to relocate it from Rule G-37(g)(xi) to proposed Rule G-
37(g)(xviii).
    Several of the proposed new defined terms for municipal advisors
would be analogous to the defined terms applicable to dealers in
current Rule G-37. Proposed Rule G-37(g)(xiv) would define the new term
``non-MAP executive officer'' regarding the executive officers of a
municipal advisor in a manner analogous to the term ``non-MFP executive
officer'' applicable to executive officers of dealers under proposed
Rule G-37(g)(xv).\85\ Also, proposed Rule G-37(g)(iv) would define the
new term ``bank municipal advisor'' in a manner analogous to the
current definition of the term ``bank dealer'' under Rule D-8.\86\ The
term ``municipal advisor'' would be defined based on the definition of
the term in the Exchange Act and Commission rules.\87\
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    \85\ The current definition of ``Non-MFP executive officer''
would be relocated from Rule G-37(g)(v) to proposed Rule G-37(g)(xv)
and incorporate minor, technical changes to the term (e.g., to
update a cross-reference and to replace the phrase ``broker, dealer
or municipal securities dealer,'' with ``dealer'').
    \86\ ``Bank municipal advisor'' is defined in proposed Rule G-
37(g)(iv) to mean: ``a municipal advisor that is a bank or a
separately identifiable department or division of the bank as
defined in Section 15B(e)(4) of the Act and 17 CFR 240.15Ba1-
1(d)(4)(i) thereunder.''
    Rule D-8 defines the term ``bank dealer'' to mean ``a municipal
securities dealer which is a bank or a separately identifiable
department or division of a bank as defined in rule G-1 of the
Board.''
    \87\ ``Municipal advisor'' is defined in proposed Rule G-
37(g)(viii) to mean: ``a municipal advisor that is registered or
required to be registered under Section 15B of the Act and the rules
and regulations thereunder.''
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    The proposed amendments would renumber and relocate a number of
definitions in Rule G-37(g) as follows: ``bond ballot campaign'' would
be relocated from subsection (g)(x) to proposed subsection (g)(v);
``issuer'' would be relocated from subsection (g)(ii) to proposed
subsection (g)(vii); ``payment'' would be relocated from subsection
(g)(viii) to proposed subsection (g)(xvii); ``municipal securities
business'' would be relocated from subsection (g)(vii) to proposed
subsection (g)(xii); and ``contribution'' would be relocated from
subsection (g)(i) to proposed subsection (g)(vi). With the exception of
substituting the term ``municipal entity'' in place of ``issuer'' in
the definition of the terms ``contribution'' and ``municipal securities
business,'' the proposed amendments to Rule G-37(g) would not
substantively amend the definitions of these terms.
Operative Date
    Current Rule G-37(h) provides that a ban on business under the rule
arises only from contributions made on or after April 25, 1994 (the
original effective date of Rule G-37). Proposed amendments to section
(h) would provide that a ban on applicable business under the rule
would arise only from contributions made on or after an effective date
to be announced by the MSRB in a regulatory notice published no later
than two months following SEC approval, which effective date shall be
no sooner than six months following publication of the regulatory
notice and no later than one year following SEC approval. However, with
respect to dealers and dealer-municipal advisors that are currently
subject to the requirements of Rule G-37, any ban on municipal
securities business that was already triggered before the effective
date of the proposed rule change would remain in effect and end
according to the provisions of Rule G-37 as in effect at the time of
the contribution that triggered the ban.
Exemptions
    Rule G-37 currently provides two mechanisms through which a dealer
may be exempted from a ban on municipal securities business. First,
under current Rule G-37(i), a registered securities association of
which a dealer is a member, or another appropriate regulatory agency
\88\ (collectively, ``agency'') may, upon application, exempt a dealer
from a ban on municipal securities business. In determining whether to
grant the exemption, the agency must consider, among other factors:
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    \88\ Under MSRB Rule D-14, ``[w]ith respect to a broker, dealer,
or municipal securities dealer, `appropriate regulatory agency' has
the meaning set forth in Section 3(a)(34) of the Act.''
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     Whether the exemption is consistent with the public
interest, the protection of investors and the purposes of the rule;

     whether, prior to the time a triggering contribution was
made, the dealer had developed and instituted procedures reasonably
designed to ensure compliance with the rule, and had no actual
knowledge of the triggering contribution;
     whether the dealer has taken all available steps to cause
the contributor to obtain a return of the triggering contribution(s),
and has taken other remedial or preventive measures as appropriate
under the circumstances, and the nature of such other remedial or
preventive measures directed specifically toward the contributor who
made the triggering contribution and all employees of the dealer;
     whether, at the time of the triggering contribution, the
contributor was an MFP or otherwise an employee of the dealer, or was
seeking such employment;
     the timing and amount of the triggering contribution;
     the nature of the election (e.g., federal, state or
local); and
     the contributor's apparent intent or motive in making the
triggering contribution, as evidenced by the facts and circumstances
surrounding the triggering contribution.\89\
---------------------------------------------------------------------------

    \89\ See Rule G-37(i).
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    The proposed amendments to section (i) would extend its provisions
to municipal advisors, including municipal advisor third-party
solicitors, and bans on municipal advisory business, on generally
analogous terms. The proposed amendments would provide a process for
municipal advisors subject to a ban on municipal advisory business to
request exemptive relief from such ban on business from a registered
securities association of which is it a member or the Commission, or
its designee, for all other municipal advisors. Dealer-municipal
advisors seeking exemptive relief from a ban on municipal securities
business and a ban on municipal advisory business must, for each type
of ban, seek relief from the applicable agency or agencies. With
respect to dealers, the proposed amendments to section (i) would also
make minor, non-substantive changes to improve its readability.
    Under the proposed amendments, in determining whether to grant the
requested exemptive relief from a ban on municipal advisory business,
the relevant agency would be required to consider the factors, with
limited modifications, that currently apply when a request for
exemptive relief is made by a dealer. The proposed modifications to the
factors are limited to those necessary to reflect their application to
both dealers and municipal advisors \90\ and to make them otherwise
consistent with previously discussed proposed amendments to Rule G-37.