LobbyComply Blog

A Municipal Securities Rulemaking Board (MSRB) pay-to-play rule amendment set to take effect on August 17 is being challenged in federal court.

However, the Securities and Exchange Commission (SEC) argues it cannot defend the lawsuit because the Consolidated Appropriations Act of 2016 prohibits the SEC from using federal funding to finalize, issue, or implement any regulation regarding the disclosure of political contributions, contributions to tax-exempt organizations, or dues paid to trade associations.

The SEC argues the same federal restrictions preclude the commission from using funds to defend the MSRB rule on its merits.

The challenge to the amendment is being made in the Sixth Circuit Court of Appeals in Cincinnati. It was brought by the Georgia and Tennessee Republican parties and the New York State Republican Committee.

Currently, MSRB Rule G-37 prohibits certain political contributions for two years prior to engaging in a municipal securities business where a related official received contributions. The amendment extends the pay-to-play rule to municipal advisors.

Today, amendments to a Municipal Securities Rulemaking Board (MSRB) conflict-of-interest rule concerning gifts and gratuities take effect. MSRB Rule G-20 includes restrictions limiting gifts to $100 for municipal advisors giving gifts to employees of entities engaged in municipal securities activities. Municipal advisors are also prohibited from receiving reimbursement of entertainment expenses from the proceeds of an offering of municipal securities. The rule is intended to protect against improprieties and conflicts of interest arising when regulated entities give gifts related to the municipal securities or municipal advisory activities of the recipients’ employers.

Today, the Municipal Securities Rulemaking Board (MSRB) announced new pay-to-play regulations, extending current pay-to-play rules to municipal advisors, including those acting as third-party solicitors. “The integrity of the municipal market will be well-served by regulations to help ensure that all municipal advisors that do business with state and local governments do so based on the merits of their work and not on financial influence,” said MSRB Executive Director Lynnette Kelly in a press release. The new regulations take effect on August 17.

At its quarterly meeting, the Board of Directors of the Municipal Securities Rulemaking Board (MSRB) agreed to ask the Securities and Exchange Commission for approval of its proposed pay-to-play rule for municipal advisors. The proposed rule would require limiting gifts to $100 for municipal advisors giving gifts to employees of entities engaged in municipal securities activities. The new rules for municipal advisors also would prohibit receiving reimbursement of entertainment expenses from the proceeds of an offering of municipal securities.

In an MSRB press release, Board Chair Kym Arnone said, “Two decades ago, the MSRB adopted its landmark pay-to-play rule to address any actual link, and the appearance of a link, between political contributions and municipal securities underwriting, a bold move that dramatically improved the integrity of the market. Extending the well-established principles of this rule to municipal advisors will similarly work to promote the integrity of the market and the municipal advisory industry.” The quarterly meeting was held October 29 – 31, 2014.