[Federal Register Volume 78, Number 64 (Wednesday, April 3, 2013)]
[Notices]
[Pages 20156-20158]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-07711]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69249; File No. SR-MSRB-2013-01]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Order Granting Approval of a Proposed Rule Change Relating to
Amendments to MSRB Rules G-37 and G-8 and Form G-37
March 28, 2013.
I. Introduction
On February 4, 2013, the Municipal Securities Rulemaking Board
(``MSRB'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change consisting of amendments to MSRB Rules G-37, on
political contributions and prohibitions on municipal securities
business, and G-8, on books and records, and Form G-37. The proposed
rule change was published for comment in the Federal Register on
February 14, 2013.\3\ The Commission received four comment letters on
the proposal.\4\ The MSRB submitted a response on March 26, 2013.\5\
This order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 68872 (February 8,
2013), 78 FR 10656 (``Notice'').
\4\ See Letters to Elizabeth M. Murphy, Secretary, Commission,
from Robert W. Doty, President, AGFS and Senior Advisor, Government
Financial Strategies, Inc., dated February 20, 2013 (``AGFS
Letter'') and Jeanine Rodgers Caruso, President, National
Association of Independent Public Finance Advisors, dated March 12,
2013 (``NAIPFA Letter''). See also, Letters to Ronald W. Smith,
Corporate Secretary, MSRB, from Ellen S. Miller, Co-Founder and
Executive Director, The Sunlight Foundation, dated March 5, 2013
(``Sunlight Letter'') and Kamala Harris, Attorney General,
Department of Justice, from Bill Lockyer, Treasurer, State of
California, dated March 18, 2013 (``AG Letter'').
\5\ See Letter to Elizabeth M. Murphy, Secretary, Commission,
from Gary L. Goldsholle, General Counsel, MSRB, dated March 26,
2013.
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II. Description of the Proposed Rule Change
MSRB Rule G-37 requires dealers to disclose on Form G-37 certain
contributions to issuer officials, contributions to bond ballot
campaigns, and payments to political parties of states and political
subdivisions, made by brokers, dealers and municipal securities dealers
(``dealers''), their municipal finance professionals (``MFPs''),
political action committees controlled by the dealer or their MFPs or
non-MFP executive officers (collectively, ``covered parties'').
Further, MSRB Rule G-37 prohibits dealers from engaging in municipal
securities business with an issuer within two years after contributions
are made by certain covered parties (other than certain permitted de
minimis contributions) to an official of such issuer. The rule's
prohibition on engaging in municipal securities business, however, is
currently not triggered by contributions made to bond ballot campaigns
by covered parties. MSRB Rule G-37 also requires dealers to maintain
records of reportable contributions to bond ballot campaigns pursuant
to MSRB Rule G-8.
The MSRB proposes to revise MSRB Rule G-37(e)(i)(B)(2) to provide
that, in disclosing the contribution amount made to a bond ballot
campaign, the dealer also must include, in the case of in-kind
contributions, the value and nature of the goods or services provided,
including any ancillary services provided to, on behalf of, or in
furtherance of, the bond ballot campaign. The proposed rule change also
requires dealers to disclose the specific date on which such
contributions to bond ballot campaigns were made.
The MSRB also proposes to revise MSRB Rule G-37(e)(i)(B) to require
dealers to disclose the full issuer name and full issue description of
any primary offering resulting from voter approval of a bond ballot
measure to
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which a contribution required to be disclosed has been made. All
information is required to be reported in the calendar quarter in which
the closing date for the issuance that was authorized by the bond
ballot measure occurred. The proposed rule change also contains a look-
back provision for bond ballot campaign contributions that are made by
an MFP or a non-MFP executive officer during the two years prior to an
individual becoming an MFP or a non-MFP executive officer of a dealer.
The look-back provision limits the additional disclosures required
under proposed MSRB Rule G-37(e)(i)(B) to those items that would have
been required to be disclosed if such individual had been an MFP or a
non-MFP executive officer at the time of the contribution. The proposed
revisions to MSRB Rule G-37(e)(i)(B) also require dealers to disclose
the reportable date of selection on which the dealer was selected to
engage in municipal securities business. Furthermore, proposed
revisions to MSRB Rule G-37(e)(i)(B) require dealers to disclose both
the amount and source of any payments or reimbursements related to any
bond ballot contribution received by a dealer or its MFPs from any
third party.\6\
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\6\ Third parties include issuers.
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The MSRB also proposes to revise MSRB Rule G-37(g) to expand the
definition of ``contribution'' and add a new defined term, the
``reportable date of selection.'' The proposed amendments to the
definition of ``contribution'' would distinguish between contributions
made to an official of an issuer and contributions made to a bond
ballot campaign. The term ``reportable date of selection'' would be
defined to mean to the date of the earliest to occur of: (1) The
execution of an engagement letter; (2) the execution of a bond purchase
agreement; or (3) the receipt of formal notification (provided either
in writing or orally) from or on behalf of the issuer that the dealer
has been selected to engage in municipal securities business.
Lastly, the MSRB proposes conforming amendments to MSRB Rule G-
8(a)(xvi)(H) and (I) to require dealers to maintain records of the
supplemental information related to bond ballot campaign contributions
that are required to be disclosed on Form G-37 under the proposed rule
change.
III. Summary of Comments Received and the MSRB's Response
As previously noted, the Commission received four comment letters
on the proposed rule change and a response from the MSRB.\7\ Two
commenters expressed general support for the proposed rule change.\8\
One commenter found the proposed disclosure requirements to be
inadequate.\9\ One commenter addressed state law matters, which are not
the subject of the proposed rule change.\10\
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\7\ See supra notes 4 and 5.
\8\ See Sunlight Letter and AGFS Letter.
\9\ See NAIPFA Letter.
\10\ See AG Letter. Because the AG Letter relates to subject
matters not directly relevant to the proposed rule change, the
Commission does not address the comment herein.
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A. General Support to the Proposed Rule Change
One commenter noted that the proposed rule change is necessary in
order to gather information for evaluation of potential further actions
in response to circumstances suggesting corruption and unfair dealing
in gaining employment and participating in municipal securities
issuances approved by voters.\11\ Another commenter stated that
improving ``public disclosure of bond ballot campaign contributions is
fundamental to helping citizens be better informed about possible
conflicts of interest and any ``pay-to-play'' schemes that might be
occurring in the underwriting of bonds.'' \12\
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\11\ See AGFS Letter.
\12\ See Sunlight Letter.
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B. Disclosure Requirements are Inadequate
One commenter also requested that the MSRB ``further improve
transparency and accountability by making municipal securities
information available in an open, standardized format and by using non-
proprietary unique identifiers.'' \13\ In response, the MSRB stated
that none of these requests were the subject of the proposed rule
change but that the MSRB will keep these requests under advisement as
it considers future enhancements to its political contribution
transparency initiatives.
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\13\ Id.
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Another commenter stated that the proposed disclosure requirements
are inadequate to curtail actual or perceived quid pro quo practices
with respect to bond ballot campaign contributions.\14\ Moreover, this
commenter noted that the MSRB's First Amendment concerns are
unwarranted in light of the Supreme Court's decision in Citizens United
v. FEC.\15\ This commenter suggested that additional steps beyond
disclosure requirements are necessary to address the issue, either by
way of a direct contribution ban, or an indirect expenditure limit.\16\
``Contributions to bond ballot campaign committees are, in fact, direct
in nature and, because of the evidence of actual or perceived quid pro
quo, such contributions should be prohibited in order to prevent quid
pro quo from continuing to occur.'' \17\ If bond ballot campaign
committee contributions are determined to be indirect expenditures,
this commenter urged the Commission to place limits on such
expenditures as a result of past and ongoing quid pro quo. This
commenter also suggested that bond ballot campaign committee
contributions be limited to $200 per election and be combined with a
ban on business in the event such contributions exceed this amount.
Furthermore, the commenter suggested that, if the above-referenced
recommendations are not implemented, the proposed rule change should be
amended to require disclosure of contributions contemporaneously or
within a reasonable amount of time after the contribution is made. The
commenter argued that the current proposed quarterly disclosure
timetable is insufficient to curtail the actual or perceived quid pro
quo, because ``in all likelihood, an election will have concluded long
before the disclosures are ever made, which will diminish whatever
informative value such disclosures may have to the voting public.''
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\14\ See NAIPFA Letter.
\15\ 558 U.S. 310 (2010).
\16\ Id.
\17\ Id.
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In response, the MSRB noted it has previously acknowledged and
responded to similar comments, including those received pursuant to a
request for comment to the public,\18\ which were specifically
addressed in the Notice. In addition, the MSRB reiterated that approval
of the proposed rule change does not foreclose additional rulemaking in
the future.
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\18\ See MSRB Notice 2012-43 (August 15, 2012).
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IV. Discussion and Commission Findings
The Commission has carefully considered the proposed rule change,
as well as the comment letters received and the MSRB's response, and
finds that the proposed rule change is consistent with the requirements
of the Act and the rules and regulations thereunder applicable to the
MSRB. \19\ In particular, the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Act, which provides that the MSRB's rules
shall be designed to prevent fraudulent
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and manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in municipal
securities and municipal financial products, to remove impediments to
and perfect the mechanism of a free and open market in municipal
securities and municipal financial products, and, in general, to
protect investors, municipal entities, obligated persons, and the
public interest.\20\
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\19\ In approving the proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\20\ 15 U.S.C. 78o-4(b)(2)(C).
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The proposed rule change is consistent with Section 15B(b)(2)(C) of
the Act, because it is intended to protect investors and the public
interest and prevent fraudulent and manipulative acts and practices by
adding greater specificity to the public disclosures required for
contributions made by covered parties to bond ballot campaigns and any
municipal securities business awarded pursuant to such bond ballot
measure. Market participants will have access to such public
information in a centralized format on the MSRB's Web site through Form
G-37, which will increase market transparency and strengthen market
integrity of the municipal securities market. The information will help
shed light on ongoing market concerns of pay-to-play practices with
respect to bond ballot campaign contributions. The MSRB has also
represented that the revisions to MSRB Rule G-37 will assist the MSRB
in its continuing review of MSRB Rule G-37 and whether any additional
disclosure requirements are desirable to address other practices that
may present challenges to the integrity of the municipal securities
market related to political contributions by dealers and dealer
personnel. Furthermore, the MSRB has noted that approval of the
proposed rule change does not foreclose additional rulemaking in the
future. For these reasons, the Commission believes that the proposed
rule change is consistent with the Act.
V. Conclusion
For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to the MSRB, and in
particular, Section 15B(b)(2)(C) of the Act. The proposal will become
effective no later than the start of the second calendar quarter
following the date of this order.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\21\ that the proposed rule change (SR-MSRB-2013-01) be, and hereby
is, approved.
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\21\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-07711 Filed 4-2-13; 8:45 am]
BILLING CODE 8011-01-P