Name Not Public
Exemptive relief is granted based on: representations that at the time of the contributions the individual was not employed by the firm, was not an MFP and was not seeking employment as an MFP; the firm already had a significant business relationship with the City of which the contribution recipients are issuer officials (as defined); the individual has attempted to obtain the return of the contributions; the firm has instituted barriers and controls around certain municipal business communications; and the individual will be prohibited from involvement in municipal securities business with the City for a period of time.
January 28, 2016
This is in response to your letter of January 8, 2016 (the "Letter") requesting, on behalf of Firm ("Firm" ), an exemption under Rule G-37(i) of the Municipal Securities Rulemaking Board (MSRB) and FINRA Rule 9610 from the prohibition in MSRB Rule G-37(b) from engaging in municipal securities business with City, State (or the "City"). You have requested this exemption because within the two years prior to joining the Firm on November 9, 2015, Name made certain contributions to political candidates in City, State. As explained more fully below, the Firm plans to designate Name as a municipal finance professional ("MFP") pursuant to two separate Rule G-37 provisions. Once both designations have been made, the Firm will be prohibited from engaging in municipal securities business, as defined in MSRB Rule G-37(g)(vii), with the City unless an exemption is granted.
You have represented that the Firm has procedures designed to ensure compliance with MSRB Rule G-37, including a pre-employment screening process. Pursuant to that process, the Firm identified the following relevant political contributions1 made by Name between November 1, 2013 and November 9, 2015 (the "Contributions"):
1. October 23, 2014: $500 to Candidate A for City City Council Campaign;
2. October 29, 2014: $500 to Candidate B for City Mayoral Campaign;
3. April 22, 2015: $500 to Candidate C for City City Council Campaign; and
4. May 7, 2015: $500 to Candidate D for City City Council Campaign.
As explained in your Letter, the Firm appointed Name to the Firm's management committee on January 8, 2016 and, for that purpose, designated him as an MFP pursuant to MSRB Rule G-37(g)(iv)(E). Until January 8, 2016, Name was entirely segregated from all business activities relating to Firm.2
In addition, once Name passes the Series 52 municipal representative examination, the Firm plans to designate him as an MFP for purposes of soliciting municipal securities business pursuant to MSRB Rule G-37(g)(iv)(B).3
Pursuant to your discussions with MSRB's office of general counsel, you understand that once Name is designated as an MFP pursuant to both G-37(g)(iv)(E) and G-37(g)(iv)(B), the separate forms of relief from the prohibition on municipal securities business set forth in G-37(b)(ii) and (iii), which otherwise would be available, will not be available to the Firm.4 FINRA confirmed this understanding in a separate conversation with MSRB staff.5 You represent that, absent the grant of the requested exemption, the Firm will not designate Name as an MFP for purposes of soliciting municipal securities business and will not permit him to undertake any solicitation activities until May 8, 2017 even after he takes and passes the Series 52 examination.
In support of your request that the Firm be granted an exemption, you have made the following representations:
At the time of each Contribution, Name was a resident of City, State. His residence address, which has not changed at any time since the Contributions were made, is Address, City, State, and Zip Code. Name was not an MFP at the time he made the Contributions, nor was he seeking, or being considered for, employment by FIRM or any other municipal securities firm. Name was eligible to vote for each of the candidates to whom he made a Contribution. No Contribution was in any way related to municipal securities business. Rather, Name made them in order to provide support for candidates and causes that he sincerely believed would best serve the City, State community and were also made as a result of Name's personal and political relationships. The Firm requested that Name seek the return of the Contributions and provide written confirmation of his requests for return of the Contributions to the General Counsel of Firm. Name has done so, and he is continuing to follow up on his requests.
The Firm already had significant relationships with City and, more generally, in State, before Name became a passive owner and associated person of the Firm. Firm has offices in City, City B, and City C, and has served as an underwriter on numerous transactions with City and its agencies. The Firm has been working closely with its regulators to onboard Name in a manner fully consistent with all applicable rules and regulations. Further, neither the Firm, nor any associated person of the Firm, has engaged in any activity that would trigger a ban on municipal securities business in City pursuant to Rule G-37(b).
FINRA has considered your request for exemptive relief pursuant to the applicable standards.6 A paramount issue in rendering our determination is whether an exemption is consistent with the public interest, the protection of investors, and the purposes of MSRB Rule G-37. In reaching a determination, FINRA staff considered the following representations you made in light of several key factors surrounding the Contributions:
- Name was not an MFP at the time of the Contributions.
- At the time of the Contributions, neither Name nor the Firm anticipated an employment relationship.
- The Firm had a long-standing business relationship with the City prior to the Contributions.
- The Contributions were unrelated to any municipal securities business.
- The Firm has procedures designed to ensure compliance with MSRB Rule G-37 and the Firm discovered the Contributions during its due diligence review in connection with the hiring of Name.
- Name has requested a refund of the Contributions.
In addition, to ensure that Name will not be involved in the municipal securities business described above, you have represented that the Firm will impose the following restrictions on the business activities in which Name may engage until May 8, 2017 (two years following the date of his last contribution):
- Name will not be permitted to engage in any solicitation of municipal securities business in City, State.
- Name will be required to recuse himself from all management committee discussions, decisions, or votes concerning municipal securities business in City, State.
- Name will not be permitted to be involved in any way in, or receive compensation (including Firm-wide compensation such as a bonus pool) derived from, the Firm's municipal securities business with City, State.
In order to ensure the restrictions described above are maintained until May 8, 2017, the Firm has instituted, or will institute the following preventive measures:
- On January 7, 2016, the Firm informed its management committee that Name must be segregated from municipal securities business with City until at least May 8, 2017. The Firm provided written notice to the members of the management committee that discussions or communications (including, but not limited to, electronic mail or voicemail) with Name regarding such business is prohibited. Within two weeks of the notice, each member of the management committee will certify in writing that he or she received, understands, and will comply with the terms of this notice, and will acknowledge that he or she may be subject to sanctions, including potential dismissal, in the event of a failure to comply. The Firm's Compliance Department will retain a copy of each certification. If Firm appoints new members of the management committee at any time prior to May 8, 2017, each new member will be provided all applicable written notifications and will be required to complete the necessary certifications. The Firm's Compliance Department will retain a copy of each certification.
- On January 7, 2016, the Firm informed its management committee in writing that Name must recuse himself from all management committee discussions, decisions, or votes concerning municipal securities business in City, State. Until May 8, 2017, the management committee will be required to note in its recorded minutes all instances when Name has been recused. If Firm appoints new members of the management committee at any time prior to May 8, 2017, each new member will be provided this information in writing and informed of the committee's obligations with respect to the recorded minutes of the management committee.
- Within 15 days of the date of the exemption request being granted, the Firm will inform in writing its MFPs, municipal syndicate desk, and others directly or indirectly involved in solicitation of municipal securities business, that Name must be segregated from municipal securities business with City until at least May 8, 2017. Further, the Firm will give notice to each such employee instructing that employee that discussions or communications (including, but not limited to, electronic mail or voicemail) with Name regarding such business are prohibited. All such employees will be required to certify in writing that they received, understand, and will comply with the terms of this notice, and will acknowledge that they may be subject to sanctions, including potential dismissal, in the event they fail to comply. The Firm's Compliance Department will retain a copy of each certification. To the extent the Firm hires new MFPs, employees on the municipal syndicate desk, or other employees directly or indirectly involved in the solicitation of municipal securities business, those individuals will be provided all applicable written notifications and required to complete the necessary certifications. The Firm's Compliance Department will retain a copy of each certification.
- Name will be obligated to provide a quarterly certification of his compliance with the applicable restrictions and preventive steps described above. The Firm's Compliance Department will retain a copy of each such certification.
- The Firm will provide, after May 8, 2017, a one-time certification to its FINRA Regulatory Coordinator stating that it has complied with these steps.
Based on the facts and circumstances as represented in your Letter and our application of the standards for exemptive relief in MSRB Rule G-37, FINRA concludes that it is appropriate to grant an exemption from the prohibition from municipal securities business as defined by Rule G-37, subject to the Firm's compliance with the terms identified above. This exemption is based on our understanding of the facts as you have represented them. Our determination in this matter could be different if the facts are not as represented, if material facts have not been disclosed, or if new information emerges.
Your request for relief asks that the Firm's application for exemption, the identity of the Firm, the identity of Name, and the identity of the campaigns that received the Contributions remain confidential. To the extent feasible and permitted under law, FINRA grants that request. However, our determination to provide exemptive relief will be available, with identifying information redacted, on the FINRA website with other FINRA responses to requests for exemptive relief under MSRB Rule G-37. By publishing the FINRA responses in redacted form, FINRA is able to provide confidentiality while informing and educating firms, issuers, and investor communities of the factors that FINRA may consider in granting or denying exemptive relief under the Rule. If you have any questions regarding the issues discussed herein, please contact me at 202-728-8133.
Cynthia M. Friedlander
Director, Fixed Income Securities Regulation
1 You have represented that, as part of the pre-employment screening process, Name provided information concerning all his political contributions for a two-year period. The General Counsel of Firm reviewed the information and made a determination that the political contributions enumerated above are, to the best of the Firm's knowledge, the only ones subject to MSRB Rule G-37.
2 In mid-2015, the Firm and its 100% owner, Owner, began the process of effectuating an ownership change. As part of that process, Name joined the firm as an owner through Firm B, on November 9, 2015. Consistent with guidance the Firm received from FINRA regarding the ownership change process, Name was a "passive owner" and associated person of the firm until he passed the Series 24 general securities principal examination.
3 You have represented that Name passed the Series 7 examination in August 2014, the Series 63 examination on September 29, 2015, and the Series 24 examination on January 4, 2016. Further, a testing window for Name to take the Series 52 examination was opened on January 6, 2016.
4 MSRB Rule G-37(b)(ii) states, "For an individual designated as a municipal finance professional solely pursuant to subparagraph (B) of paragraph (g)(iv) of this rule, the provisions of paragraph (b)(i) shall apply to contributions made by such individual to officials of an issuer prior to becoming a municipal finance professional only if such individual solicits municipal securities business from such issuer. MSRB Rule G-37(b)(iii) states, "For an individual designated as a municipal finance professional solely pursuant to subparagraph (C), (D) or (E) of paragraph (g)(iv) of this rule, the provisions of paragraph (b)(i) shall apply only to contributions made during the period beginning six months prior to the individual becoming a municipal finance professional."
5 Telephone conversation between Cynthia Friedlander and Employee, MSRB, on November 20, 2015.
6 MSRB Rule G-37 permits FINRA to grant an exemption based on consideration of, among others, the following factors: (1) whether the exemption is consistent with the public interest, the protection of investors and the purposes of the Rule; (2) whether the broker, dealer, or municipal securities dealer: (A) prior to the time the contributions(s) which resulted in such prohibition was made, had developed and instituted procedures reasonably designed to ensure compliance with the Rule; (B) prior to or at the time the contribution(s) which resulted in the prohibition was made, had no knowledge of the contribution(s); (C) has taken all available steps to cause the person or persons involved in making the contribution(s) which resulted in such prohibition to obtain a return of the contribution(s); and (D) has taken such other remedial or preventive measures as may be appropriate under the circumstances, and the nature of such remedial or preventive measures directed specifically toward the contributor who made the relevant contributions and all employees of the broker, dealer, or municipal securities dealer; (3) whether, at the time of the contribution, the contributor was a municipal finance professional or otherwise an employee of the broker, dealer, or municipal securities dealer, or was seeking such employment; (4) the timing and amount of the contribution which resulted in the prohibition; (5) the nature of the election; and (6) the contributor's apparent intent or motive in making the contribution, as evidenced by the facts and circumstances surrounding such contribution.