Name Not Public
May 13, 1996
This is in response to your letter of April 15, 1996 requesting an exemption from the ban in Municipal Securities Rulemaking Board (MSRB) Rule G-37 (the Rule) for Firm X.
The request stems from the fact that several political contributions were made from Firm X's checking account which you contend should have been issued from your checking account. Two of the contributions have subsequently been returned to Firm X and your personal checks issued in replacement.
The Rule's prohibition in engaging in municipal securities business with an issuer within two years after any contribution to an official of the issuer is not limited to contributions made by a broker, dealer or municipal securities dealer. It is also applicable to contributions made by any municipal finance professional (MFP) associated with the broker, dealer or municipal securities dealer. The Rule defines an MFP to include, ". . . the Chief Executive Officer or similarly situated official and . . . any associated person who is a member of the broker, dealer or municipal securities dealer executive or management committee . . . ." As President of Firm X you are an MFP and therefore, it makes no difference if the contributions in question were made by Firm X or you personally, since both would be subject to the Rule's requirements.
The MSRB in filings with the SEC1 and in its interpretations2 has made clear that the granting of exemptions to the Rule should only be done in very limited circumstances. It goes on to identify only two circumstances it believes appropriate to grant an exemption: if a disgruntled employee contributes to an issuer official for the purpose of injuring the member or if an employee makes a number of small contributions during an election cycle (e.g., four years) which when consolidated amounts to slightly over the $250 de minimis3 exemption, such as contributions totaling $255.
The SEC in approving the NASD rule change to establish internal procedures to review requests by members for exemptions from Rule G-37(b)4 stated, "the Commission finds that the rule change is consistent with the provisions of Section 15A(b)(2) of the Act because it establishes a procedure to enforce compliance with MSRB Rule G-37 that is intended to effectuate the intent of the MSRB that the NASD grant exemptions only under the limited circumstance contemplated by the MSRB. The Commission also finds that, for the reasons set forth above, the rule change is consistent with the provisions of Section 19(g)(1)(B) of the Act, which requires that the NASD, absent reasonable justification or excuse, enforce compliance with MSRB rules." (emphasis added)
Under the MSRB rules, the NASD may grant exemptions only when the situation involves a disgruntled employee contribution or a number of small contributions totaling slightly more than the $250 de minimis amount. The facts you cite do not fit within either of these two grounds. Accordingly, Firm X's request for an exemption is denied, and the two-year ban (from the date of the contribution) on Firm X engaging in municipal securities business with the effected issuers remains in effect.
Be advised that Firm X has 15 days in which to appeal this determination to the Fixed Income Committee of the NASD. If you wish to do so you should send the written appeal request to:
NASD Fixed Income Committee
c/o Mr. John Pilcher, Esq.
Office of General Counsel
1735 K Street, N.W.
Washington, D.C. 20006
Thomas R. Cassella
|cc:||NASD District Director
Christopher Taylor, MSRB
1 Securities Exchange Act Release No. 34160 (June 3, 1994), 59 FR 30376 (June 13, 1994) (Release 34-34160).
2 MSRB Manual, General Rules, Rule G-37 (CCH) ¶ 3681, Additional Rule G-37 Q & A June 15, 1995, Q4.
3 Contributions made by MFPs to officials of an issuer for whom the MFPs were entitled to vote.
4 Securities Exchange Act Release No. 34-36403 (October 20, 1995), 60 FR 54898 (October 26, 1995).