Name Not Public
Exemptive relief is granted based on: representations that at the time of the contribution the individual was not employed by the firm and was not an MFP; the firm already had a significant business relationship with the state of whom the contribution recipient is an issuer official (as defined); the firm has instituted information barriers on certain municipal business communications; the individual will be prohibited from the solicitation of certain new municipal business for a period of time.
May 21, 2015
This is in response to your letter of May 11, 2015 (the "Letter") requesting an exemption under Rule G-37(i) of the Municipal Securities Rulemaking Board (MSRB) and FINRA Rule 9610 from the prohibition from engaging in municipal securities business in MSRB Rule G-37(b) for FIRM ("Firm") with STATE ("State"). You have requested this exemption because NAME (the "Analyst"), whom the Firm hired on May 11, 2015 as an analyst in the Firm's Public Finance Department, made a $50.00 contribution (the "Contribution") in February 2014 to INDIVIDUAL A ("Candidate") who was then seeking election as Governor of STATE. The Analyst was not eligible to vote for the Candidate at the time of the Contribution.1
In support of your request that the Firm be granted an exemption you made the following representations:
On May 11, 2015, Firm hired the Analyst in the Public Finance Department of the Firm's City office. The Analyst has no supervisory responsibilities and no role in marketing the Firm's public finance services. The Firm hired the Analyst because of her outstanding academic background and prior experience. The Analyst's hiring was not due to any influence she may have with the State. As the Analyst was hired to engage primarily in the municipal securities business, the Firm has deemed her to be a "municipal finance professional" ("MFP") as defined in MSRB Rule G-37(g)(iv). As a result of such designation, in conjunction with the Contribution (which was made at a City-based fundraiser attended with friends), the Firm became subject to a ban (the "Ban") on conducting municipal securities business with the State until February 29, 2016. The Analyst was not an MFP at the time of the Contribution,2 and the Contribution was in no way related to municipal securities business.3 The Candidate subsequently lost the election and vacated her position as a state legislator as of January 2015.
In support of your request that the Firm be granted an exemption, you have asked FINRA to also consider the following:
- The Contribution occurred in February 2014, more than one year prior to the Analyst's association with Firm. At the time of the Contribution, neither the Firm nor the Analyst knew that the Analyst might eventually work for the Firm in the capacity of a municipal financial professional.
- Prior to hiring the Analyst, the Firm's Public Finance Department already had significant relationships with State; Firm has offices in City A and City B and has served as an underwriter on numerous transactions with the State and its agencies.
- Upon the hiring of the Analyst, the Firm immediately took steps to ensure that the Firm does not violate Rule G-37. Specifically, the Firm's Compliance Department notified the Co-Heads of the Firm's Public Finance Department, the Firm's MFPs responsible for covering State, and the Firm's Underwriting Department that the Firm was under a ban from engaging in negotiated "municipal securities business" with the State until further notice.
- The Firm has advised the Analyst's supervisor that the Analyst be segregated from involvement with municipal securities business with the State.
- The Firm has requested that the Analyst seek the return of the Contribution.
FINRA has considered your request for exemptive relief pursuant to the applicable standards.4 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 Contribution:
- The Analyst was not an MFP at the time of the Contributions.
- At the time of the Contribution, neither the Analyst nor the Firm anticipated a future employment relationship.
- Members of the Firm's Public Finance Department had significant business relationships with the State prior to the Contribution.
- The Contribution was unrelated to any municipal securities business.
- The Firm has procedures designed to ensure compliance with MSRB Rule G-37 and the Firm discovered the Contribution during its due diligence review in connection with the hiring of the Analyst.
- Upon discovery of the Contribution, the Firm immediately took preventive steps to ensure that the Firm does not do business with the State until further notice.
In addition, to ensure that the Analyst will not be involved in the municipal securities business described above, you have represented that the Firm will institute the following preventive steps:
- At least until February 29, 2016, the Analyst will not be allowed to have any involvement with municipal securities business regarding the State.
- Within 15 days of the date of this letter, the Firm will inform in writing its MFPs (including the Analyst), the municipal syndicate desk, and others directly or indirectly involved with solicitation of municipal securities business (as such term is defined in MSRB Rule G-37) that the Analyst has been segregated with respect to municipal securities business with the State until February 29, 2016. Further, the Firm shall give notice to each such employee instructing them that they may not have any discussions or communications (including, but not limited to, e-mail or voice mail) with the Analyst regarding such business. All such employees shall certify in writing that they received, understand, and will comply with the terms of the notice, and will acknowledge that they may be subject to sanctions, including potential dismissal, in the event they fail to comply. The Firm's Legal and/or Compliance Department will retain a copy of the certification.
- The Analyst will be subject to an obligation to provide a quarterly certification of compliance with these preventive steps. The Firm's Legal and/or Compliance Department will retain a copy of the Analyst's certifications.
The Firm will communicate the preventive steps described herein to the Analyst, the Firm's Public Finance Department, the Firm's MFPs responsible for covering State, and the Firm's underwriting department. At the end of the certification period, the Firm will provide 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 the Rule, subject to the Firm's compliance with the terms identified above. This exemption is based on our understanding of the material 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 an exemption, the identity of the Firm, and the identity of the MFP 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 On a phone conversation with FINRA on 5/18/15, Firm's Chief Compliance Officer confirmed that the Analyst is, and at the time of the Contribution was, a resident of City, State.
2 This was confirmed on a 5/18/15 phone conversation between FINRA and Firm's Chief Compliance Officer.
4 MSRB Rule G-37 permits FINRA to grant an exemption based on consideration of the following factors, among others: (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.
5 The level of detail outlined in this paragraph was not included in the Firm's Letter; however, the inclusion of such terms was generally communicated to the Firm during a phone conversation between FINRA and Firm's Chief Compliance Officer on 5/12/15. FINRA subsequently provided the specific terms to Firm's Chief Compliance Officer via email on 5/18/15 and Firm's Chief Compliance Officer communicated the Firm's assent to them via email the same day.