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"Pay-to-Play" Prohibitions for Brokers, Dealers and Municipal Securities Dealers under MSRB Rules

The SEC's Office of Compliance Inspections and Examinations ("OCIE") issued an alert intended to strengthen compliance with MSRB Rule G-37, which limits political contributions by municipal securities professionals to the campaigns of public officials of issuers with whom they are doing or seek to do business ("Pay-to-Play"). The Risk Alert provides a good summary of the rule, as well as a list of the types of violations of the rule which the OCIE has identified and a list of compliance practices in place at various firms.

Among the violations that OCIE has identified are (i) doing work for munis in outright violation of G-37, (ii) poor recordkeeping, (iii) the failure to file Form G-37 and (iv) poor supervision.

Among the compliance practices that OCIE has identified are (i) the training of employees, (ii) requiring employees to self-certify as to their political contributions, (iii) using the internet to search for evidence of political contributions, (iv) look-back procedures as to employees who might change jobs, (v) pre-approval of contributions, and (vi) outright bans on contributions. According to OCIE, the list of compliance procedures in the Risk Alert is intended only to identify practices that examiners have seen some firms use to comply with applicable federal, state and local rules; these practices may not be applicable to a particular firm, and other practices may be appropriate to consider instead.

Lofchie Comment: Any time the SEC issues a risk alert, it makes sense for firms to review their compliance procedures in the relevant areas. This is particularly the case for anything to do with municipalities, as the SEC and other regulators have lately become particularly focused on both offering requirements and sales practices in this area.

Cross-Reference(s): MSRB Rules G-37 and G-38.

View alert in full here (links externally to SEC website).
Additional Materials: SEC Press Release.


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