Regulators Seek To Expand Dealer Pay-To-Play Rules To Advisors

By Cyril Tuohy

InsuranceNewsNet

Municipal securities regulators are requesting comments on a proposal to expand pay-to-play rules to municipal advisors.

The proposal calls for the rule known as G-37, which already applies to municipal securities dealers, to be expanded by the Municipal Securities Rulemaking Board (MSRB) under the authority of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Deadline for the comment period is Oct. 1, and the MSRB has scheduled a webinar on the proposed changes at 3 p.m. EDT Sept. 11.

“Addressing corruption, or the appearance of corruption” among municipal advisors is a goal of the G-37 rule expansion, MSRB executive director Lynnette Kelly said.

“Applying our well-established dealer pay-to-play rule to municipal advisors will help ensure that all regulated municipal market entities and professionals are held to the same high standards of integrity,” she said in a news release.

Expanding the reach of G-37 to advisors is the latest proposal by regulators to clamp down on the $3.7 trillion municipal securities market.

Earlier this year, a new registration regime enforced by the Securities and Exchange Commission took effect.

Draft amendments to G-37 would bar municipal advisors from “engaging in municipal advisory business with municipal entities for two years if certain political contributions have been made to officials of those entities who can influence the award of business,” according to a statement posted on the MSRB’s website.

Advisors would also have to disclose political contributions to officials and bond ballot campaigns, and the contributions would be posted on the MSRB’s Electronic Municipal Market Access website, the MSRB said.

Making the information more public will increase scrutiny and the level of enforcement, the MSRB said.

For years, critics and watchdog groups have called for greater oversight and more pricing transparency within the municipal marketplace to ensure taxpayers aren’t being cheated with high fees and inflated rates.

Unlike U.S. government securities that are traded every day and tracked by hundreds of buyers and sellers, the municipal market has remained more opaque — to the benefit of dealers, brokers, advisors, lawyers and consultants.

Who gets a cut of the lucrative public bond offerings by state and local governments, water and sewer utilities and regional improvement districts depends on local political connections the companies have with the party in power.

Local and state governments around the country raise tens of billions of dollars every year in local bond offerings.

Proceeds are used to upgrade or build new public infrastructure, such as schools, roads, sewer plants, and parks and recreational facilities.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].