Solicitation of Municipal Securities Business
While Rule G-37 addressed the issue of investment bankers trying to influence elected officials through political contributions, it led to the increased use of politically connected consultants to solicit business for underwriters. The MSRB tackled this problem in 2005 with Rule G-38, which prohibits broker-dealers from paying any person to solicit municipal securities business on their behalf who is not an affiliated person of the firm. An affiliated person means anyone who is a partner, director, officer, employee, or registered person of the broker-dealer. A solicitation includes any communication, direct or indirect, with an issuer of municipal securities for the purpose of obtaining municipal securities business.
Prior to 2005, broker-dealers were allowed to use the services of a consultant to solicit business from municipalities and other issuers, provided that dealers maintained records of these activities. The current rule prohibits all payments by dealers to nonaffiliated persons for solicitation activities.
However, transitional payments are allowed for consultants who