MSRB Publishes Draft Rule Governing Gifts and Gratuities by Municipal Advisors
The Municipal Securities Rulemaking Board, or MSRB, is requesting comment on draft amendments to MSRB Rule G-20 (on gifts and gratuities), which would apply the rule to municipal advisors, as well as associated draft amendments to Rule G-8 (on books and records) and Rule G-9 (on preservation of records).
Rule G-20 was adopted by the MSRB to prevent brokers, dealers, and municipal securities dealers from attempting to induce other organizations active in the municipal securities market to engage in business with such dealers by means of personal gifts or gratuities given to employees of the organizations, including but not limited to acts of commercial bribery, and to help to ensure that dealers’ municipal securities activities are undertaken in arm’s length, merit-based transactions in which conflicts of interest are minimized. The MSRB has interpreted Rule G-20 to preclude the payment by dealers of “excessive or lavish” entertainment or travel expenses of issuer personnel,
The Dodd-Frank Wall Street Reform and Consumer Protection Act authorized the MSRB to establish a comprehensive body of regulation for all municipal advisors. Pursuant to the authority granted to it by the Dodd-Frank Act, the MSRB is requesting comment on draft amendments to Rule G-20. Just as the existing rule helps to ensure that dealers’ municipal securities activities are undertaken in arm’s length, merit-based transactions in which conflicts of interest are minimized, the MSRB seeks to reduce the potential for conflicts of interest in municipal advisory activities. The MSRB believes the draft amendments to Rule G-20 would help to ensure that engagements of municipal advisors, as well as engagements of dealers, municipal advisors, and investment advisers for which municipal advisors serve as solicitors, are awarded on the basis of merit and not as a result of gifts made to employees controlling the award of such business.
The draft amendments to Rule G-20 would make the rule applicable to municipal advisors and would:
- prohibit municipal advisors from giving or permitting to be given, directly or indirectly, any thing or service of value, including gratuities, in excess of $100 per year to a person other than an employee or partner of the municipal advisor, if such payments or services are in relation to the municipal advisory activities of the municipal advisor;
- provide certain exemptions from the above prohibition, including: (i) occasional gifts of meals or tickets to theatrical, sporting, and other entertainments hosted by the municipal advisor; (ii) legitimate business functions sponsored by the municipal advisor that are recognized by the Internal Revenue Service as deductible business expenses; or (iii) gifts of reminder advertising, provided that such gifts must not be so frequent or so extensive as to raise a suggestion of unethical conduct; and
- permit contracts of employment or compensation for services rendered by a person other than an employee of the municipal advisor; provided that there is a written agreement between the municipal advisor and the person who is to perform such services, prior to the time of employment or before the services are rendered.
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Contact Steve Quinlivan for more information.