Political Contributions

Political Contributions
Municipal securities are issued by states, cities, counties, school districts, etc. Therefore, many elected officials are in a position to influence which firms get to underwrite certain offerings. They could either rig the bidding process for a competitive, sealed bid, or they could manipulate the negotiated underwritings in a way that benefits those firms willing to donate to their campaign funds.

Fortunately, the securities regulators are interested in maintaining the integrity of the municipal bond underwriting process. The tax payers supporting all the school bond issues should not have to worry that some politically-connected broker-dealer is gouging them every time another bond is sold.

Therefore, if any firm makes a large political contribution, they are prohibited from doing securities business with the related issuer for a period of two years. So, if your broker-dealer is a municipal bond underwriter in New Orleans, and you make a $10,000 donation to the mayor's reelection campaign, not only must you disclose the contribution, but also you are not to do any municipal securities business with the City of New Orleans for two years.

The same would apply if a political action committee controlled by your firm funneled the money to the mayor's campaign, or if one of your "municipal finance professionals" made the contribution with her own money. For purposes of this rule, a "municipal finance professional" includes principals, registered representatives, and any paid solicitors who help firms land underwriting deals.

Firms must keep records on all contributions by the firm, their municipal finance professionals, and any associated PACs (political action committees). And, they must refrain from doing business with an issuer if large donations are made, or if donations are made to politicians that the firm and its personnel are not even in a position to vote for. To that end, if the municipal finance professional making the contribution is eligible to vote for the mayor, governor, etc. and the contribution does not exceed $250, then provided the firm keeps records of this there is no reason to refrain from doing business with the related issuer. In other words, if one of the principals lives in New Orleans and is eligible to vote for the mayor, he or she could contribute up to $250 and provided the firm disclosed this to regulators in their regular reports on such contributions, the firm could continue to underwrite securities for the City of New Orleans. So, we're not allowing the firm or one of their PACs to make such a contribution; only the individuals working for the firm who are eligible to vote for that official. And, only up to a small amount currently $250.

Quarterly, members who engage in municipal securities activities must file reports disclosing to FINRA the following information:
  •  the name and title (including any city/county/state or political subdivision) of each official of an issuer and political party receiving contributions or payments during such calendar quarter, listed by state.
  • the contribution or payment amount made and the contributor category of each person and entity making such contributions or payments during such calendar quarter.
  • a list of issuers with which the broker, dealer or municipal securities dealer has engaged in municipal securities business during such calendar quarter, listed by state, along with the type of municipal securities business.
  • records on contributions to any "bond ballot campaign" beyond the allowed $250 contribution by eligible municipal finance professionals.


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