After much deliberation, the Municipal Securities Rulemaking Board (MSRB) has filed proposed pay-to-play rules revising Rule G-37 so as to extend its reach to all municipal advisors, including those acting as third-party solicitors. The regulated community has known this revision was coming for several years but now we get a chance to see what the MSRB thought of our public comments this year (Spoiler Alert: Not much – it’s pretty much the same rule proposed back in 2010 when Dodd Frank extended MSRB jurisdiction to permit regulation of municipal advisors).

Government regulators, it would appear, do not share the same affinity for last minute plot twists and “I didn’t see that coming” reversals of fortune as the rest of us. If you are a member of the regulated community – and not a blog author looking for breaking news – that is probably a good thing. Here, predictability has resulted in a much anticipated extension of the existing G-37 pay-to-play rule for dealers (the folks who initiate the principal sales of bonds) to include a prohibition against municipal advisors (the folks who help local governments decide how and when to issue bonds and then how to invest the proceeds) from engaging in their craft for two years if certain political contributions have been made to officials of those entities who can influence the award of business.

Similarly, as is the rule for dealers, the proposed rule also requires municipal advisors to disclose their political contributions to municipal entity officials and bond ballot campaigns for posting on the MSRB’s Electronic Municipal Market Access website (affectionately referred to as the “Go Tell EMMA®” Provision).

Interestingly, however, the proposed rule appears not to extend the $250 “de minimis” contribution exception to municipal advisor firms.

One thing is clear, the good folks at the MSRB have not spent the last two years thinking of new ways to describe their rule to the press. As we reported in August of 2014:

Back in May, MSRB Board Chair Daniel Heimowitz was quoted as saying that these revisions are necessary to prevent the “appearance of corruption” manifest in municipal advisor contribution activity. In what is surely not a coincidence, that language is echoed by MSRB Executive Director Lynnette Kelly in the MSRB’s official press rollout of the proposed changes this week:

“Addressing corruption, or the appearance of corruption, in the awarding of municipal advisory business is a fundamental goal of the MSRB’s comprehensive regulatory framework for municipal advisors,” said MSRB Executive Director Lynnette Kelly. “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.”

This week, MSRB Executive Director Kelly decided to switch things up by issuing a press release sayingFor more than 20 years, the MSRB’s pay-to-play rule for dealers has served as a model for other regulations to address public corruption, or the appearance of corruption. Applying this proven model to municipal advisors will ensure that all regulated municipal finance professionals are held to the same high standards of integrity.”

Candidly, this is a rule that makes sense – especially when one considers that under the existing rule, some municipal advisors are also registered broker-dealers (and thus already subject to Rule G-37) while others are not. The MSRB deals with this “multiple hat” phenomenon by “cross banning” such individuals who make a contribution to an official who can influence either the selection of advisors or dealers from future business on either side of the fence. On the other hand, professionals who make a contribution to an official who has influence over one type of business only burn their firm by subjecting it a ban on that business line and not the other. They should, of course, expect to be banned from the entire firm Christmas party nonetheless.

What is not obvious to all is whether the United States Supreme Court will agree that the MSRB’s articulated “appearance of corruption” justification for the proposed rule will impress our current Supreme Court which expressly announced in McCutcheon v. FEC that the “appearance of corruption” rationale behind limitations on political speech is presents a First Amendment challenge.