On April 12, the Tennessee Republican Party filed a petition in the US Sixth Circuit Court of Appeals, seeking to invalidate the SEC’s approval of new rules extending the MSRB’s long-standing “pay-to-play” prohibitions to new municipal advisors.

The MSRB has prohibited “pay-to-play” practices in the municipal securities space since its Rule G-37 was promulgated in 1994. The Rule does not prohibit political contributions by bond dealers outright, but instead prohibits them from doing business with issuers to who’s elected officials a dealer has made political contributions during the preceding two years. Despite its infringement upon political speech, Rule G-37 has been upheld by the Courts. See Blount v. SEC, 61 F. 3d 938 (DC Cir. 1995), cert. denied, 517 U.S. 1119 (1996).

In 2014, the MSRB proposed amendments that would extend Rule G-37 to municipal advisors under the new MA regime introduced by Dodd-Frank. As since amended, those changes were “deemed approved” by the SEC’s inaction on MSRB’s latest proposal, effective Feb. 13, 2016. See MSRB Reg. Not. 2016-06; Release No. 34-76763; File No. SR-MSRB-2015-14.The new Rule is scheduled to become effective August 17, 2016.

The Tennessee Republican Party (along with NY) lost a similar challenge to parallel investment-adviser pay-to-play regulations, when the District of Columbia Circuit held it was filed too late and in the wrong court. New York Republican State Committee v. SEC, No. 14-1194 (D.C. Cir. Aug. 25, 2015). I wrote about it here.

The case is Tennessee Republican Party v. SEC, No. 16-3360 (6th Cir. Filed Apr. 12, 2016).