Introduction - Political Contributions

Political Contributions

Such contributions should never be used to procure business that should be awarded on the basis of merit only. The intent of these rules is to preserve market integrity. What follow are the rules as they apply to registered investment advisers and municipal securities firms.

  1. Registered Investment Advisors (Rule 206 (4)-5): Under the Investment Advisers Act of 1940, is designed to deter the practice of "pay-to-play." After making a political contribution to certain elected officials or candidates, the adviser may not provide advisory services to a government client for a fee for two years. Advisors are also prohibited from arranging to pay any third party to solicit advisory business on the advisor's behalf, unless that third party satisfies certain criteria that would include the pay-to-play rules. When the advisor is seeking or providing government business, it may not solicit or coordinate contributions to certain elected officials or candidates or payments to political parties. The proscriptions apply when an advisor manages a government entity's assets through a "covered investment pool," a registered investment company that is a fund option in a participant directed government retirement arrangement, such as a Section 457 plan. Should such funds be commingled in an omnibus account, not uncommon, the advisor must register these investment companies in accordance with the rules. Compliance in this area is designed to ensure transparency in the advisor's dealings with government officials and agencies.
  2. Municipal Securities Dealers (Rule G-37): also designed to prevent "pay-to-play" practices, the rule bans the broker, dealer or municipal securities dealer; any municipal finance professional associated with such broker, dealer or municipal securities dealer; or any political action committee controlled by the broker, dealer or municipal securities dealer or by any municipal finance professional, from doing business with issuers for two years after making certain contributions to issuer officials other than small permissible ones. The exception is that municipal finance professionals (MFPs) may make a contribution of $250.00 per election to issuer officials for whom they are permitted to vote. Dealers, MFPs, their political action committees (PACs) and non-MFP executive officers must disclose contributions to state and local political parties. These individuals may not make indirect contributions in an effort to circumvent the rules, nor may they solicit or coordinate contributions when engaging or attempting to engage municipal securities business.


Related Articles
  1. Investing Basics

    What's a Dealer Market?

    In a dealer market, market participants buy and sell through dealers who are designated as market makers.
  2. Mutual Funds & ETFs

    Do Municipal Bond Mutual Funds Offer a Tax Incentive?

    Learn about individual municipal securities and municipal bond funds, whose principal stability and tax-free yield appeal to high-income investors.
  3. Mutual Funds & ETFs

    The Top 5 Municipal Bond ETFs for 2016

    Learn about exchange-traded funds that invest in municipal bonds issued by local U.S. municipalities with returns on bonds exempted from federal tax.
  4. Bonds & Fixed Income

    A Look at the Pros and Cons of Muni Bonds

    Considering muni bonds? Here's a look at their pros and cons.
  5. Professionals

    Advisory Fees On The Series 66 Exam

    Learn what you need to know about investment advisory fees and contracts to pass the Series 66 exam.
  6. Mutual Funds & ETFs

    How to Find the Best Bets in Muni Bonds

    Approach investing in municipal bonds the same as you would investing in stocks.
  7. Mutual Funds & ETFs

    4 Tax-Free Muni Bond ETFs to Consider

    Tax free municipal bond ETFs are an excellent way to build wealth slowly. Here are 4 you should consider.
  8. Options & Futures

    Municipalities Free Up Cash With Chapter 9

    Find out what happens to municipalities when they need money, but have no other option than bankruptcy.
  9. Economics

    The Difference Between Hard Money And Soft Money

    At their most basic level, hard money and soft money are terms that describe coins and paper money. But in the U.S., they also refer to political contributions.
  10. Investing Basics

    Investment Advisor Versus Broker: How They Compare

    What is the difference between an investment advisor and a broker?
RELATED TERMS
  1. Dealer Bank

    A commercial bank authorized to buy and sell government debt ...
  2. Dealer

    A person or firm in the business of buying and selling securities ...
  3. Privilege Dealer

    An individual or a securities firm that is registered as a market ...
  4. Municipal Investment Trust

    A type of unit investment trust (UIT) that invests solely in ...
  5. Dealer Incentive

    A corporate sales strategy in which the price a dealer has to ...
  6. Workable Indication

    A nominal quote in the municipal bond market at which price a ...
RELATED FAQS
  1. What is the difference between municipal bonds and standard money market funds?

    The primary difference between municipal bonds - also known as "munis" - and money market funds is that municipal bonds are ... Read Answer >>
  2. What is the difference between "hard money" and "soft money"?

    Hard money and soft money are terms that are often used to describe coin money and paper money, respectively. However, these ... Read Answer >>
  3. How do the returns on municipal bonds compare to those of other bonds?

    Learn how tax-free municipal bonds may provide better returns than other types of bonds, and understand the risks of municipal ... Read Answer >>
  4. What is a triple tax-free municipal bond?

    At its core, a triple tax-free municipal bond is just like any corporate bond: it is a debt instrument, a loan given to a ... Read Answer >>
  5. How can you use a debt service coverage ratio (DSCR) to evaluate municipal bonds?

    Learn how the debt service coverage ratio (DSCR) can be used by investors to analyze the risk level of revenue bonds offered ... Read Answer >>
  6. What do cities do with the funds generated from municipal bonds?

    Learn more about municipal bonds, including the various types of bonds issued and the purposes of municipal bond funds, such ... Read Answer >>
Hot Definitions
  1. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
Trading Center