Political Contributions

FINRA enforces the rules enacted by the MSRB for its members that engage in municipal securities business. MSRB Rule G-38 puts strict limits on the amount of political contributions that may be made by a municipal finance professional (MFP). An MFP is an agent who is primarily engaged any of the following:

  • Soliciting municipal underwriting
  • Acts as a financial adviser or consultant
  • Trading or selling municipal securities
  • Provides investment advice or issues research reports relating to municipal securities to the public
  • Direct supervisors of any agent acting in the above capacity
  • Executives who oversee municipal dealers or departments

An MFP may only make a political contribution to a candidate in an election where they are eligible to vote. The maximum amount of their contribution is limited to $250 per candidate per election. If an MFP donates more than $250 or makes a contribution to a candidate in an election they are not able to vote, a violation has occurred and the employing firm will be banned from engaging in municipal securities business with the issuer for two years.

Example:

If an MFP donated $200 to a mayoral candidate in a district where the MFP does not live and, as a result, could not vote in the election, the employing firm could not underwrite that municipality’s debt for two years.

If an MFP contribute more than $250 or contributes to a candidate that they are not entitled to vote for the employing firm must notify the issuer by filing forms G37 and G38 by the last day of the month following the end of each calendar quarter. These forms will tell the issuer:

  • The amount of the contribution and the contributor category
  • The name and title of the political official and their political party
  • A list of the municipal issuers the firm engages in business with

If the contribution is in line with MSRB Rule 37, the employing firm is not required to file forms G37 and G38. If an executive officer gives more than $250, the donation must be reported, but would not ban the firm from engaging in municipal securities business with the issuer. Additionally, if the firm employs consultants to help the firm obtain municipal securities business from issuers, the firm must send forms G37 and G38 to the MSRB at the end of each calendar quarter listing:

  • The name of the consultant, or company
  • The role in which the consultant is acting and the amount of compensation
  • A list of municipal securities business obtained by using the  consultant
  • A copy of all consulting agreement
  • Termination dates for consulting agreements

The dealer also must disclose information relating to the use of consultants to the issuers. The dealer may disclose the information on an issue specific basis or on an issuer specific basis. If the dealer notifies issuers on an issuer basis the dealer must send issuers updated information annually even if there have been no changes.

Final thoughts

You have completed the series 10 exam review available on Investopedia. This is only a portion of what you will need to know to for the test. The series 10 can be a challenging exam for many people. This is especially true for people who do not conduct a lot business in municipal securities .  We recommend that you read your textbook two to three times. In addition you should review your notes carefully and take as many series 10 practice questions as you can. In order to be fully registered as a General Securities Sales Supervisor you must also pass the series 9 exam

 The Securities Institute is a John Wiley & Sons partner company and publishes world class series 10 textbooks and exam prep software. All of us at Investopedia, The Securities Institute & John Wiley & Sons wish you the best of luck on your series 10 exam. Click here For more series 10 exam training materials


Related Articles
  1. Investing

    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.
  2. Investing

    Municipal Bonds Vs. Money Market Funds

    Municipal bonds are a loan from you to a state or local government or authority; money market funds are a type of mutual fund.
  3. Investing

    A Look at the Pros and Cons of Muni Bonds

    Considering muni bonds? Here's a look at their pros and cons.
  4. Financial Advisor

    How to Find the Best Bets in Muni Bonds

    Approach investing in municipal bonds the same as you would investing in stocks.
  5. Investing

    The Basics Of Municipal Bonds

    Investing in municipal bonds may offer a tax-free income stream, but such bonds are not without risks. Check out types of bonds and the risk factors of muni-bond.
  6. Investing

    Foreign Investors Flock to U.S. Municipal Bonds

    Interest in U.S. municipal bonds by foreign investors is on the rise. Here's why.
  7. Investing

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
  8. Investing

    3 Best High-Yielding Municipal Bond ETFs (HYMB, HYD)

    Discover and compare the characteristics of the top three high-yield municipal bond ETFs, including strategies to limit risk and increase yields.
  9. Investing

    ETF Flows: U.S. Investment Grade Muni ETFs Are Winning Assets (MUB, PZA)

    Discover four exchange-traded funds (ETFs) that invest in municipal fixed income securities and witnessed the most capital inflows to date as of March 4, 2016.
  10. Investing

    The Top 5 Municipal Bond Funds for 2016

    Understand how the addition of municipal bond mutual funds can enhance a portfolio, and learn the top-rated municipal bond funds to consider for 2016.
Frequently Asked Questions
  1. What is a trade deficit and what effect will it have on the stock market?

    Learn what is a trade deficit is, also known as net exports, and what effect they have on the stock market.
  2. What are soft dollars?

    The term 'soft dollars' refers to mutual funds making in-kind payments to their service providers; for instance, by passing ...
  3. How often do exchange rates fluctuate?

    Learn how exchange rates fluctuate. Exchange rates float freely against one another, which means they are in constant fluctuation. ...
  4. What is the formula for calculating earnings per share?

    Learn how to calculate earnings per share and why it's an important gauge in determining a stock’s value and a company's ...
Trading Center