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


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