Last week the Securities and Exchange Commission issued a Final Rule extending the date by which
investment advisers are required to comply with the ban on the use
of third-party marketers under Rule 206(4)-5 (the Federal Pay-to-Play
Rule"). This ban had been set to go into effect this
Wednesday, June 13.
The ban will now take effect nine months after the SEC issues a
final rule defining the term, "municipal advisor," and
creating a process for municipal advisors to register with the SEC
(under the 1934 Securities and Exchange Act). The rule regarding
municipal advisors is expected to be issued later this year. The proposed rule was issued in December, 2010, and
an interim final rule is set to expire on September 30, 2012.
The Federal Pay-to-Play Rule went into effect last year and,
among other things, restricts the ability of investment advisers,
and their "covered associates," to make political
contributions to candidates and elected officials who have the
ability to influence investment decisions by government entities,
primarily public pension funds. A prohibited contribution triggers
a two-year ban on compensation.
The Federal Pay-to-Play Rule also prohibits an adviser from
paying any third-party to solicit advisory business from a
government entity on its behalf unless the third-party is an
SEC-registered investment adviser or a registered broker or dealer
subject to pay-to-play restrictions adopted by a registered
national securities association, like the Financial Industry
Regulatory Authority. FINRA has yet to implement a pay-to-play rule
that meets these requirements. In
addition, after proposing and then withdrawing pay-to-play rules for municipal
advisors, the Municipal Securities Rulemaking Board has indicated
it plans to resubmit a pay-to-play proposal once the SEC finalizes
the definition of a "municipal advisor."
Thus, the SEC's decision will give FINRA and the MSRB time
to continue their rulemakings
prior to implementation of the ban on third party marketers.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Specific Questions relating to this article should be addressed directly to the author.
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