U.S. state- and local-government bond underwriters may have to disclose more about donations to election campaigns backing new debt sales, a step to reveal whether securities deals are being steered to contributors.
The Municipal Securities Rulemaking Board, which writes regulations for the $3.7 trillion market, will ask the Securities and Exchange Commission to approve its plan to force banks and securities firms to provide more details about giving to campaigns that persuade voters to authorize new bond deals.
The new regulations are aimed at concerns that state and local government officials are awarding underwriting businesses in return for contributions to ballot campaigns, the board said. That could cost taxpayers if banks recoup the donations through higher fees.
“The award of municipal securities underwriting business tied to dealer contributions to campaigns that secure voter approval for taxpayer-funded public projects can give rise to real or perceived conflicts or related concerns that can adversely affect the integrity of the municipal market,” the board said in a statement.
While underwriters are barred from giving to local government officials who award them work, there is no such ban on donating to campaigns supporting new bond issues, such as those proposed by local school boards.
Banks are required to report contributions to campaigns. However, the board has said the information isn’t detailed enough to draw conclusions about how large a role they play in determining which underwriter is later hired.
The Alexandria, Virginia-based regulator is proposing that underwriters also disclose the date of the contributions, which bonds it underwrote following such donations, and the name of the state or local government associated with bond campaigns.
The new disclosure will help gauge how prevalent the practice is and whether regulators should ban such donations outright.
“The decision to require disclosure of additional information is an important step in determining whether such a ban is merited,” the board said. The disclosures would “build the record needed to show whether or not there is a direct connection between dealer contributions and the award of business.”
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