Muni-Bond Board Pushes Rule Curbing Political Contributions : Securities: Many dealers feel “ensnarled in the requirement to make contributions” to influential politicians.

WASHINGTON — A key rule-making board for the municipal securities industry on Wednesday proposed procedures to make it virtually impossible for underwriting firms and dealers to make political contributions, while requiring greater disclosure of financial information to bond customers.

The proposed contribution rule says dealers and other professionals involved in issuing and selling securities--including underwriters, financial advisers and placement agents--would be barred from making contributions if the money is given “for the purpose of obtaining or retaining municipal securities business,” according to the board.

Numerous elected officials at the state, city and county levels receive political donations from firms hoping to get a share of the lucrative business of issuing and distributing bonds and other securities.

Many people in the industry feel “ensnarled in the requirement to make contributions. . .” and “worry about being ostracized for a failure to make contributions,” Charles W. Fish, chairman of the Municipal Securities Rulemaking Board, told a news conference.

The rule-making board is a self-regulatory system for the $1.2-trillion securities market. Its proposals are subject to final approval or rejection by the Securities and Exchange Commission, which has been actively investigating suspected campaign-contribution abuses.

The separate disclosure requirement is aimed at helping customers pick bonds whose issuers--cities, counties, states or road and airport authorities--provide regular and continuing information about their financial health.

The attempt to discourage political contributions was prompted by growing concern over the ties between politicians and issuers of municipal securities. In many states, underwriters and financial advisers are chosen on the basis of political connections, rather than a bidding process.

Federal officials are investigating a scandal surrounding the sale of $3 billion of New Jersey Turnpike authority bonds in which some of the bonds were distributed through a small brokerage firm partly owned by an official in the administration of Gov. Jim Florio.

The campaign-finance rule puts the burden of proving intent on the contributor and seems likely to draw a challenge that it restricts the free-speech right to give money to candidates.

“If you make a contribution, you better think once, twice, three times before you do it, (because) it will be looked at,” said Christopher A. Taylor, the board’s executive director. The disclosure rule would require dealers to tell bond buyers whether issuing authorities provide continuing information about their financial situations. There is no requirement now for disclosure after the initial sale of the securities.

The board is worried “that investors are not aware that liquidity and pricing of municipal securities are adversely affected without continuing disclosure information,” said Fish, chairman and chief executive of Fish & Lederer Investment Counsel, an asset management firm in Orange.

The rule-making board will formally issue the proposed rules at the end of this month, asking for public comments. Responses will be reviewed in November, and the rule will then be filed with the SEC, which will decide whether to make it binding.