First National Bank (FNB) Compliance Question

D

The correct answer to the question is (C) The bank can participate, provided it includes the contribution on its next disclosure.

The Municipal Securities Rulemaking Board (MSRB) has rules and regulations that govern the conduct of dealers, banks, and other market participants in the municipal securities market. The MSRB Rule G-37, also known as the "Political Contributions and Prohibitions on Municipal Securities Business," restricts the ability of dealers and banks to engage in municipal securities business after making political contributions to issuer officials who can influence the award of municipal securities business.

Under MSRB Rule G-37, a dealer or bank that makes a political contribution to an issuer official is prohibited from engaging in municipal securities business with that issuer for two years following the contribution. The prohibition applies to all municipal securities business, including underwriting, financial advisory services, and remarketing services.

However, there is an exception to this rule for certain small contributions. The rule permits dealers and banks to make de minimis political contributions of up to $250 per election to an issuer official without triggering the two-year prohibition on municipal securities business. The exception applies if the dealer or bank discloses the contribution in writing to the issuer within the specified time frame.

In this case, FNB purchased a table for $500 at the Governor's reelection fundraising dinner. This purchase is considered a political contribution, and it exceeds the de minimis amount. Therefore, the bank is subject to the two-year prohibition on engaging in municipal securities business with the issuer who received the contribution.

However, the correct answer to the question is (C) The bank can participate, provided it includes the contribution on its next disclosure. This means that the bank can participate in the upcoming state highway bond but must disclose the contribution in writing to the issuer within the specified time frame. By making the required disclosure, FNB can avoid triggering the two-year prohibition on municipal securities business with the issuer.

Answer (A) is incorrect because the MSRB approval is not required for the bank to participate in the upcoming state highway bond.

Answer (B) is incorrect because national banks are not exempt from MSRB rules. They are subject to the same rules as other dealers and banks in the municipal securities market.

Answer (D) is incorrect because the two-year prohibition applies only to contributions that exceed the de minimis amount. The bank can participate in municipal securities business with the issuer if it makes a de minimis political contribution and discloses it in writing to the issuer.