02.01.2012Earlier this month the Commodity Futures Trading Commission (“CFTC”) adopted a pay-to-play rule pursuant to the Dodd-Frank Act, which authorizes the CFTC to promulgate certain business conduct rules and standards. The rule makes it unlawful for a swap dealer (“SD”) to offer to enter or to enter into a swap with a “government Special Entity” for a period of two years after such SD or any of its “covered associates” make a political contribution to a government Special Entity. Government Special Entities include Federal agencies, local and state governments, employee benefit plans under Title I of ERISA, government plans under Section 3 of ERISA, and any endowment (including those organized as a 501(c)(3). A “covered associate” is: • any general partner, managing member or executive officer, or other person with a similar status of function; • any employee who solicits a government Special Entity for the SD and any person who supervises, directly or indirectly, such employee; and • any political action committee controlled by the SD or any person described in (a) and (b) above. Several exceptions exist to the prohibition including: • a de minimus exception of contributions of $350 or less per election by a covered associate to an official the covered associate was entitled to vote for at the time of the contribution; • a de minimus exception for contributions of $150 or less per election by a covered associate to an official the covered associate was not entitled to vote for at the time of the contribution. In 2011 the Securities and Exchange Commission adopted its own pay-to-play restrictions in the form of Rule 206(4)-5 under the Investment Advisers Act of 1940 as we described here. The CFTC’s pay-to-play rule is very similar to the SEC rule, which in turn drew significantly from MSRB G-37. While the wave of pay-to-play restrictions applicable to the financial services industry continues, one thing is for sure, they are consistent.