Muni regulators to further limit political donations

WASHINGTON (Reuters) - U.S. regulators are set to take another step in limiting the influence that municipal bond brokers and dealers have over the state or local government officials who award underwriting business by proposing on Wednesday greater scrutiny of Political Action Committees.

The Municipal Securities Rulemaking Board filed with the U.S. Securities and Exchange Commission a proposal to require dealers to disclose their memberships in PACs.

The MSRB writes the rules for the brokers and dealers in the municipal bond market that the SEC enforces.

After a "pay-to-play" scandal exposed bribes and contributions underwriters made to officials in exchange for business 20 years ago, the muni market has adopted some of the strongest political contribution limits in the country, becoming a model for stock market regulation.

Donations made by committees controlled by dealers could "result in prohibitions on the dealers from engaging in municipal securities business with such issuers for a period of two years from the date of any triggering contributions," according to the MSRB's notice.

Recent changes in the muni market mean "many dealers have become affiliated with a broad range of other entities in increasingly diverse organizational structures," that "have formed or otherwise maintain relationships with PACs," the notice said.

Some of those affiliations are with banks, bank holding companies, insurance companies and investment management companies. The relationships "raise questions" about who operates the PACs and the committees' purposes, the notice said.

(Reporting by Lisa Lambert; Editing by Eric Walsh)