Regulators Weigh Ban of Bond Consultants

The Municipal Securities Rulemaking Board, which regulates the $1.9-trillion municipal bond market, is considering banning securities firms from hiring consultants to help them obtain underwriting work.

The five largest underwriting firms, including the biggest, Citigroup Inc., spent $8.6 million on municipal bond consultants in 2002, up more than fivefold from the $1.7 million spent in 1997, regulatory filings show.

J.P. Morgan spent $2.1 million on consultants in 2002, after spending nothing on them five years before, and won the right to manage the $11.9-billion California power bond sale, the biggest muni sale ever. Bear Stearns & Co. paid $809,000 last year to a consultant that helped it win the right to manage Illinois’ record $10-billion pension bond sale last year.

“We believe the use of consultants is challenging the integrity of the marketplace,” said Bill Jester, chairman of the Alexandria, Va.-based Municipal Securities Rulemaking Board, in a conference call from New York with reporters.