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FINRA Proposes New Rules Governing Disclosure of Revenue Sharing and Other Compensation Arrangements Relating to Investment Company Securities

July 21, 2009

By The Investment Management Practice

As part of the ongoing process of developing a consolidated FINRA rulebook, FINRA has issued Regulatory Notice 09-34 requesting comment on new Rule 2341 regarding the disclosure of compensation arrangements relating to the distribution and sale of investment company securities. Proposed Rule 2341 would replace NASD Rule 2830 and, in doing so, would attempt once again to address the controversial area of revenue sharing disclosure. The revisions would:

  • require disclosure of revenue sharing arrangements and other special cash compensation arrangements by the member to the customer at the time the account is opened. This information would have to be updated every six months. Prospectus disclosure of such arrangements would NOT satisfy this requirement;

  • require members to estimate the value of all non-cash compensation received from an offeror;

  • eliminate a condition regarding discounted sales of investment company securities to dealers; and

  • codify past FINRA staff interpretations regarding purchases and sales of exchange traded funds (ETFs).

These changes are discussed further in the full article. The comment period expires August 3, 2009.

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