Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Tuesday, September 4, 2007

SEC Staff Will Propose Interim Rule on Principal Trading by Dual Registrants

SIFMA has posted on its website an outline of proposed principal trading relief that it says the SEC staff has indicated it would recommend that the SEC adopt on an interim basis effective October 1.  The interim rule would provide relief from the written notice requirement under Section 206(3) of the Investment Advisers Act for principal trades executed with customers on a non-discretionary basis.  It would not address the obligations of a firm under Sections 206(1) or 206(2), and it would be available only to firms registered both as investment advisers and as broker-dealers.  It would apply to any principal trade that does not involve a security issued by the dual registrant or a transaction in which the dual registrant acts as an underwriter (with an exception for offerings of investment grade debt securities).  Firms would be required to provide written notice to and obtain written consent from a non-discretionary investment advisory customer before relying on the interim rule.  The interim rule will have a 24-month sunset provision, which is designed to provide the SEC with time to consider the results of a study being conducted by the RAND Corp.

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